Following completion of these agreements, LSL will become one of the largest providers of estate agency franchise services in the UK, supplying services to a network of just over 300 branches.
The enlarged network of just over 300 franchise branches will be operated by 62 franchisees under the Your Move, Reeds Rains and LSL group brands under long-term royalty agreements. Following the sale of Marsh & Parsons in January of this year, LSL will no longer own and manage estate agent branches.
As part of this change, around 1,200 estate agency division colleagues, mainly branch-based personnel, will transfer to the franchisees.
LSL’s share price hit a six-month high of 302p during trading yesterday after the announcement and closed at 298p.
The price was up 7% on a daily basis, has risen 17.29% so far this year but is still down 25% annually.
The brand said operating a franchise network offers significant advantages including a higher-margin business with a “significantly smaller fixed cost base”, the continued distribution of related products and services, including long-term provision of financial services and the potential to grow network footprint without significant additional investment.
Prior to this restructure of its estate agency business, LSL operated a network of 120 franchise branches.
This network will now be supplemented by the addition of the previously owned network of 183 branches, making LSL one of the largest providers of estate agency franchise services in the UK, with franchisee agreements negotiated with existing LSL franchisees and experienced former members of the LSL Estate Agency Division management team.
LSL has also appointed Paul Hardy as managing director of its Estate Agency Franchise Business.
He previously held roles as financial services division commercial director and estate agency division finance director.
Significant cost reductions will be achieved immediately with further savings over time, LSL said.
The net impact on 2023 underlying profit is expected to be neutral and LSL said it expects the change will be “accretive to group profits” through housing market cycles from the beginning of 2024 onwards.
It estimates that this transaction, combined with the recent sale of Marsh & Parsons, eliminates more than £110m of a cost base of around £125m supporting the estate agency division with the largest reduction taking place immediately. This is in addition to cost reductions of around £30m in the Financial Services Division following the recent disposal of its brokerages to Pivotal Growth.
Whilst there will be meaningful investment in new systems and technology to support the development of a growing franchise business, overall capital expenditure will be lower than previously, without the need to maintain an IT infrastructure to operate a large branch network and with ongoing branch refurbishment to be carried out by the franchisees, LSL said.
It expects exceptional cash costs of around £6m in 2023 and a further £7m in future periods, together with exceptional non-cash balance sheet items of around £6m. The exceptional expense primarily relates to leasehold dilapidation provisions, redundancy costs, non-cash fixed asset write-offs and legal costs.
David Stewart, group chief executive of LSL, said: "This announcement is a significant milestone in the execution of our strategy and is the culmination of a substantial effort on the part of colleagues across the business.
“The estate agency franchise model is similar to our financial services network and it will make us a much simpler, more resilient business whilst opening up new opportunities to grow our estate agency Division. I am delighted we have been able to complete this major project and excited about the growth opportunities ahead."
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A great move for investors as it de-risks the business. Yes, it reduces the costs base massively - but it reduces income by the same percentage. Franchising is a world away from retail, corporate, homogenous agency. You cant force franchisees in to hitting targets. You can't sack them! It will be a whole new world for franchisor and franchisees alike.
Great for investors s cr ap for franchisees
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