Agency chain to make branch closures after posting losses

Wednesday 1st August 2012

LSL Property Services has dropped two bombshells. First, it announced a pre-tax loss of £7.9m in the first half of this year after having to set aside £17.3m to cover claims against its valuations business. Last year, for the same period, LSL turned in a profit of £6.5m.

Separately, it is to shut some of its estate agency branches because of poor house sales. The number of branches to be affected has not been specified, but just closing them will cost the firm £1m.

Shares in the group, which includes Your Move, Reeds Rains and Marsh & Parsons estate agents, and which is in the process of buying Thames Valley-based Davis Tate, plunged 12% yesterday.

In March, LSL’s full-year results for 2011 showed that it had decreased the contingency amount from £10.9m to £9.6m – whilst at the same time, Countrywide had lowered its provision from £11.9m to £9.3m.

At that time, Richard Sexton, of LSL’s valuations arm e-surv, said that the number of claims had fallen.

But now, in its interim results for the first six months of this year, LSL says that it needs to set more money aside because lenders are making more claims.

Lenders typically make claims on repossessions if they believe the original valuation was wrong, and where they have sold the property at a loss. Many of the claims are from lenders which LSL says are no longer active in the market. Others are from lenders using aggressive ‘no win, no fee’ legal firms.

LSL non-executive chairman Roger Matthews said: “During the period we have substantially increased our PI provision following a recent deterioration in our claims experience for the high-risk period of 2004 to 2008.

“This is a disappointing development and reflects a deterioration in claims experience resulting from certain lenders using solicitors on a ‘no win no fee’ basis and pursuing claims we previously considered dormant.

“In addition, new claims are continuing at a high level, and as a result our estimation of future claims likely to arise relating to this period has also increased significantly.”

Elsewhere in its report, LSL comments that the period 2004-2008 was one of high house prices, high Loan To Value mortgages, higher risk lending and ‘considerable levels of buy-to-let and sub-prime lending’.

LSL expects the provision to affect the business over the next three years, although it says this will be largely offset by the sale of freehold properties acquired as part of Halifax Estate Agents which is expected to raise around £9m after tax over the next two years.

The loss in the first half of this year came despite a 17% growth in overall group revenue and a strong financial performance and ‘impressive growth’ on the estate agency side, underpinned by London business Marsh & Parsons.

Group revenue as a whole increased from £103.4m in the first six months of last year to £120.8m in the first six months of this year.

Estate agency turnover boomed, but this was on the back of lettings revenue, which now accounts for 61% of residential sales income.

Turnover in the estate agency division increased by 33% to £86.4m, generating £6.5m profits, up from £0.6m on the same period last year. Marsh & Parsons contributed an operating profit of £2.9m on a turnover of  £12.8m.

Despite the performance, the group is to close an unspecified number of estate agency branches.

The report says: “The residential sales market has now been operating at half of normal historic levels of volume for over four years and our view is that this is not likely to improve significantly in the medium term. Therefore we have conducted a review of our estate agency branches and decided to close a number of Your Move and Reeds Rains branches.

“These are predominantly northern branches which we have been unable to improve to viable levels of trading in the current market. The financial impact of these closures in 2012 is expected to be a £1m improvement in operating profit in the second half of 2012 and one-off exceptional costs of closure of £1m.”

The group arranged mortgage lending of £3.6bn in the first half of the year, up from £3.2bn in the same period a year earlier. This was despite a 2% drop in overall mortgage approvals.

LSL said that it remains cautious about the housing market, and that considerably tighter lending criteria, recently enforced by banks, have hit the level of sales.

The group plans to grow its lettings business.