Hello, and welcome to LSL's Half Year Results Presentation. Thank you for joining us. I'm Adam Castleton, Group Chief Executive. I'm joined by David Tilak, our Group CFO. I'll start by taking you through the key highlights from the first half. David will then take you through the financial performance in more detail before I come back to talk about the opportunities ahead. Let's start with the highlights. I think there are three things to take from our first half results. Firstly, we delivered further profit and margin growth. Importantly, this was achieved in markets which developed broadly as we expected. They were not particularly strong, but nor have we seen the deterioration that some of the wider market commentary might suggest. Against that backdrop, the group has continued to perform well. Secondly, we launched our groupwide transformation program, focused initially on finance and procurement.
We expect this to deliver at least GBP 5 million of annualized benefits, with the benefits building through 2027. Transformation will continue to be an important part of how we strengthen LSL. Looking ahead, technology is likely to become an increasingly important focus as we consider how we can use it more effectively to simplify processes, improve how we work, and support our businesses. We make these changes from a position of strength. It is more than cost reduction. It is about creating a simpler, more effective LSL, making better use of our scale and capabilities, and providing a stronger platform for future growth. Thirdly, we remain on track for the full year. Trading since the period end has developed as anticipated, and our expectations for 2026 remain unchanged.
Overall, a good first half, further financial progress, a significant transformation program now underway, and confidence in our expectations for the year. What I think is important on this slide is not any of these numbers, it's the combination. Profits are growing, margins are expanding, cash conversion remains high, and our Return on Capital Employed has increased again to 36%, around twice the historic level for LSL. That reflects the very different shape of the group today. We are capital light, we have structurally stronger margins, and the business generates significant cash. Importantly, our revenue mix is much more resilient than many people might assume. The majority of group income is not directly dependent on residential property transactions, given our significant income streams from lettings, remortgaging, platform fees, and other recurring or repeatable revenue streams.
Our resilient model means we can continue to invest selectively where we see attractive returns, while at the same time returning capital to shareholders. In the first half, we returned more than GBP 12 million through dividends and share buybacks while maintaining a strong balance sheet. We still see further opportunity. Our group margin is now 17% compared with 16% in the first half last year. Our transformation program supports our ambition to move that above 20%. For me, this is increasingly a high return, cash generative, and resilient business with further opportunity to improve its economics. That is a very attractive combination. Turning briefly to our markets. Overall, they developed broadly as we expected during the first half. The residential sales market was slightly smaller year-on-year as expected, largely because of the Stamp Duty Land Tax related pull forward in the comparative period.
Purchase transactions remaining around long term averages with some softness in London where our exposure is relatively limited. The mortgage market continued to recover and remortgaging was particularly strong as significant volumes of fixed rate products reached maturity. That is important for LSL because remortgaging supports activity across both financial services and surveying. Lettings also remain resilient. We have successfully supported the implementation of the Renters’ Rights Bill changes across our network. Contrary to some of the more negative commentary, we've not seen evidence of significant landlord withdrawal. Overall, fairly ordinary markets, broadly as we expected, and a backdrop against which we have continued to perform. Alongside the financial performance, we've remained very active commercially across the group. In surveying, we've renewed important lender contracts, acquired further allocation wins, and continue to develop our AVM proposition.
In estate agency franchising, we've expanded the network, acquired letting books, added recurring income, and invested further in areas such as conveyancing. We've also completed selective bolt-on acquisitions, also in financial services where they improve our capability or strengthen our market position. Pivotal Growth has continued to grow profitably, building scale through further acquisitions and is self-financing. The common theme is discipline. We are investing where we can strengthen our businesses, deepen our relationships, and generate attractive returns. Even in fairly ordinary markets, there has been a lot of meaningful commercial progress across LSL. We've also been changing how LSL operates. The transformation program is the most visible example. It is about simplifying the way we work, making better use of group capabilities, and reducing unnecessary duplication. There is a broader change taking place as well. We are working more collaboratively across businesses which historically operated independently.
We've strengthened management and expertise. We are improving communication across the group and continuing to develop a more accountable and connected culture. We've also worked hard to improve how LSL is understood externally. The business has changed significantly over recent years, but market understanding had not always kept pace. We've increased engagement with both existing and prospective investors, and we are seeing much greater interest in the group and in the opportunity ahead. There's a lot happening beneath the headline financial performance, commercially, organizationally, and in how we operate as One LSL group. I'll now hand over to David. David joined us at the beginning of the year and has settled into the business extremely quickly. His experience in transformation is already proving valuable with measurable benefits. He'll now take you through the financial performance in more detail, including the economics of the transformation program. David.
Thank you, Adam. I will now take you through the group's financial performance and the results from each of our divisions. I will then cover the transformation program, cash generation, capital allocation, and our outlook for the full year. Let me begin with the group's headline financial results. The group delivered well in the first half. Revenue increased by 3% to GBP 92.3 million. Our underlying operating profit increased by 11% to GBP 15.9 million. Profit grew materially ahead of revenue, lifting our underlying operating margin by 130 basis points to just over 17%. This is our highest first-half margin for more than 15 years. The group also remains highly cash generative, with operating cash conversion of 91% over the last 12 months. Return on Capital Employed increased from 31% to a record 36%, demonstrating the attractive returns generated by our capital-light business model.
Adjusted diluted earnings per share increased by 14% to GBP 0.117, benefiting from higher profit after tax and our share buybacks. Taken together, these results show that stronger margins and disciplined capital allocation are translating into improved shareholder returns. I will now explain the principal movements in our underlying operating profit. We started with underlying operating profit of GBP 14.4 million in the first half of 2025 and delivered GBP 15.9 million this year. That represents an increase of GBP 1.5 million or 11%. Changes in our underlying markets contributed GBP 0.7 million with stronger remortgaging and product transfers more than offsetting lower housing transactions. Improved performance across our businesses contributed a further GBP 1.7 million over and above the market impact. I will explain these drivers as I take you through the divisions. Salary inflation and higher national insurance combined were GBP 2 million of costs.
We also invested a further GBP 0.9 million, principally in the financial services technology platform. Cost management actions contributed GBP 1.9 million, including a further half a million reduction in our central costs. The key point is that our operating actions absorb both wage inflation and investment, allowing us to deliver double-digit profit growth and significant margin expansion. I will now turn to the divisional performance, starting with surveying and valuation. Surveying and valuation comprises three closely aligned businesses. These are our core B2B Valuations Operations , our B2C Survey Business , and Asset Management , which provides property recovery and specialist receivership services to lenders. The division delivered another strong performance. Revenue increased by 6%, underlying operating profit increased by 11%, and margins improved to approximately 23%. Within B2B valuations, we successfully renewed every contract during the period and secured additional allocations from two major lenders.
The B2C Survey Business also continued to grow, with strong customer satisfaction reflected in its 4.8 Trustpilot score. Asset Management was a standout performer, with revenue increasing by approximately 44% to GBP 3.7 million and an operating margin of more than 50%. Although it remains relatively small within the division today, it is already highly profitable and has clear potential for further growth. Alongside our proprietary data and automated valuation model capabilities, it also gives the division several routes to further profitable growth. I will now turn to financial services. Mortgage lending performed well in the first half, with revenues increasing by 8%, keeping pace with the market and maintaining or increasing our share across our principal mortgage channels. Advisor productivity also improved, and overall revenue per advisor increased by 12%.
Although product mix reduced the average fee per completion, revenue reduced by 3% and underlying operating profit reduced by GBP 0.9 million, principally reflecting the investment in the new CRM and lower advisor numbers, including the departure of protection-only firms last year. There are clear areas for improvement, including increasing protection penetration and driving advisor productivity. With around 12% of all U.K. mortgages flowing through our advisor network, we have genuine scale and reach. At its core, this is a very good business, and our priority is to translate that position into stronger growth and returns. Turning now to estate agency franchising. This division delivered an excellent set of results. U.K. housing transactions were 4% lower in the period versus the prior year, which had benefited from Stamp Duty Land Tax changes in April 2025. Against that stronger comparator, divisional revenue increased by 2% to GBP 13.2 million.
Underlying operating profit increased by 24%, with the margin expanding approximately 6 percentage points to a record first-half level of 30%. This demonstrates significant resilience and operating leverage. The managed lettings portfolio increased by 4%, while average income per managed property increased by 3%, strengthening the division's recurring revenue base. We are also investing selectively for future growth. Six new branches and seven supported letting book acquisitions expanded the network. While the purchase of the National Search Services and investment in collaborative conveyancing strengthen the conveyancing proposition. Having covered the three divisions, I will now turn to the group transformation program. When I look across LSL, I see a great deal of capability, but also a clear opportunity to bring the group closer together to make it work more effectively. Transformation is a key underpin of delivering One LSL, a simpler, more connected, and more profitable organization.
My immediate priority is our support functions, which have historically operated independently within each of the businesses. We are redesigning the underlying processes, removing duplication, and creating better, broader roles for our colleagues. I am confident in our ability to deliver this. We have put together an experienced team that combines a deep understanding of LSL with specialist transformation expertise, and we remain on track to deliver GBP 5 million of annualized savings progressively through 2027. Over the medium to long term, I believe there is a wider opportunity to use technology across our front office operations to improve productivity and bring us closer to our customers. We will pursue that opportunity with discipline and invest where we are confident that returns will be compelling. I will now turn to the group's cash generation. The group remains highly cash generative, with operating cash conversion of 91% over the last 12 months.
We begin the period with net cash of GBP 27.8 million, and cash from operations contributed just over GBP 17 million. We invested GBP 9 million in acquisitions and capital expenditure. Working capital and depreciation movements represented a further GBP 6.4 million of outflow. The next line on the bridge combines the GBP 10 million repayment of loan notes with GBP 1.9 million of exceptional expenditure and GBP 3.4 million of taxes paid. Together, these items produce a net cash inflow of GBP 4.7 million, taking our cash before shareholder distributions to GBP 34.2 million. We then returned just over GBP 12 million to our shareholders. After these investments and distributions, we ended the period with a net cash of GBP 22 million. That cash generation and balance sheet strength support the capital allocation framework I will cover next. Our capital allocation framework remains unchanged.
Our first priority is organic investment that can improve the performance and long-term value of our existing businesses. This includes investment in technology, capabilities, and the transformation program. Our second priority is selective or inorganic investment through acquisitions and related opportunities that expand our existing businesses or add capabilities. Alongside investment for growth, we maintain an attractive and sustainable dividend. Our dividend policy is based on 30% of underlying operating profit. We have maintained the interim dividend at 4 pence per share. We also continue to return capital through share buybacks. We completed the previous GBP 7 million program in January and immediately commenced a new program of up to GBP 12 million, which remains on track to be completed by January 2027. The balance between investing in the future of the group and returning capital to shareholders will reflect the opportunities available rather than a fixed allocation formula.
We will continue to assess each use of capital against its expected return while preserving the balance sheet strength that gives us the capacity to act when an attractive opportunity arises. I will finish with our outlook for the year. Our businesses continue to perform in line with expectations. For 2026, we expect increased revenue and another year of profit growth. This would represent the group's fourth consecutive year of profit growth. We continue to expect operating cash conversion between 75% and 100%, together with capital expenditure between GBP 3 million and GBP 5 million. The group has strong market positions, high cash generation, and a clear route to further margin improvement. These characteristics underpin our confidence in the outlook and our ability to generate attractive long-term returns. With that, I hand you back to Adam, for the strategic and operational update.
Thank you, David. What you've heard is a business that continues to deliver financially with strong cash generation and high returns, and where we've now launched a transformation program that will improve the economics and capabilities of the group. I want to finish on why I remain excited about the opportunity ahead. LSL has a very distinct position across the U.K. residential property and mortgage ecosystem. We work with lenders, mortgage brokers, estate agencies, landlords, buyers, sellers, and homeowners. We have strong relationships and capabilities across each of those areas. Historically, those businesses have been run independently. One LSL is about connecting them much more effectively, making better use of our relationships, our expertise, our data, and technology across the group. We've already started that journey. The transformation program is part of it, but it is broader than that.
It is about getting more value from the strengths we already have. To finish, we've delivered another good first half, we remain on track for the year, and we are continuing to improve the quality and economics of the group. We have strong businesses, a highly cash generative model, and a growing opportunity to create more value by bringing those strengths together. My conviction in the opportunity for LSL remains very high. Thank you.
We have just played out the prerecorded results presentation, and we'll shortly be moving to a live Q&A session. Just as a reminder, if you would like to ask a question, please type them into the Q&A box situated on the right-hand side of your screen. I'll now hand over to Adam to say a few words before starting the Q&A.
Good afternoon, everybody. Thank you very much for coming to this call. For those of you who had not already seen the video, I hope you found that informative. I am looking forward to answering your questions. The first thing I want to say, it is very important, this meeting, for us. In the last year, I have put an increasing amount of effort into getting the story of LSL across more widely into the market and more understood. I am already seeing the benefit of that, and the retail video conference we have now is a very, very important part of our IR strategy. Thank you, and looking forward to now moving to your Q&A.
Thank you, Adam. Let us start with a question on our marketplaces. What is your view of the market so far?
Well, the market, obviously a lot of press, and press in the U.K. can be quite doom and gloom. The reality is the markets have been pretty resilient. If we look back to our budget that we set for ourselves internally, what we expect the market to be, and we set that last October, the market has pretty much been what we expected, notwithstanding all of the bumps along the way, whether it be unfortunately war declared, change of prime ministers, interest rates heading in the opposite direction to what people expected. But the markets have actually been pretty resilient through the year, and we expect the markets to finish flattish for the year, little bit down in residential exchange, little bit up in lending. But pretty much what we expected, so resilient. The important thing about that is that we are not relying on market help.
We wish there would be some. It would be nice to have some help behind us, but actually it has not been particularly supportive. We are moving on with resilient markets, and we probably expect the same next year as well. Not particularly helpful, but extremely resilient at the same time.
Thank you. Can you provide more detail on the transformation plan you've just announced in the interims? Could it materially change LSL's earnings over the next few years, and what do you think it could do to margins?
Yeah. I think the first and most important thing is we've announced a transformation program. One of the questions I think that we've picked up is someone saying, "Another transformation program?" I think this is an interesting one because we've, off the back of a very strong base and from a position of strength, we've decided to change the way that we operate as a group. That's important. We're not doing this from a position of weakness. We're not doing this from a position of crisis. We've set out to change the way we operate by bringing together the strengths of this group, by leveraging the strengths of this group, and by operating in a much more efficient way. Number one, that will allow us to reduce costs, and we've just announced GBP 5 million.
But secondly, it will mean that going forwards the group will be much more effective to deliver both what we do today, but also new propositions in the future. I'll pass over to David, perhaps he'll give a little bit of further detail for you on the transformation program that we've announced and some of the things that we may be looking at next.
Yeah. Thank you, Adam. Look, I mean, answering the question, we have three very strong divisions, each with market leadership positions, each highly cash generative, strong margins today. But they have been operated as three individual businesses throughout their time with us. We're now looking at how do we bring them together, not just for cost efficiency, but for the effectiveness across LSL as a group. Yes, there is a cost out element to it, but there's also incremental opportunities that we see bringing them closer together. That's one. We said at the prelims that our first milestone would be to push through 20%, and we're tracking very well against that. Over the last six months we've built the transformation team. We've had great engagement across LSL.
The talent within LSL are part of that transformation program, and look forward to giving you more details as we execute through the first GBP 5 million.
Thank you. Another question here. Do you think lettings could become a significantly bigger part of the group over time?
Excuse me. I think we will see lettings steadily increasing. It is a very stable market. We have not seen the large outflows, certainly within our book of landlords coming out of the market, so it is very stable. We expect to steadily grow our lettings presence with what we call assisted lettings purchases, where we help franchisees to purchase lettings books which then become part of their business and then become part of our royalty stream. I think you will expect to see us continue that program, which will steadily show that we are increasing the number of properties under management for this company.
Great, thank you. Next question. Mortgage revenue per advisor increased by 12%. What is driving that, and how much further can advisor productivity improve?
Mortgage productivity increased. We maintained our position in the mortgage markets extremely well. We maintained our market share. We grew in line or just above the market. I think that will be a good performance compared to anybody out there. The productivity increased mainly because some of the less productive advisors in a slightly slower market would have exited. So we keep our more productive advisors within the network. I think that's a very nice thing to have. But I think over time, we should be increasing the productivity by increasing the number of products per advisor and getting better penetration, for example, of protection.
Thank you. Next question perhaps for David. With GBP 22 million of net cash and strong cash generation, what's the best use of cash surplus from here, and can you describe your capital allocation policy?
Certainly. So, first of all, LSL is highly cash generative, and that's not by accident, that's by design. We are structurally capital light, and you see that in the 36% Return on Capital Employed at the first half. We have a capital allocation policy. It's a four-step policy, and they are prioritized. So the first is we will always invest in organic capital allocation. That's our number one, and that means scaling our existing operations, making them more profitable. So that could be small bolt-ons, that could be investing in transformation, for example. Then secondly, we have inorganic and we have strict hurdle rates. We have a history of delivering very well against those small M&A acquisitions. We'll continue to scout for good opportunities, but they will be manageable. Then we get into the second half of capital allocation, which is the returns to shareholders.
We have a dividend policy, which is 30% of operating profit after tax and finance charges. We've been paying at slightly higher rates. Even at the interims, we're still above our 30% threshold, and we'll continue that. It's maintainable. It's a sustainable level of dividend. Then finally, we look to give back surplus cash via, at this moment, share buybacks, and we increased that from GBP 7 million to GBP 12 million this year. We'll continue to look at the right balance. You would have seen in the first half, it was fairly balanced between investing in the company, one and two, and give back being three and four. That's not formulaic, but it's a balancing act that we'll continue to strive to achieve.
Thank you. Just picking up your point on M&A, perhaps it's a broader question here. What's the view or strategy on M&A for the group?
M&A for the group. This year, David Tilak mentioned small bolt-ons. We've demonstrated our desire to bring in smaller acquisitions where they make sense and where they either are easy bolt-ons or where they enhance our strategic ambitions or our proposition. So a couple of those examples this year, we brought into the estate agency franchising fold, a small seven-firm network on the South Coast. We're delighted to bring that brand in. The owner is very keen to be part of the LSL story, and that would be an example of a bolt-on. We've also this year invested in a digital conveyancing firm, which will both help our existing proposition to our franchisees, but also give us the opportunity to improve the proposition further to potentially monetize it across the group. So in terms of smaller bolt-ons or tactical, we continue to do those.
We're delighted the returns are very high, because obviously at those levels, the pricing pressure is lower. We'll always look at larger acquisitions. Part of the reason that we hold a degree of surplus cash is if ever any opportunistic medium-sized acquisitions come along, we're able to do that out of cash. They are more rare, and we'd be very careful about those because most larger deals do come potentially at a premium. When it comes to much larger deals, again, I'm aware of those in the market. We'll always be very careful about those. We'd never say never. But they'll be looked at each time on their own basis. But our main focus is smaller, what I call either infill strategic or infill proposition or bolt-ons, where we can take on a firm in what we do and move on.
Other acquisitions we'll look at selectively on their own basis.
Thank you. Another broader question. LSL ultimately benefits from people moving house, taking out mortgages and having properties valued. What do you think of the current regulatory environment and how is that affecting the business?
Thank you. First thing I think I would say is that regulation is a large business with know-how within its people, within its processes. It is our friend. Regulation is our friend. One of the examples of that this year was the Renters' Rights Bill that came in. Very, very complicated. A lot of the provisions were brought in at the very last minute, when we received the detail at about five minutes to or five minutes past midnight, I can't remember which, on the eve, basically, of when that became legislation. We were able, with our knowledge and our expertise, to bring all of our franchisees along on the journey with something that's quite complicated. That incidentally brings in opportunities for independent owners of lettings properties who are now more attracted to the proposition that we can give with all the expertise and know-how we have.
That's been actually something that's gone very well. We haven't seen disruption. We've heard of some potentially in London, but we haven't seen the disruption that we've read about sometimes in the press. Secondly, this year, and we just heard the final view from the FCA, we had the interim review of the protection review and now the final one, which sets out that in the U.K. we are underprotected. I think 58% are underprotected. We've got the opportunity there to drive our penetration to increase the productivity, as I mentioned earlier. Generally, the environment is helpful for a larger player like us who's got the expertise. The final point which is to come is the government would like the buying and selling process to be more efficient, and we certainly support that.
I think that's a long journey, but our combination of data about a property, data about the end customers and the mortgage customers, I think will be very helpful in terms of bringing together upfront information that allows the process to be much quicker. All in all, we're a business well set up for the regulatory changes, and broadly they're supportive of a company like ours.
Thank you. Next question is on AVMs. What is your view on AVMs, and how do you think the progression will be going forward?
AVMs, I am sure everybody knows automated valuation model. This is one of the three types of products that are provided for valuations: physical, remote, and AVM. AVM has existed now since roundabout the global financial crisis in any meaningful way. It has slowly been increasing, so now it has been and has been for a little while, roundabout 30% of the total mortgage approval market. It is growing slowly. We have not seen any discontinuity at the moment. Two years ago, we started and successfully tested, trialed, and launched our own AVM with one lender, and we are trialing it with others as well. We think the combination of physical, remote, and AVMs, which we provide lenders, is a winning strategy.
Thank you. There are no more questions at this time. Unless there are any last-minute questions. Perhaps I will hand over to you, Adam, for some final words.
Thank you. Listen, I am delighted to have the opportunity to speak to you. Obviously, it is an anonymous call. We are always delighted to meet people face-to-face. If you have further questions, you can contact our IR department who we have just set up anew to really push and drive the story into the market and a story which will be increasingly well understood for LSL and the opportunities we have ahead of us. Thank you very much for your time. David and I thank you all for your interest and for your support, and we look forward to speaking to you again soon. Thank you.
Thank you to the management team for joining us today. That concludes the LSL investor presentation. Please take a moment to complete a short survey following this event. The recording of this presentation will be made available on Engage Investor. I hope you enjoyed today's webinar.