Annual Report and
Accounts 2022
Directors’ Report and Financial Review (including Business Review)
Contents
Overview, Strategic Report and Directors’ Report
Overview
01 2022 Highlights
02 2023 Outlook
03 About LSL and Our Markets
06 Chair’s Statement
08 Group Chief Executive Officer’s Review
Strategic Report
12 Purpose, Strategy, Culture, Values and Business Model
13 Financial and Divisional Reviews:
13 – Financial Review
15 – Financial Services Division
17 – Surveying & Valuation Division
18 – Estate Agency Division
20 – Balance Sheet Review
21 Our Stakeholder Engagement Arrangements – including s172
Companies Act 2006 Statement
25 Principal Risks and Uncertainties
30 Environment, Social and Governance (ESG) Report
44 The Board
46 The Executive Committee
Directors’ Report (including Corporate Governance Reports
and Committee Reports)
48 Statement of Directors’ Responsibilities in Relation to the
Financial Statements
49 Report of the Directors
54 Corporate Governance Report including Nominations
Committee Report
67 Audit & Risk Committee Report
73 Directors’ Remuneration Report including Remuneration
Committee Report
Financial Statements
102 Independent Auditor’s Report to the Members of LSL
Property Services plc
113 Group Income Statement
114 Group Statement of Comprehensive Income
115 Group Balance Sheet
116 Group Statement of Cash Flows
117 Group Statement of Changes in Equity
118 Notes to the Group Financial Statements
163 Parent Company Balance Sheet
164 Parent Company Statement of Cash Flows
165 Parent Company Statement of Changes in Equity
166 Notes to the Parent Company Financial Statements
Other Information
178 Definitions
183 Shareholder Information (including forward looking
statements information)
For further information about our Group, please visit our
website: lslps.co.uk.
Forward looking statements
This Report may contain forward looking statements with
respect to certain plans and current goals and expectations
relating to the future financial condition, business performance
and results of LSL. Further information about forward looking
statements can be found in the Shareholder Information section
on page 183.
Annual Report and Accounts 2022
Other Information
Financial Statements
Strategic Report
Directors’ Report (including Corporate
Governance Reports and Committee Reports)
Overview
01
2022 2021 Var
Group Revenue (£m) 321.7 326.8 (2)%
Group Underlying Operating Profit
1
(£m) 36.9 49.3 (25)%
Group Underlying Operating margin (%) 11% 15% (370)bps
Exceptional gains (£m) 0.7 31.1 (98)%
Exceptional costs (£m) (88.9) (2.0) nm
Group operating (loss)/profit (£m) (56.7) 72.6 (178)%
(Loss)/Profit before tax (£m) (59.1) 69.9 (185)%
Basic Earnings per Share
2
(pence) (62.3) 59.6 (205)%
Adjusted Basic Earnings per Share
2
(pence) 28.4 37.7 (25)%
Net Cash
3
at 31 December (£m) 40.1 48.5 (17)%
Final proposed dividend (pence) 7.4 7.4 –
Full year dividend (pence) 11.4 11.4 –
nm: not meaningful
Notes:
1
Group Underlying Operating Profit is before exceptional items, contingent consideration, amortisation
of intangible assets and share-based payments (as set out in note 5 to the Financial Statements).
2
Refer to note 11 to the Financial Statements for the calculation.
3
Refer to note 35 to the Financial Statements for the calculation.
2022 Highlights
Group Underlying
Operating Profit
£36.9m
(2021: £49.3m)
(25%)
Net Cash
£40.1m
(2021: £48.5m)
(17%)
Group Revenue
£321.7m
(2021: £326.8m)
(2%)
Financial
Services
£13.3m
30%
Surveying &
ValuaƟon
£20.4m
46%
Estate
Agency
£10.5m
24%
Divisional Underlying Operating Profit
Before central costs
In 2022, the Group traded well in challenging market conditions, whilst making substantial progress in the
execution of our strategy to grow and to become a B2B financial services provider
02
2023 Outlook
• We expect market conditions to remain challenging during H1 but to improve in H2 and thereafter, supported by a strong remortgage market,
and further improvements in consumer confidence and transaction levels assisted by recent reductions in mortgage rates.
• Trading in our Financial Services Network and Estate Agency businesses is in line with expectations, with signs of increasing momentum.
• In Surveying & Valuation, valuations in more specialist areas such as equity release and buy-to-let have recovered less quickly after the rise in
interest rates and market disruption which followed the 2022 mini-budget, with these sectors still trending significantly below 2022.
• We will manage costs pro-actively as market conditions evolve.
• Planned investment for the longer term will continue, underpinning confidence for the future.
• LSL remains very well-placed to benefit as market conditions improve.
Other Information
Financial Statements
Strategic Report
Directors’ Report (including Corporate
Governance Reports and Committee Reports)
Overview
03
About LSL and Our Markets
About LSL
Unless stated otherwise, information in this section of the Report is as at 31 December 2022.
We are one of the largest providers of services to mortgage intermediaries and valuation services to the UK’s biggest mortgage lenders. We also
operate a network of owned and franchised estate agency branches.
We have three Divisions:
• Financial Services.
• Surveying & Valuation.
• Estate Agency.
Financial
Services
Surveying &
Valuation
Estate
Agency
One of the UK’s
largest mortgage and
insurance networks
One of the UK’s
largest surveying and
valuation businesses
Some of the UK’s
largest estate
agency brands
Financial Services
One of the UK’s largest mortgage and insurance networks
Together, the PRIMIS Network and The Mortgage Alliance (TMA) made up one of the UK’s largest mortgage and insurance networks. PRIMIS,
with 993 firms and 2,867 financial advisers, is a multi-award winner, winning Best Network, 300+ Appointed Representatives at the 2022
Mortgage Strategy Awards. Furthermore over 700 firms used TMA in 2022.
Pivotal Growth
Following the 2022 year end, we have sold our D2C broker businesses to Pivotal Growth, our buy and build joint venture with Pollen Street
Capital. Since its creation in 2021, Pivotal Growth has acquired eight businesses, comprising of around 330 advisers including the Group First,
RSC, Embrace Financial Services and F2P businesses sold by us to Pivotal Growth in 2023.
Surveying & Valuation
Our Surveying & Valuation Division includes e.surv, one of the UK’s largest surveying and valuation businesses, and Walker Fraser Steele
Chartered Surveyors, which services the Scottish market. e.surv is one of the UK’s biggest employers of Royal Institution of Chartered Surveyors
(RICS) registered surveyors, with 512 (FTE) surveyors, and counts seven of the UK’s ten largest lenders amongst its clients. It was named Best
Surveying Firm at the 2022 Mortgage Finance Gazette Awards and Best Surveyor at the 2022 Equity Release Awards with Mortgage Solutions.
Since 1 April 2023, the Division also includes our asset management business, LSL Corporate Client Department and Templeton LPA, which were
previously included in the Estate Agency Division.
Estate Agency
We own two of the UK’s largest estate agency brands, Your Move and Reeds Rains, as well as a network of smaller brands operating under the
LSLi umbrella in the South East. Together, as at 12 April 2023, we own 182 estate agency branches and we have 127 franchised branches. During
2022, the Division also included Marsh & Parsons, a London estate agency business which was sold in January 2023.
We also have other specialist businesses within our Estate Agency Division:
- LSL Land & New Homes provides a complete range of services for house builders and residential property investors.
- Homefast Property Services provides conveyancing panel management and support services to customers of our Estate Agency branches.
04
About LSL and Our Markets
Our Markets
Demand for our products and services is driven primarily by the UK mortgage market in the Financial Services and Surveying & Valuation
Divisions, and by the UK housing market in the Estate Agency Division. There is some correlation between the UK housing and mortgage
markets, although remortgages, product transfers and insurance are significant parts of the mortgage market and are often not correlated with
the housing market.
Mortgage Market
Both demand for mortgages and advice from financial advisers remained strong in 2022
2
:
• Total gross mortgage lending
1
in 2022 was £314bn, 2% higher than the prior year (2021: £308bn) with a shift towards refinancing, and
purchase mortgages accounted for only 61% of total lending (2021: 69%).
• The proportion of mortgage lending placed through financial advisers
2
increased to 81% in 2022 (2021: 77%).
• Total mortgage approvals for house purchases
3
were down 19% to 755,000 in 2022, with demand softening in H2 due to affordability issues.
• Remortgage (and other)
3
approvals were up 12% on 2021, while remortgage and other lending was 27% ahead as consumers sought security
in an uncertain market.
Housing Market
2022 was a smaller housing market after one of the strongest years on record for the UK residential property market in 2021, which was
materially impacted by the Government scheme waiving stamp duty:
• UK housing transactions
4
in 2022 were 1,260,000, down 15% year-on-year (2021: 1,480,000).
• Transactions
4
were down 28% in H1 2022 and 2% up year-on-year in H2 2022.
• At the end of 2022, average house prices in England and Wales
5
were 8% higher than the same period last year.
Other Information
Financial Statements
Strategic Report
Directors’ Report (including Corporate
Governance Reports and Committee Reports)
Overview
05
Sources:
1
New mortgage lending by purpose of loan, UK (Bank of England) – Table MM23 (3 March 2023).
2
New residential lending sold direct and via intermediaries (excluding product transfers), UK Finance – Table RL8 (16 February 2023).
3
Approvals for lending secured on dwellings, Bank of England – Table A5.4 (1 March 2023).
4
Number of residential property transaction completions with value £40,000 or above, HMRC (21 February 2023).
5
House price index, England and Wales, LSL Acadata (December 2023).
20222021202020192018
755
781
789
801
934
20222021202020192018
314
269
269
246
308
20222021202020192018
701
754
761
588
627
20222021202020192018
1,562
1,456
1,535
1,549
1,389
Total Mortgage Approvals for House Purchase
’000s
Total Gross Mortgage Lending
£bn
Remortgage (and other) Volumes
’000s
Total Mortgage Approvals
’000s
06
Chair's Statement
I’m pleased to present our Annual Report and
Accounts for 2022. In this Report you will find
an in-depth review of the Group’s financial
performance together with details of the
progress we have made taking forward our
strategy. I’m delighted to say we can report
positive developments on both fronts.
Market background
There is no question that this is a challenging
time for the UK economy and in particular for
many of the markets in which we operate.
This is particularly true in the aftermath of
the Government’s October mini-budget and
the attendant uncertainty that followed. One
outcome from the rapid rise in mortgage
and interest rates being that in Q4 2022 we
experienced a short term reduction of up to
50% in activity rates across the Group, with
Surveying & Valuation being impacted in
particular.
Financial highlights
Our performance was very resilient given
these market conditions, with each of our
three Divisions trading well and gaining
market share. This strong trading contributed
to a full year Group Underlying Operating
Profit of £36.9m and helped build an end of
year Net Cash balance of £40.1m, which was
boosted further by the disposal of Marsh
& Parsons in February 2023. This strong
position indicates the cash-generative nature
of our business and will allow us to continue
to invest with confidence in our growth
strategy.
On a statutory basis, Group operating loss
was £56.7m which reflects an exceptional
impairment charge of £87.2m for goodwill
and other intangible assets.
Significant strategic progress made to
simplify the Group and focus on B2B
services
In 2021 we launched our joint venture with
Pollen Street Capital, Pivotal Growth, to buy
and build a leading national mortgage broker
business. Since its inception, Pivotal Growth
has acquired eight businesses, including
in January 2023, our new build broker
businesses, RSC and Group First and in April
2023, Embrace Financial Services and F2P,
our other two D2C broker businesses. These
disposals are in line with our strategy to
simplify the Group and focus on developing
further our leading Financial Services
Network business. We also believe that
Pivotal Growth is better placed to increase
the value of the acquired businesses as they
support Pivotal Growth’s strategy to become
a leading player in the new build and D2C
sectors.
We also disposed of Marsh & Parsons in
January 2023, a leading high end London
estate agent which has since its acquisition
in 2011, operated autonomously from other
parts of our Estate Agency Division.
Dividend
As at the date of this Report we have also
built up significant Net Cash balances and we
have successfully restated and extended our
banking facility, which is now for £60m and
will expire in May 2026. With these in place,
we have considered paying a dividend in line
with the Group’s existing policy to pay out
30% of Group Underlying Operating Profit
after finance and normalised tax charges.
This policy is designed to provide clarity to
shareholders and ensure that the Group
retains a strong balance sheet for all market
conditions.
Despite economic conditions having an
impact on current earnings, due to the
significant progress made in executing our
strategy, the Board believes that LSL is in
good shape to trade profitably and is very
well-placed to benefit as market conditions
improve.
In light of this and in view of the Board’s
confidence about the future prospects of the
Group, the Board is recommending a final
dividend of 7.4 pence. This, if approved, will
deliver a total dividend of 11.4 pence per
share, unchanged from the previous year.
The ex-dividend date is 27 April 2023 with a
record date of 28 April 2023 and a payment
date of 2 June 2023. Shareholders can elect
to reinvest their cash dividend and purchase
additional shares in LSL through a dividend
reinvestment plan. The election date is
11 May 2023.
Governance
The Board remains committed to strong
corporate governance and in particular
making sure we monitor and challenge our
strategy, performance, risks and approach
to managing our colleagues. You can read
more about our corporate governance
arrangements in the Corporate Governance
Report in this Report (page 54).
Subsidiary governance is also an important
part of our strategy to grow our Financial
Services business. To ensure we have the
right governance arrangements to support
growth and to respond to the introduction
of new regulations, we have invested in
the management bench strength of our
Financial Services Management Team and
strengthened our risk and compliance
arrangements with the appointment of an
independent Non Executive Chair to the
PRIMIS Risk and Compliance Committee. John
Lowe has been appointed into this role as he
has significant experience in retail financial
services businesses.
Whilst we committed last year to undertake
an externally facilitated evaluation in 2022,
we agreed to defer this exercise to allow
my successor to join the Board before the
exercise was undertaken. Instead, Gaby
Appleton, Senior Independent Director,
has once again led the evaluation process
which has included an evaluation of my
performance as Chair. Details of the exercise
and recommendations are contained in the
Corporate Governance Report in this Report
(page 54).
Board changes
During the year, Sonya Ghobrial joined as
an independent Non Executive Director and
we have benefitted from her experience,
in particular in relation to ESG and investor
relations matters. We also announced in June
2022 that Helen Buck, Executive Director –
Estate Agency would retire from the Board
in 2023. Helen has been on the Board since
2011 when she joined as an independent
Non Executive Director. She moved into the
role of Executive Director – Estate Agency in
2017 and in both of her roles she has made
a significant contribution to the Board. On
behalf of the Board, I wish to thank Helen for
her contribution, especially her leadership
in resizing our Estate Agency Division, and
during the pandemic.
Following Helen’s decision to retire, we
commenced a search to appoint a new
Managing Director for the Estate Agency
Division. Earlier this month, we announced
the appointment of Paul Hardy into this
role. This is an internal promotion, and while
Other Information
Financial Statements
Strategic Report
Directors’ Report (including Corporate
Governance Reports and Committee Reports)
Overview
07
Paul will not be an Executive Director he
has joined the Executive Committee and is a
PDMR.
With my Board membership reaching nine
years in January 2023, the Nominations
Committee, led by Gaby Appleton, undertook
an exercise to identify a new Chair. I did not
participate in this process, and we announced
on 3 April 2023 the appointment of David
Barral as Chair Designate. David has joined
the Board, the Nominations Committee and
the Remuneration Committee. He will take
over the roles of Chair of the Board and the
Nominations Committee with effect from the
close of the 2023 AGM, which is when I will
retire from these roles. For further details
relating to our succession planning process,
including how we have sought to ensure our
search supports diversity, see the Corporate
Governance Report in this Report (page 54).
Nominations Committee
During 2022, I chaired the Nominations
Committee, which met six times during the
year. Our work included recommending
to the Board the adoption of our Diversity
Policy, which covers the Board, its
Committees and the Senior Management
Team and includes targets which align to
the FCA’s rules. All aspects of diversity are
important to the Board, including gender,
ethnicity, disability, social and cognitive.
ESG
Since launching our Living Responsibly
strategy and programme in 2021, we have
continued to progress our ESG priorities
through this programme and we are also
publishing our second Living Responsibly
Report. This includes the significant work of
our colleague forums: Inclusion and Diversity,
and Communities; and our Environmental
Working Group, which have helped us to
deliver on our social and environmental
priorities. Our ESG and Living Responsibly
Report provide progress updates under each
of our five priorities:
a. promoting inclusion and diversity on our
Board and in our workforce;
b. engaging, supporting and investing in our
colleagues;
c. supporting colleague priorities and
connecting with our local communities;
d. minimising our environmental footprint;
and
e. ensuring excellent governance.
Our priorities align with our purpose,
culture and values which are detailed at
the beginning of the Strategic Report in
this Report (page 12). During 2023 we will
continue to progress our priorities, especially
to improve our data on colleague diversity
to help us understand our colleague make-
up. We are also seeking to understand
the experiences of our colleagues’ career
progression through the Group so that we
can improve diversity at senior levels within
the workforce as a whole. We will also focus
on improving the diversity of our workforce
especially in areas and regions where we are
under-represented when compared with the
regional census data.
Colleagues
We are very much a people business, and
the Board places a high priority on keeping
in touch with our colleagues. In addition to
the colleague forums that play an active role
in our Living Responsibly programme, we
work closely with our Employee Engagement
Forum, for example we consulted the forum
ahead of making a cost of living payment
of £500 to all colleagues earning less than
£30,000.
Our people play a key part in our success and
never more so than during difficult economic
periods. On behalf of all the Board, I’d like
to thank them for all their hard work and
commitment.
Looking ahead
This is my last year as Chair, and although
there are no doubt challenges ahead, I am
clear that LSL is very well-positioned. We
have a clear strategy, against which we have
made substantial progress, and each of our
core businesses are trading well. Our strong
Net Cash position allows us to invest with
confidence throughout the economic cycle
and to take advantage of the significant
growth opportunities we have identified.
Importantly, I have been fortunate to work
with a talented and committed Board and
Management Team and I look forward to
seeing LSL go from strength to strength in the
future.
Bill Shannon
Chair
12 April 2023
08
Group Chief Executive Officer's Review
I am pleased to confirm that LSL remains in
good shape and is well-positioned to grow
once market conditions improve.
Although the mortgage and housing markets
have been adversely impacted by economic
and political uncertainty, the Group has
continued to trade well and backed by a
strong balance sheet, we expect to remain
resilient throughout 2023 in what are
anticipated to be difficult, but steadily
improving, market conditions.
Furthermore, we have made very substantial
progress in executing our Financial Services-
led growth strategy, significantly reducing
our exposure to housing market cycles. With
a strong balance sheet, including Net Cash
balances of £40.1m at the year end and a
business model that remains highly cash-
generative, LSL is well-placed to benefit as
soon as market conditions normalise.
Group Revenue was broadly in line with 2021
at £321.7m. This included record revenue
of £81.7m in Financial Services, and a very
strong H1 2022 performance in Surveying &
Valuation, which was subsequently impacted
by the significant and unexpected market
disruption resulting from economic and
political uncertainty in Q4 2022.
Group Underlying Operating Profit was down
25% compared to 2021 at £36.9m, which is
mostly attributable to reduced volumes in
Surveying & Valuation during Q4 2022 and
the impact of a slowdown in the residential
sales market in Estate Agency. On a statutory
basis, the Group operating loss was £56.7m,
after the Board reduced the carrying value of
goodwill by £87.2m. This is a non-cash item
reflecting the impact of more conservative
mid-term housing assumptions, higher
discount rates and the disposal of non-core
businesses, including Marsh & Parsons.
In 2021, the Group reported a statutory
operating profit of £72.6m, which was
boosted by a £29.4m gain on the disposal of
interests in joint ventures, which was also
part of our strategy to exit from non-core
businesses.
In Financial Services, the Underlying
Operating Profit of our Network business
was £15.5m, ahead of the record result in
2021 (£14.4m). Although member firms
were naturally cautious about adviser
numbers in H2, there was also modest
further year-on-year growth in the number
of advisers, bringing the year end total to
2,86 7. In addition, more than 700 other firms
submitted business through LSL’s mortgage
club, further boosting our market share.
The Financial Services Division as a whole
secured an 11% increase in overall lending,
well ahead of the whole market which had
only modest growth of 1.9%. This resulted in
a substantial market share improvement to
10.4%
1
from 9.6% in 2021.
Underlying Operating Profit for the Financial
Services Division as a whole reduced by
£1.5m, as the Group’s D2C advice businesses
were impacted by lower levels of activity in
the new build market in particular, and the
house purchase market in general. Our D2C
financial services businesses were transferred
during the early part of 2023 to our joint
venture with Pollen Street Capital, Pivotal
Growth, in line with LSL’s strategy to focus
its activities on B2B services. We believe
Pivotal Growth, in which the Group has a 48%
equity share, is better placed to take these
businesses forward for the benefit of our
shareholders.
Surveying & Valuation traded very strongly
through to the end of Q3 2022, capitalising
on recent contract wins and increased
allocations as well as further growth of
73% in D2C and data revenues. Its excellent
performance was interrupted by the market-
wide hiatus in mortgage activity in October
and November, as lenders remained cautious
whilst the political and economic impact of
the events that followed September’s mini-
budget became clearer. This is estimated
to have directly reduced H2 Underlying
Operating Profit in the Surveying & Valuation
Division by at least £5m.
Nevertheless, the Surveying & Valuation
Division still reported Underlying Operating
Profit of £20.4m, down £3.2m on 2021, but
still £4.1m or 25% higher than the pre-
COVID-19 performance of £16.3m reported
in 2019. Despite the market pressure, the
Underlying Operating Profit margin remained
resilient at 22%. Income per job increased
slightly to £175, £2 up on 2021.
Estate Agency revenues were down 5%
on 2021, when performance was boosted
substantially by the extension of the stamp
duty holiday. H2 2022 improved materially
year-on-year on the back of the pipeline built
up in H1. Lettings revenue was resilient and
increased by 4%, on a like-for-like basis, over
the prior year.
Estate Agency retained the residential
sales market share gains made in its core
catchment areas in 2021, and as a result
slightly increased its national market share
2
to 1.30% (2021: 1.28%). Conversion of its
exchange pipeline remained slow throughout
the year, impacting H1 performance in
particular. H2 2022 saw fewer new properties
coming to market and fewer sales agreed
but the strong pipeline built in H1 secured an
operating profit double the size of H2 2021.
Unsurprisingly, given increased economic
and housing market uncertainty, there was
a trend towards more fall-throughs, largely
affecting more recently agreed sales, both of
which will impact performance in Q1 2023.
Lettings revenue was resilient, increasing
by 4%, on a like-for-like basis, over 2021.
The impact of slow exchange speeds,
reduced house purchase activity and a solid
lettings performance combined to produce
Underlying Operating Profit for the Estate
Agency Division of £10.5m, £7.9m below the
performance in 2021 which had benefitted
significantly from the extension of the
stamp duty holiday to 30 June 2021. The
performance during H2 was 4% ahead of
H2 2021.
Strategic priorities and developments
The Group has made substantial progress
with the strategy we set out in 2020 to
reduce our exposure to housing market
cycles, simplify the business and focus
investment on high growth areas, notably our
Financial Services Network business.
In January 2023, we announced the disposal
of our London estate agency business, Marsh
& Parsons, to Dexters for a consideration of
£29m. Marsh & Parsons, which contributed
£1.5m to 2022 Underlying Operating
Profit, has a relatively low volume, high
fee business model when compared to the
rest of the Estate Agency Division, and was
particularly exposed to London housing
market cycles giving rise to a relatively
volatile earnings profile. Other steps to
simplify the Group include the disposal of our
small property management business PRSim
and the consolidation of asset management
operations within Surveying & Valuation.
Other Information
Financial Statements
Strategic Report
Directors’ Report (including Corporate
Governance Reports and Committee Reports)
Overview
09
Throughout 2022 we maintained our level
of investment in Mortgage Gym and DLPS,
the technology businesses acquired in April
2021 to support our Financial Services growth
plans. Work continued to adapt and develop
the technology with a view to deployment
across our Financial Services Network, with
the first stage of this work to be completed
during 2023. This technology investment
helps our Network members become more
efficient as well as generating additional
income for them and the Group. In 2023,
we will complete our work to refocus these
businesses, which will be absorbed into the
Financial Services Network reflecting what is
now their predominant business focus.
Our Financial Services-led growth plans are
centred on the B2B service offered to our
Network members where we believe there
are significant opportunities to grow further
by expanding the number of advisers and the
product range they distribute. The Network
business offers a highly scalable, low cost
platform through which strong margins can
be sustained in different market conditions
and is consistent with our vision of LSL as a
B2B service provider.
We previously concluded that it would
be better to pursue the considerable
opportunities in the D2C mortgage broking
market under a different ownership structure
to that of the Group, so that significant
capital could be deployed and entrepreneurs
incentivised appropriately through
different economic cycles. This led to the
announcement in 2021 of our Pivotal Growth
buy and build joint venture with Pollen Street
Capital.
Pivotal Growth has now acquired eight
businesses, comprising around 330 advisers,
including the Group First and RSC, Embrace
Financial Services and F2P D2C businesses
transferred from LSL. The consideration
for RSC, Group First and Embrace Financial
Services will be based on their financial
performance in 2024. The consideration for
F2P is payable at completion.
I believe this is an exciting move for both
Pivotal and LSL, providing increased scale
for Pivotal and the right environment for
these businesses to grow further. It has also
helped simplify the LSL Group considerably,
substantially reducing our cost base and
exposure to housing market cycles whilst also
reducing management stretch to enable us to
focus on the substantial opportunity to grow
the remaining Financial Services Network,
Surveying & Valuation and Estate Agency
businesses.
In Surveying & Valuation we have continued
to diversify our revenue streams. In May
2022, we launched a consumer-facing
website to support the growth of our
enhanced D2C proposition, where we
achieved a 60% increase in revenue year-
on-year. Providing data services to lenders
has strengthened our relationships and
helped secure contract wins and increased
allocations of valuation instructions, whilst
we have established a strong position in the
equity release valuation segment, a sector we
expect to grow significantly over the medium
term. Equity release instructions accounted
for approximately 16% of revenue in 2022
(2021: 12%).
Strong balance sheet
Our cash generation in the year resulted
in a Net Cash balance of £40.1m. This was
boosted further in January 2023 following
the disposal of Marsh & Parsons for a
consideration of £29m. Our strong balance
sheet and continuing strong cash generation
enables us to invest with confidence
throughout the economic cycle, including
restructuring the Group to deliver our
ambitious growth strategy. In 2023, we
will continue to invest in capability and
technology, support Pivotal Growth in its
acquisition of D2C brokerages, and consider
potential acquisition targets to build our
Financial Services Network business. The
Board will continue to actively review
its capital allocation policy to ensure we
maintain an efficient balance sheet.
To provide further flexibility to our balance
sheet, during February 2023 we agreed an
amended and restated banking facility with
a maturity date of May 2026, arranged on
materially the same terms, replacing the
previous £90m with a £60m revolving credit
facility with major mainstream UK lenders,
available on request at any time.
Dividend
The Board has considered the proposed
dividend in light of the Group’s policy to pay
out 30% of Group Underlying Operating
Profit after finance and normalised tax
charges, such that dividend cover is held at
approximately three times earnings over the
business cycle. This policy was designed to
provide clarity to shareholders and ensure
the Group retained a strong balance sheet for
all market conditions.
Although economic conditions have affected
current earnings, we have made significant
progress in executing our strategic shift to
develop a business that is less exposed to the
housing market cycle.
As part of that shift and the associated
rationalisation of certain businesses such
as the recent sale of Marsh & Parsons, we
have built significant Net Cash balances,
which at 31 December 2022 and prior to
the disposal of Marsh & Parsons, stood at
£40.1m. In light of this exceptionally strong
cash position and the Board’s confidence in
the future prospects of the Group, the Board
recommends a final dividend of 7.4 pence. If
approved, this would give a total dividend of
11.4 pence per share, unchanged from last
year.
The ex-dividend date is 27 April 2023 with a
record date of 28 April 2023 and a payment
date of 2 June 2023. Shareholders can elect
to reinvest their cash dividend and purchase
additional shares in LSL through a dividend
reinvestment plan. The election date is
11 May 2023.
The Board continues to keep its capital
allocation policy and balance sheet structure
under close review to ensure it is fit for
purpose for our evolving business model and
will seek to update shareholders on this as
appropriate.
Living Responsibly
The Board believes that success is measured
by more than just profits and our Living
Responsibly programme is at the centre of
our sustainability strategy. Put simply, our
objective is to have a positive effect on the
communities in which we operate, whether
that is measured by the impact we have
on the environment, the opportunities we
provide to colleagues, the way we serve our
10
Group Chief Executive Officer's Review
customers or the work we undertake in our
communities.
In our ESG and our Living Responsibly
Reports, we set out some of the steps we
have taken to limit our environmental impact,
help ensure LSL is a supportive and inclusive
workplace and provide support to good
causes.
It is vital that our Living Responsibly
programme has real substance and is
reflected in everything we do. We are helped
to achieve this by a number of independent
colleague forums and working groups which
provide additional insight in key areas.
Further information on these, including the
establishment in 2023 of LSL Voices is also
set out in our Living Responsibly Report. I
am grateful to the very many colleagues who
have willingly given their time and energy to
support this work.
I am equally grateful for the hard work and
commitment of all our staff during what has
been a hugely challenging period and which
has helped ensure LSL is well-positioned to
thrive in all market conditions, and would like
to take this opportunity to thank them for
their effort and support.
Looking ahead
We have made significant progress in
reshaping the Group in line with our
strategy and each of our core businesses are
performing well. After a strong start to 2022
which saw us build substantial pipelines in
Estate Agency and Financial Services, market
conditions deteriorated as a result of political
instability and sharply rising interest rates
and although we expect to see a steady
improvement in activity over the course of
the year, it is clear that conditions will remain
challenging throughout 2023.
However, LSL remains well-positioned for
future growth. Independent mortgage
brokers typically perform well in challenging
markets, being agile and close to their client’s
needs, and this will help ensure our Financial
Services Network businesses will remain
resilient. In addition, although some areas
of the valuation market remain depressed
following the market uncertainty which
followed the 2022 mini-budget, our Surveying
& Valuation business remains very well-
placed for medium term growth, helped by
recent contract wins and good progress made
in developing new income streams.
We have made substantial progress in
restructuring and refocusing the Group’s
activities and will continue this work in
2023. Our very strong balance sheet allows
us to continue to invest for the future
with confidence, and I am excited about
the Group’s potential and look forward to
reporting growth in 2024 and beyond.
David Stewart
Group Chief Executive Officer
12 April 2023
Notes:
1
Mortgage lending excluding product transfers – New mortgage lending by purpose of loan, UK (Bank of
England) – Table MM23.
2
Number of residential property transaction completions with value £40,000 or above, HMRC.
11
Strategic Report
Directors’ Report (including Corporate
Governance Reports and Committee Reports)
Other Information
Financial Statements
Strategic Report
Overview
Strategic Report
Overview
In this section:
12 Purpose, Strategy, Culture, Values and Business
Model
13 F inancial and Divisional Reviews:
13 – Financial Review
15 – Financial Services Division
17 – Surveying & Valuation Division
18 – Estate Agency Division
20 – Balance Sheet Review
21 Our Stakeholder Engagement Arrangements –
including s172 Companies Act 2006 Statement
25 Principal Risks and Uncertainties
30 Environment, Social and Governance (ESG) Report
44 The Board
46 The Executive Committee
12
Purpose, Strategy, Culture, Values and
Business Model
The Board has established our purpose,
culture, values and strategy. Our purpose
statement, culture and values are aligned to
our strategy, provide an anchor point for risk
management and articulate what joins our
group of companies together.
Our purpose
To provide first class services to mortgage and
insurance advisers, estate agents, lenders and
their customers, to create long term benefits
for external stakeholders and our people.
Our strategy
Financial Services is at the heart of our
strategy.
During 2023, we will continue to develop
our Surveying & Valuation and Estate
Agency Divisions’ business models, including
leveraging their capabilities to grow the
Financial Services Division.
Our strategic objectives are to:
• Reduce our exposure to housing market
volatility.
• Generate more resilient and reliable
revenues, plus a more flexible cost base.
• Focus on and invest in growth markets.
• Invest in acquisitions and partnerships,
where it supports our strategy, plus digital,
data and technology.
• Leverage cross-Group opportunities.
• Focus on our Living Responsibly strategy
and our ESG programme.
• Retain, develop and attract talented
people.
For details of the steps we have taken to
deliver our strategy during 2022, see the
Group CEO Review and the Business Reviews.
Our culture
We describe our desired culture as:
Having the right people: who accept
accountability for their actions.
Doing the right things: which deliver
customer expectations.
In the right way: being open, challenging of
themselves and supporting others.
Our values
Our values, which underpin our culture, are:
• People focused.
• Market leaders.
• Honesty.
• Delivering on promises.
• Teamwork.
• Innovation.
Our business model (as at the date of this Report)
Through a number
of key resources...
...we provide a range
of first class products
and services...
...to our customers...
Key
Financial Services
Group
Estate Agency
Surveying & Valuation
Talented and
committed
people
Leading
technology
Group
infrastructure
Group
capital
Services
to mortgage
intermediaries
Valuation
and surveys
Estate agency
services
Mortgage and
insurance
intermediaries
Lenders
Retail customers
Retail customers
Shareholders Colleagues Customers Suppliers
...for the benefit of
all our stakeholders...
Franchisees
13
Financial and Divisional Reviews
Other Information
Financial Statements
Directors’ Report (including Corporate
Governance Reports and Committee Reports)
Strategic Report Strategic Report
Overview
Financial Review
Group summary (P&L)
Group Revenue of £321.7m was 2% below
the record revenue last year (2021: £326.8m),
with Financial Services Division revenue up
4%, Surveying & Valuation revenue down 1%
and Estate Agency revenue down 5%.
In the Financial Services Division, Financial
Services Network revenue increased by
9% which was a positive performance in
a broadly flat mortgage market. Financial
Services Other revenue was in line with prior
year as our D2C businesses were impacted
by slower residential activity, offset by
remortgage activity. Surveying & Valuation
revenue was impacted in the aftermath of
the UK mini-budget, illustrated by October
YTD revenue running at 9% ahead of prior
year whilst 1% back for the full year. Estate
Agency revenue was back 5% in a market with
purchase activity 15% lower.
Group Underlying Operating Profit was
£36.9m compared to the record results
posted last year (2021: £49.3m) and in line
with 2019, the most recent comparable
market. The Group Underlying Operating
Profit of £22.7m in H2 was 3% above last
year (2021: £22.0m), despite the adverse
market impact on the Q4 Surveying &
Valuation revenue, as the Group returned to
a more normalised profit profile with 62%
of operating profit delivered in H2, in line
with the pre-COVID-19 levels. During H2 the
residential exchange pipeline converted as
expected however front end activity was
materially lower, impacted by the UK mini-
budget, resulting in the closing pipeline being
below expectations.
Our strategic focus is on the Financial
Services Network where Underlying
Operating Profit increased by 8%. Financial
Services Other posted a loss, impacted by
lower activity in the purchase and new build
markets, and included continued technology
investment. Estate Agency Underlying
Operating Profit was down against prior
year due mainly to the impact of the smaller
purchase transaction market. Unallocated
central costs of £7.3m reduced by 3%.
On a statutory basis, Group operating loss
was £56.7m (2021: profit £72.6m). The
2022 results include a £87.2m non-cash
impairment charge for goodwill and other
intangibles following the annual impairment
review, as detailed later in this Financial
Review, and 2021 results included the
exceptional gain on sale of our holdings in
two joint venture businesses sold during the
year.
Operating expenditure
Total adjusted operating expenses
1
increased
by 2% to £285.7m (2021: £280.2m) with costs
managed carefully, mitigating the impact
of the inflationary cost environment - with
H2 2022 costs 5% below H1. Our emoluments
increased by 2% in 2022, with annual pay
and NI increases, and a cost of living award
for lower-paid staff, mitigated by headcount
reductions in H2 2022 in response to market
conditions. Property and related costs
increased by 12% reflecting energy price
inflation which drove utilities costs up by
£1.6m and prior year business rates relief.
Other material costs, including IT, were
largely protected by previously negotiated
fixed-price long term contracts.
Other operating income
Total other operating income was £1.3m
(2021: £0.9m). Of this, rental income was
£0.7m (2021: £0.9m), reducing year-on-year
following the disposal during 2021 of several
freehold properties previously leased out.
The fair value of units held in The Openwork
Partnership LLP was reassessed to £0.7m
and is recognised in other operating income.
In 2021, there was a gain on sale of £1.1m
generated from the disposal of the freehold
properties.
(Loss)/income from joint ventures and
associates
Losses from joint ventures and associates of
£0.5m (2021: profit £0.7m) primarily relate to
our equity share of Pivotal Growth which is
still in a growth phase. The prior year income
comprised our share of LMS and TM Group
profits prior to the disposal of our shares in
these investments and our share of set up
costs of Pivotal Growth.
Share-based payments
The share-based payment charge of £2.0m
(2021: £1.9m) consists of a charge in the
period of £3.1m, offset by lapses and
adjustments for leavers and options exercised
in the period. The prior year included a lower
charge of £2.6m, offset by lower lapse and
leaver adjustments.
Amortisation of intangible assets
The amortisation charge for 2022 was £4.1m
(2021: £4.5m). The year-on-year decrease was
as a result of some lettings book acquisitions
and intangible software investments
becoming fully amortised during 2021.
Exceptional items
The exceptional gain of £0.7m (2021: £31.1m)
relates to a release in the PI Costs provision,
as we continue to make progress with settling
historic PI claims where actual settlement
costs have been lower than expected. The
prior year exceptional gain included the gains
on disposals of the Group’s joint venture
holdings in LMS and TM Group.
Exceptional costs of £88.9m (2021: £2.0m),
related principally to the outcome of the
annual impairment review, which led to
non-cash goodwill and other intangibles
impairment of £87.2m (2021: £nil) in a
number of subsidiaries
2
: Your Move and
Reeds Rains (£42.0m), Marsh & Parsons
(£27.7m), DLPS (£1.1m), Group First (£10.3m)
and RSC (£6.1m).
The non-cash goodwill impairments result
from the deterioration in the near term
outlook for cash flows due to market
conditions and the significant increase in
discount rates since the previous review,
impacting Your Move and Reeds Rains, and
DLPS, and the strategic decision to sell Marsh
& Parsons, Group First and RSC. The disposals
of Marsh & Parsons, Group First and RSC
were announced in January 2023.
Further exceptional costs of £1.7m
(2021: £nil) were recognised as a result of
12 branch closures, as part of a restructuring
programme in the Estate Agency Division.
Contingent consideration
The credit to the income statement in 2022
of £0.7m (2021: credit £0.7m), relates to the
reduction of the contingent consideration
liability for RSC and DLPS, based on revisions
to profit forecasts.
Net finance costs
Net finance costs amounted to £2.4m
(2021: £2.7m) and related principally to
unwinding the IFRS 16 lease liability of £1.4m
(2021: £1.5m) and commitment and non-
utilisation fees on the revolving credit facility
of £1.0m (2021: £1.0m). Finance income
inc