LSL Property Services PLC has issued a trading update for the six months ended 30 June 2023.

The following are extracts from the update:

During the period, we made significant strategic progress to simplify the Group and focus on business-to-business services, with the franchising of our Estate Agency network and the disposals of Marsh & Parsons and our direct-to-consumer financial services businesses.

As expected, the Group’s results over H1 were impacted by significant changes in the mortgage market, particularly our Surveying Division, as well as Financial Services. We had expected some of these changes to moderate during H2, with improved consumer sentiment and more stable lending conditions.

However, the larger than expected increase in the Bank of England base rate announced in June has had a material impact on the mortgage market, reducing the level of Purchase and Remortgage activity and increasing further the proportion of Product Transfer business (where customers stay with their existing lender on completion of their mortgage scheme).

Whilst Group Underlying Operating Profit was broadly in line with our expectations in the first half, the recent change in mortgage market conditions will significantly impact second half Group profits which are now expected to be lower than our previous expectations.

Divisional trading performance: Financial Services

Our strategy has placed the Financial Services Network business at its core, and in the first half of 2023 the independent mortgage broker business model continued to demonstrate resilience and agility. Against the same six-month period in 2022, LSL Purchase lending reduced by 27%, slightly less than the overall market reduction of 30%. Remortgage lending decreased by 15% compared to the market which fell by 21%. Product Transfer business increased by 48%, compared to the market which we estimate was up c.15%. Total LSL mortgage lending advice declined just 4% reflecting strong performance against the market, although higher Product Transfers impacted margin, due to the lower Lender procuration fees.

Performance of LSL’s independent mortgage broker firms was particularly strong, increasing share of the Purchase and Remortgage market1 from 6.2% to 6.6%.

Divisional trading performance: Surveying

The impact of the challenging market conditions was most pronounced in Surveying.

Although instruction volume had been building steadily in the first half, more recently trading has been significantly impacted by the larger than expected interest rate increase. In recent weeks, our lender instructions fell by c.40% to levels substantially below historic norms and are currently around half those in the same period in 2022.

Divisional trading performance: Estate Agency

In June, we executed contracts for the remaining few owned estate agency branches, completing the franchising of our entire Estate Agency branch network. The ongoing transition is proceeding well, with cost savings ahead of plan.

Group financial performance in H1 2023

Given restructuring activity to date, reported revenue and costs are not comparable between 2022 and 2023. Adjusting for the impact of franchising and disposals, total Revenue was c.20% lower on a comparable basis, which compares with a 27% reduction in the overall Purchase and Remortgage lending market, and an 18% fall in housing transactions. Reported total Revenue was c.£104m (H1 2022: £160.9m).

Total operating expenditure was c.31% lower than H1 2022. Costs in May and June were down over 50% on the same period last year, reflecting significantly lower costs due to the disposals and franchising of Estate Agency, as well as other cost measures across the business.

The Group delivered Underlying Operating Profit of c.£3.5m, broadly in line with our expectations (H1 2022: £14.2m).

David Stewart, Group CEO, commented:

“LSL made a lot of progress over the past 6 months, delivering important strategic projects. Market conditions have been challenging, and more recently have become more difficult, impacting this year’s financial performance.

“The more challenging market conditions in the short-term will not prevent us from continuing to take the required steps to deliver on the identified opportunities for future growth. Our strong balance sheet allows us to take a long-term view and we will continue to invest to deliver our Financial Services Network growth strategy and retain the capacity required to enable our Surveying business to meet the future demands of our clients.

“Our Financial Services Network and Surveying businesses have established leading market positions and have performed strongly in recent years and will perform more strongly when the market recovers. Notwithstanding the near-term challenges the Board remains confident about the Group’s medium-term prospects.”