TIDMLSL
RNS Number : 1406C
LSL Property Services
02 March 2011
For immediate release 2 March 2011
LSL Property Services plc ("LSL")
PRELIMINARY ANNOUNCEMENT
LSL Property Services plc, a leading provider of residential
property services incorporating both estate agency and surveying
businesses, announces preliminary results for the year ended 31(st)
December 2010.
Highlights
Financial
-- Group revenue increased by 31% to GBP206.6m (2009: GBP157.7m)
driving a 13% increase in Underlying Group Operating Profit(1) to
GBP31.9m (2009: GBP28.3m). Underlying Operating Margin(2) was 15.5%
(2009: 17.9%)
-- Like-for-like(3) Group revenue increased by 16% to GBP182.4m
(2009: GBP157.7m) with a corresponding 24% improvement in
like-for-like Underlying Group Operating Profit to GBP35.1m
(GBP2009: GBP28.3m). Like-for-like Underlying Group Operating
Margin increased from 18.0% to 19.3%
-- Net exceptional profit of GBP10.2m (2009: cost GBP0.4m)
arising from an exceptional profit of GBP16.0m on the acquisition
of the HEAL Business(3) and other exceptional costs of GBP5.8m
-- Profit before tax before exceptional items increased by 52%
to GBP25.8m (2009: GBP17.0m)
-- Basic earnings per share of 33.6p (2009: 11.4p). Adjusted
Basic Earnings Per Share(4) increased by 16% to 21.0p (2009:
18.1p)
-- Final dividend proposed of 5.9p per share. Total dividend for
the full year increased 56% to 8.4p (2009: 5.4p)
Balance Sheet
-- Significant cash generation with net cash from operations,
before payment of exceptional costs, of GBP35.7m (2009:
GBP30.8m)
-- Strong balance sheet with net debt reduced by GBP20.8m to
GBP4.9m at 31(st) December 2010 (31(st) December 2009: GBP25.7m).
GBP75m banking facility extended to 2014
Surveying Performance
-- Underlying Operating Profit increased by 16% to GBP27.3m
(2009: GBP23.5m)
-- Further growth in revenue, profit and market share despite
total mortgage approvals falling by 7%(5)
Estate Agency and Related Services
-- Underlying Operating Profit increased by 7% to GBP7.2m (2009:
GBP6.7m)
-- Like-for-like Underlying Operating Profit increased by 56% to
GBP10.4m (2009: GBP6.7m)
-- Like-for-like revenue growth supported by improved
contribution from lettings up 8% to GBP23.3m (2009:GBP21.6m) and
financial services income (excluding Home of Choice and Pink Home
Loans(6) ) up 6% to GBP11.8m (2009:GBP11.0m)
-- HEAL Business successfully integrated and delivered close to
expectations in a challenging market. Returned a profit of GBP0.4m
during the second half of 2010 after first half loss of GBP3.6m
Key Developments
-- First full year of the expanded Santander surveying contract
performing well
-- Strengthened market position in Estate Agency following the
successful acquisition and integration of 206 HEAL branches and St
Trinity Asset Management
-- LSL now transformed into one of the largest UK mortgage
intermediaries following the acquisitions of Home of Choice and
Pink Home Loans(7)
-- Significant investment in new organic growth initiatives
focused on growing market share and longer term profitability in
Estate Agency and extending Surveying services to the private
survey market.
------------------------------------------------------------------------
--------------------------------------------------------
(1) Underlying Operating Profit is before exceptional costs,
amortisation of intangible assets and share based payments
(2) Underlying Operating Margin is Group Operating Profit before
exceptional costs, amortisation and share based payments shown as a
percentage of turnover
(3) Like-for-like is total Group revenue excluding the impact of
Halifax Estate Agencies Limited (HEAL) branches and St Trinity
Asset Management (together referred to as "HEAL Business") acquired
January 2010.
(4) The calculation of the Adjusted Basic Earnings per Share is
given in note 3.
(5) Bank of England Total Mortgage Approval for 2010
(6) Pink Home Loans includes Advance Mortgage Funding Limited
and BDS Mortgage Group Limited
(7) Source: Mortgage Strategy Network Report January 2011
Commenting on today's announcement, Roger Matthews, Chairman,
said:
"The Group made excellent progress in a market where transaction
levels are circa 50% of historic normal levels. LSL still has a
cautious view of the market for 2011 in view of the ongoing
shortage of available mortgage finance and broader well documented
economic challenges. However, we are confident that the Group can
build on the market share gains made in 2010 and grow the business
even in these market conditions.
With a very strong balance sheet, we are well placed to grow
both organically and through further acquisitions in the current
market and deliver further substantial growth when transactions
volumes recover."
For further information, please contact:
Simon Embley, Group Chief Executive Officer
Steve Cooke, Group Finance Director
LSL Property Services plc 0203 215 1015
Richard Darby, Nicola Cronk, Helen Chan
Buchanan Communications 0207 466 5000
An analysts' briefing will be held today at 12.30pm at the
offices of Buchanan Communications, 45 Moorfields, London, EC2Y
9AE.
Notes to Editors:
LSL Property Services plc is one of the leading residential
property services group of companies in the UK, whose principal
activities are: Surveying; and Estate Agency and Related Services.
It provides a broad range of services to its clients who are
principally mortgage lenders, as well as buyers and sellers of
residential properties. For further information, please visit our
website: www.lslps.co.uk.
Chairman's Statement
Introduction
We are delighted to report excellent progress in 2010 with
Underlying Operating Profit increasing strongly by 13% to GBP31.9m
despite further market contraction during the year. Both the Estate
Agency and Surveying Divisions have contributed significant profit
growth and Halifax Estate Agencies Limited ("HEAL") has been
successfully integrated into the Estate Agency Division. On a like
for like basis, excluding the HEAL Business acquired in January
2010, Underlying Group Operating Profit increased by 24% to
GBP35.1m (2009: GBP28.3m).
Transaction volumes worsened again during 2010 and remain
subdued at a low point in the cycle. Mortgage approvals for house
purchase deteriorated in the second half of the year compared to
the first and at 575,000 for the full year were 4% lower than 2009
(2009: 597,000) and less than half the historic norm of 1.2m per
annum. Remortgage activity was extremely weak and at 328,000 for
the full year was also 4% lower than 2009 (2009: 343,000). As a
consequence total mortgage approvals fell by 7% in 2010 to 1.2m
(2009: 1.3m).
Against this challenging backdrop the LSL business model has
performed extremely well. The Estate Agency and Surveying Divisions
have both grown market share and Estate Agency in particular has
been driven by another strong contribution from its counter
cyclical income streams. Furthermore, the Group has strengthened
the positions of all of its core businesses in 2010. The expansion
of the Santander contract in Surveying has consolidated our market
leadership. In Estate Agency the acquisition of HEAL Business has
given LSL the UK's second largest Estate Agency branch network, the
largest lettings network and market leadership in the repossessions
market. The Estate Agency business also acquired Home of Choice and
Pink Home Loans and as a result the Group is now one of the largest
financial services intermediary networks in the UK, focusing on
mortgage and protection advice.
During 2010 the Group started to implement a strategy to drive
further organic growth in both Estate Agency and Surveying. In
Estate Agency, the plans focused on improving market share and
profitability by branch through investment in the branches, people
and a new call centre to increase branch instruction levels. In
Surveying, we remain committed to providing excellent quality and
service levels to all lender clients and, in addition, have
launched new products to extend our surveying services to private
buyers.
Financial Results
Group revenue increased by 31% to GBP206.6m (2009: GBP157.7m)
and Underlying Group Operating Profit increased 13% to GBP31.9m
(2009: GBP28.3m). However, the result included an Operating Loss of
GBP3.2m for the HEAL Business without which like-for-like Group
revenue increased by 16% to GBP182.4m (2009: GBP157.7m) and
like-for-like Underlying Group Operating Profit increased by 24% to
GBP35.1m (2009: GBP28.3). Like-for-like Underlying Group Operating
Margin increased from 17.9% to 19.3%, a level which is more than 2%
higher than that achieved during the 2006/2007 period of peak
transaction volumes.
The HEAL Business operating result was very close to our
expectations at the time of the acquisition despite the
deterioration in the market and it is pleasing to see that the HEAL
Business contributed a profit of GBP0.4m in the second half.
Overall the Estate Agency Division increased Underlying Operating
Profit from GBP6.7m to GBP7.2m even with the HEAL Business loss
included. If the HEAL Business loss is excluded, Underlying
Operating Profit increased to GBP10.4m and Underlying Operating
Margin was 10% (2009: 8%). This was an exceptional performance
given the continued decline in housing transaction volumes and was
underpinned by strong profitability in asset management and
lettings.
The Surveying Division has again significantly outperformed the
market. Whilst total mortgage approvals fell by 7%, Surveying
revenue increased by 16% and Underlying Operating Profit increased
by 16% to GBP27.4m (2009: GBP23.5m) with Underlying Operating
Margin of 34% (2009: 34%).
The Group produced GBP30.7m (2009: GBP29.9m) of operating
cashflow even after capital expenditure of GBP5.0m (2009: GBP0.7m)
which was mostly on branch refurbishment. Cashflow was driven by
the high levels of profit from both Divisions. Net debt reduced
from GBP25.7m in December 2009 to GBP4.9m in December 2010.
The acquisition of the HEAL Business contributed to an overall
net exceptional profit of GBP10.2m (2009: exceptional loss
GBP0.4m), resulting in an overall profit before tax and
amortisation of GBP44m (2009: GBP25.2m). The net exceptional profit
of GBP10.2m (2009: loss of GBP0.4m) comprised an exceptional profit
of GBP29.8m as a result of the acquisition of the HEAL Business for
GBP1 offset by exceptional costs of GBP19.6m, of which GBP13.8m
related to the HEAL Business, GBP2.8m to increasing the
Professional Indemnity ("PI") provision and GBP2.0m to finance
costs. Amortisation during the year was GBP8.1m (2009: GBP8.6m)
giving a profit before tax of GBP36.0m (2009: GBP16.6m). The profit
after tax was GBP34.5m (2009: GBP11.7m). Adjusted earnings per
share ("EPS") increased by 16% to 21.0p (2009: 18.1p).
Dividend
As a result of the strong operating performance, continued
reduction in net debt and the Board's view of the future prospects
of the business a final dividend of 5.9p per share will be proposed
to shareholders at the forthcoming AGM, bringing the total dividend
for 2010 to 8.4p per share. This represents a 40% payout ratio
(based on adjusted EPS of 21.0p per share) and a 56% increase on
the 2009 dividend of 5.4p per share. The proposed dividend payment
is in line with our previously stated policy of applying a dividend
pay out ratio of between 30% to 40% of Underlying Group Operating
Profit after interest and tax. The ex dividend date for the final
dividend is 30(th) March 2011, with a record date of 1(st) April
2011, and a payment date of 27(th) April 2011. Shareholders have
the opportunity to elect to reinvest their cash dividend and
purchase existing shares in LSL through a Dividend Reinvestment
Plan.
Developments
The Surveying market remains at a low point in the cycle with
total mortgage approvals of 1.2m, down 7% on 2009 (2009: 1.3m).
However, our Surveying Division has improved its market position as
a result of a number of recent contract extensions which were
achieved through continued focus on service levels for existing
clients. In particular there has been an initiative to support and
contribute to revised risk management strategies for a number of
clients. The expanded Santander contract, which came on stream in
December 2009, has made a significant contribution to the 2010
result not only in terms of revenue but also through driving
operational efficiency across the division. Late in the fourth
quarter e.surv Chartered Surveyors commenced the marketing of
private survey services to home buyers (as opposed to lenders).
Despite low transaction volumes and the seasonal slowdown in the
quarter, early feedback and penetration rates of these services are
promising.
PI claims in the market have continued at high levels as a
result of higher repossession rates relating to valuations
undertaken in the 2004 to 2007 period. PI claims are monitored
extremely carefully and the provision (net of payouts) has been
increased by GBP3.4m in the period with a total provision at the
year end of GBP10.9m (2009: GBP7.5m).
Our Estate Agency Division has continued to advance strongly
especially through the acquisition of the HEAL Business for which
LSL was awarded the 'Deal of the Year' award at the Quoted Company
Awards. The HEAL Business was fully integrated during the year with
206 branches re-branded to Your Move, Reeds Rains and Intercounty.
The cost base of the ex HEAL branches has been right-sized to just
under GBP28m and significant progress has been made in growing
lettings and financial services income streams. Between the first
quarter and the last quarter, lettings income has increased nearly
two-fold and financial services income has gone up by a factor of
four. This compares to growth in the original Your Move and Reeds
Rains branches over the same period of 12% for lettings and 35% for
financial services. The HEAL Business showed dramatically improved
performance over the year as had been planned. After a loss of
GBP3.6m in the first half the HEAL Business delivered a profit of
GBP0.4m in the second half of 2010 and is expected to make a
significant contribution once lettings and financial service income
streams are more fully developed and housing transaction volumes
return to more normal levels.
Overall market share in Estate Agency increased from 2.7% in
2009 to 4.5% and on a like-for-like basis excluding the HEAL
Business, market share increased from 2.7% to 3.3%. These gains
were partly driven by a refurbishment programme which covered all
branches and there has also been targeted investment in additional
headcount and marketing. With exchange income constrained by the
challenging market conditions, the Division has continued to drive
counter cyclical income including lettings which grew by 14% in the
year (like-for-like 8%). The asset management business benefitted
from the creation of St Trinity Asset Management (following the
acquisition of the asset management business as part of the HEAL
Business) and total income was GBP13.9m (2009: GBP9.3m).
The Group intends to continue investment in the Estate Agency
Division in order to further build market share in advance of
improvement in transaction volumes. During the final quarter of
2010 a new call centre ("The Bridge") was built to support the
Estate Agency branches and the quality of branch management was
improved through both training and recruitment. We continue to plan
further investment in branch headcount and marketing in 2011. "The
Bridge" is already producing good results although P&L benefits
in 2011 will be held back by cost of investment. The continued
development of lettings, financial services and other income
streams in the ex-HEAL branches together with the combined market
share growth initiatives should generate a material uplift in
Estate Agency profits in the longer term.
During 2010 we made a step change in our financial services
offer within the Estate Agency Division through two major
acquisitions. In May the business and assets of Home of Choice, now
rebranded to First Complete, was acquired for total consideration
of GBP0.4m. Pink Home Loans was acquired in November 2010 for a
cash consideration of GBP1.6m. LSL's expanded financial services
business is now one of the largest intermediary networks in the UK
focused on mortgage and protection advice. Profitability of the new
business will be constrained until such time as the mortgage market
improves but importantly these acquisitions significantly
strengthen LSL's relationship with its key lender clients.
There have also been a number of smaller acquisitions within the
Estate Agency Division which have increased our exposure in the
South East region and expanded our counter-cyclical business.
Templeton LPA, a Law of Property Act fixed charge receiver, and
Goodfellows, a seven branch agency chain in South London were
acquired for GBP0.4m and GBP1.0m respectively.
Board
As previously announced there were a number of significant
changes to the Board during the year. Paul Latham, retired from his
role as Group Deputy CEO to become a Non Executive Director and in
June 2010 Alison Traversoni and David Newnes joined the Board as
Executive Director for Surveying and Executive Director for Estate
Agency respectively. Steve Cooke joined the Board as Group Finance
Director in July 2010 and Dean Fielding has retired from the Board.
The Board has currently three Non Executive Directors, excluding
the Chairman, two of whom are independent.
Following the changes made during the year, the Board is well
qualified to lead the business through the next stages of its
ambitious growth plans.
People
During 2010, the Group expanded significantly through both
investing in our existing businesses and acquisitions. As a result,
we have a large number of new colleagues either recruited to
support our organic growth plans or who have joined the Group
through an acquisition made during the year, and I would like to
extend a warm welcome to them all. Overall, the number of Group
employees increased by 1,205 to 4,490 (2009: 3,285).
Our success in providing the best possible service to our
customers is dependent on the skills and enthusiasm of all our
employees. Great commitment has been shown this year in the face of
extremely challenging market conditions and I would like to thank
all of them for their efforts.
I am also very pleased to report that e.surv Chartered
Surveyors, our largest surveying business, was awarded The Sunday
Times Best Companies - One to Watch Award.
Current Trading and Outlook
The Group made excellent progress in a market where housing
transaction levels are circa 50% of historic normal levels. LSL
still has a cautious view of the market for 2011 in view of the
ongoing shortage of available mortgage finance and broader well
documented economic challenges. However, we are confident that the
Group can build on the market share gains made in 2010 and grow the
business even in these market conditions. Further marketing of
private surveys in our Surveying Division and the success of our
market share plans for the Estate Agency businesses will be central
to delivering this growth. In addition, the HEAL branches will
continue to develop their lettings and financial services income
streams and we can expect our asset management business to continue
to make a significant contribution in an environment of low
transaction volumes.
Activity levels to the end of February 2011 are in line with our
expectations with no sign of a recovery in market volumes. Early
results from our organic growth initiatives are on target with
strong positive feedback from clients and from within the
business.
The Group has a very strong balance sheet with net debt of only
GBP4.9m and an available debt facility of GBP75m. We are well
placed to grow both organically and through further acquisitions in
the current market and to deliver further substantial growth when
transaction volumes recover.
Roger Matthews
2(nd) March 2011
Business Review - Surveying Division
Financial 2010 2009 % change
------------------------------------------- ------ ------ --------
GBPm GBPm
Turnover 80.9 70.0 16%
Expenditure (53.5) (46.5) 15%
Underlying Operating Profit 27.3 23.5 16%
KPIs
------------------------------------------- ------ ------ --------
Profit margin % 34% 34% -
Jobs Performed 000s 531 439 21%
Income per job GBP 153 159 (4)%
Professional Indemnity insurance provision
GBPm 10.9 7.5 45%
------------------------------------------- ------ ------ --------
Surveying Division Performance
The Surveying division increased turnover by 16% to GBP80.9m
(2009: GBP70.0m) against a market decline of 7% in total mortgage
approvals to 1.2m (2009: 1.3m). The increase in revenue drove a 16%
increase in Underlying Operating Profit to GBP27.3m (2009:
GBP23.5m) with the Underlying Operating Profit margin holding
steady at 34% (2009: 34%).
Total job numbers increased by 21% to 531,000 (2009: 439,000)
with much of the increase being driven by the expanded Santander
contract coming on stream in December 2009. Average fee across all
contracts was lower by 4% reflecting the market conditions and job
mix.
Expenditure increased by 15% compared to 2009, which was in line
with the increase in turnover (2009: GBP46.5m). The cost movement
reflected the variable costs across our key contracts. In addition,
there was an increase in PI Insurance costs as provisioning
relating to the 2004 to 2007 trading period was increased.
Surveying Developments
2010 saw a full year of benefit from the expanded Santander
contract. Looking forward, the contract offers an excellent
opportunity to leverage Surveying assets across the Group in what
continues to be very uncertain market conditions.
The C&G contract contributed GBP13.6m of turnover in 2010
compared to GBP15.5m in 2009 due to a combination of the market
decline in total mortgage approvals and the impact of Lloyds
Banking Group's mortgage strategy.
The Division has a number of key relationships which are managed
both on an exclusive basis and through panel management
arrangements. We remain committed to providing excellent quality
and service levels to all lender clients. Feedback from our clients
is consistently positive and we particularly differentiate our
service on measures including turnaround time for valuations
reflecting our use of innovative technology and the flexibility of
our panel management arrangements.One of the key factors that
lenders use in assessing service is the support provided in
relation to the management of risk faced by lenders. Here, the
Surveying Division's risk management arrangements have been widely
acknowledged by its customer base as being market leading and
unique. Further, during 2010, e.surv Chartered Surveyors was a
finalist for the MPF European Practice Management Awards for Risk
Management. It achieved this award because it was able to
demonstrate that it has an integrated and embedded approach to risk
management.
In December 2010, e.surv Chartered Surveyors trialled
exclusively with the Royal Institution of Chartered Surveyors
("RICS") the RICS Condition Report, which is aimed at the private
survey market. This product is being sold alongside our existing
private survey services, such as the RICS HomeBuyer Report and
Building Survey.
In the medium term we expect to be able to capitalise on what is
a significant opportunity to claim our share of the current private
survey market and also to expand the market. The Group is in an
excellent position to do this by leveraging its unrivalled
distribution network covering our major lender clients, the Group's
Estate Agency network including the new "Bridge" call centre and
the principal Surveying brands of e.surv Chartered Surveyors and
Barnwoods.
The cost of PI claims relating to valuations carried out between
2004 to 2007 remains a key risk for the business. While the six
year statutory limit on claims means that we are now clear from
receiving new claims for 2004, there has been a steady flow of new
claims during 2010 for the 2004 to 2007 period. As a result the
Group has increased its PI provision from GBP7.5m to GBP10.9m.
During the year, the Group disposed of its 14.19% stake in
Hometrack Data Systems Limited for consideration of GBP3.9m which
was the carrying value of the investment in the accounts at 31(st)
December 2009.
e.surv Chartered Surveyors Achievements/Awards 2010 &
2011
e.surv Chartered Surveyors, LSL's largest surveying business,
has achieved a number of awards:
Sunday Times - Best Companies 2011 - one to watch
IIP Accreditation
The Investors In People accreditation was achieved at e.surv
Chartered Surveyors' Head Office location in Kettering.
Mortgage Strategy Awards
e.surv Chartered Surveyors was awarded the Best Surveyor/Valuer
award at the Mortgage Strategy Awards.
Mortgage Strategy Awards 2011 - Finalist for Best
Surveyor/Valuer
MPF European Practice Management Awards for Risk Management
e.surv Chartered Surveyors was listed as a finalist at the MPF
European Practice Management Awards for Risk Management. It
achieved this award because it has an integrated and embedded
approach to risk management promoted by the e.surv Chartered
Surveyors Board and with active involvement from it. In granting
the award, MPF commented on the internal audit team and IT
resources, concluding that they are dedicated to driving continuous
improvement.
The MPF noted that Board support is maintained by having risk
management as a standard item on meeting agendas and senior
executives taking individual responsibility for the management and
control of key risks. The reporting process is simple, clear and
effective. In delivering the award, MPF commented:
"To ensure that e.surv Chartered Surveyors benefits from good
risk management, they have embedded it in a number of their
business management processes. This is an excellent example of
moving beyond basic compliance to adding value to their
business."
BSi ISO 9001 Accreditation Extended
During 2010, e.surv Chartered Surveyors secured an extension to
its ISO 9001:2008, which it originally secured in 1996, e.surv
Chartered Surveyors again conformed 100% to the requirements of the
internationally recognised standard, when independently reviewed by
the leading global provider of standards and certification body,
British Standards Institution (BSi).
ISO 9001:2008 is the internationally recognised standard for
quality management systems, maintained by the International
Organisation for Standardisation. The standard requires companies
to adhere to procedures covering all key processes in their
business: monitoring processes to ensure they are effective;
keeping adequate records; checking output for defects, with
appropriate and corrective action where necessary; regularly
reviewing individual processes and the quality system itself for
effectiveness; and facilitating continual improvement. One of the
goals of this standard is to improve effectiveness via process
performance metrics - numerical measurement of the effectiveness of
tasks and activities. ISO 9001 also requires companies to track
customer satisfaction.
Business Review - Estate Agency Division and Related
Services
Actual - Like For
including HEAL Like - excluding
Business HEAL Business
2010 2009 % change 2010 2009 % change
GBPm GBPm GBPm GBPm
Exchange
fees GBPm 52.4 33.0 59% 40.3 33.0 22%
Financial
services
income* GBPm 18.6 12.5 49% 16.1 12.5 29%
Lettings
income GBPm 24.6 21.6 14% 23.3 21.6 8%
Asset
management
income GBPm 13.9 9.3 49% 9.0 9.3 (4)%
Other income GBPm 16.2 11.3 43% 12.9 11.3 14%
Total income GBPm 125.7 87.7 43% 101.6 87.7 16%
Expenditure GBPm (118.5) (81.0) 46% (91.2) (81.0) 13%
Underlying
Operating
Profit GBPm 7.2 6.7 7% 10.4 6.7 55%
KPIs
------------- ------ -------- -------- --------- ------- --------- ---------
Exchange units 25,766 16,327 58% 19,232 16,327 18%
Market Share 4.5% 2.7% 67% 3.3 2.7 22%
Underlying Operating
Margin 5.7% 7.6% (25)% 10.3 7.6 36%
--------------------- -------- -------- --------- ------- --------- ---------
* Financial services income on a like-for-like basis as given in
the table above includes revenue from Home of Choice and Pink Home
Loans, which was acquired during the year. Excluding these, the
financial services income increased by 6% to GBP13.3m from
GBP12.5m.
Note - 'Other income' includes franchising income, conveyancing
services, EPCs, Home Reports, utilities and other products and
services to clients of the branch network.
Estate Agency Performance
The Estate Agency Division acquired the HEAL Business in January
2010 and the HEAL Business trading has had, as expected, a
significant impact on overall performance. Therefore the results
are presented on both an actual and like-for-like basis (excluding
HEAL Business).
Estate Agency delivered an excellent performance in 2010 even
though the market declined still further from what were already
extremely low transaction levels. The number of mortgage approvals
for house purchase fell by 4% to 575,000 (2009: 597,000) which
compares to historic normalised levels of 1.2m. Transactions fell
steadily during the year such that volumes in the second half of
2010 were 6% lower than in the first half of 2010 and were 16%
lower than the second half of 2009.
Total Estate Agency income increased by 43% to GBP125.7m (2009:
GBP87.7m) and on a like-for-like basis by 16% to GBP101.6m (2009:
GBP87.7m). Underlying Operating Profit increased by 7% to GBP7.2m
(2009: GBP6.7m). However, this included trading losses for the
newly acquired HEAL Business without which, on a like-for-like
basis, Underlying Operating Profit was 55% higher at GBP10.4m
(2009: GBP6.7m). As a result Underlying Operating Margin increased
from 7.6% to 10.3% which was a very robust performance in such
tough market conditions.
HEAL Business
2010 2010 2010
Total H2 H1
GBPm GBPm GBPm
----------------------------- ------ ------- ------- -------
Exchange fees GBPm 12.0 6.3 5.7
Total income GBPm 24.2 13.5 10.7
Expenditure GBPm (27.4) (13.1) (14.3)
Underlying Operating Profit GBPm (3.2) 0.4 (3.6)
KPI
----------------------------- ------ ------- ------- -------
Exchange units 6,534 3,500 3,034
------------------------------------- ------- ------- -------
The plan for the HEAL Business, which was acquired in January
2010, has been delivered despite the deterioration in the market.
The HEAL Business made a GBP3.6m loss in the first half of 2010 and
this has been followed by a profit of GBP0.4m for the second half.
The improvement has been driven partly by further cost reductions
but mostly by increasing lettings and financial services revenue.
At the time of the acquisition, HEAL Business exchange fee income
was already at a comparable level to the other LSL businesses but
lettings and financial services were lagging significantly. These
offers were rolled out to all ex HEAL branches during the year and
as a result from lettings, financial services and other income has
increased by 50% from GBP2.9m to GBP4.3m between the first and
second half of 2010.
The improvement is even more dramatic on a quarterly comparison.
Between the first and last quarter of 2010, lettings income has
nearly increased two-fold and financial services income has gone up
by a factor of four. This compares to growth in the original Your
Move and Reeds Rains branches over the same period of 12% for
lettings and 30% for financial services.
However, the level of lettings financial services and other
income per branch is still behind the other LSL Estate Agency
branches and this gap represents a significant opportunity for
2011.
Estate Agency Branches
Your Move, Reeds Rains and the LSLi brands all outperformed the
market during 2010. Excluding the ex HEAL branches, exchange units
were 18% higher than 2009 and exchange fee income increased by 22%
to GBP40.3m (2009: GBP33.0m). Every branch was refurbished during
2010 and there was additional investment in headcount and marketing
all of which contributed to a market share increase on a
like-for-like basis from 2.7% to 3.3%. If the HEAL Business is
included, Group market share now stands at 4.5%.
Counter Cyclical Income
The counter cyclical income streams of lettings and asset
management have been particularly important to the Group in
depressed market conditions. During 2010 like-for-like lettings
income grew by an impressive 8% and now accounts for 23% of income
in the non ex HEAL branches.
The asset management business is dependent on the repossessions
market which fell by 5% to 36,300 repossessions in 2010 (2009:
39,300). On a like-for-like basis asset management income fell by
4% so market share did increase slightly. The Group only started up
its asset management business in 2008 but it has grown rapidly and
now, including the newly created St Trinity Asset Management
business, total asset management income contributes 11% of total
Estate Agency revenue.
Financial Services
The Group's financial services offer has been transformed by the
acquisition of Home of Choice and Pink Home Loans during the year.
These businesses have not contributed materially to the 2010
operating profit and yet like-for-like financial services income
increased by 6% to GBP13.3m (2009: GBP12.5m). Once the mortgage
market improves, financial services will become a very significant
income line for the Group. A key objective for 2011 is to complete
the integration of the new financial services businesses and roll
out a new simplified operating model across the Group.
Developments
2010 was a year of repositioning the Estate Agency business
ready to take advantage of organic growth opportunities and for
market recovery in due course. The HEAL Business acquisition is
proving to be a significant source of added shareholder value. The
deal brought in net cash as well as a business that returned to
profit in the second half of the year and the Group now has the
second largest agency branch network in the UK (by reference to the
number of branches). The St Trinity Asset Management business was
also acquired as part of the HEAL Business and as a result LSL is a
market leader in residential asset management in the UK. The third
part of the Estate Agency business offer is financial services and
the addition of Home of Choice and Pink Home Loans makes the Group
one of the largest intermediary broking networks for mortgage and
protection products in the country (by reference to the number of
appointed representatives - source: Mortgage Strategy Network
Report January 2011).
The other main development during 2010 was that the Estate
Agency business began to execute a plan to drive organic growth,
improving market share both in total and especially in the higher
value market segments. Firstly, all branches were refurbished
during the year and the full lettings and financial services offer
was rolled out to the ex HEAL branches. In addition a major
programme of training and recruitment has been undertaken to ensure
that each branch has management and staff with the right skills to
grow the business. There has also been investment in marketing and
headcount to deliver higher levels of instructions and a new call
centre, "The Bridge", has been built to help generate instructions
for the branches.
The size of the opportunity over the next three to five years is
significant. Benchmarking has shown that Your Move and Reeds Rains
currently list around 50 instructions fewer per annum than the best
of the competition. Furthermore, Your Move and Reeds Rains
typically sell properties at around the national average house
price of circa GBP160,000 source: RightMove January 2011). The
impact on profitability of moving into higher price segments by
using for example the Your Move 'Premier' or Reeds Rains 'Cream'
marketing packages are substantial. Overall the size of the
opportunity to be targeted is significant at around GBP30,000 -
GBP50,000 profit per branch.
Early signs of progress have been very encouraging. The key
performance measure is market share growth measured on a local
basis both in total and for specific higher property price
segments. During the second half of 2010, LSL market share
increased to 5.0% compared to 4.0% in the first half of the year.
Since it began operating in early January 2011, the Bridge has made
good progress delivering instructions into branches.
2011 promises to be an exciting year for the Estate Agency
Division as we expect to make good progress in building an enhanced
market position.
Awards 2010 & 2011:
The Estate Agency businesses, achieved the following industry
awards demonstrating LSL's continued commitment to customer
services:
1. Your Move:
a. Property Professional Awards: Best National Estate Agency
b. Sunday Times Estate Agency of the Year Awards:
i. Bronze - Best Financial Services provider joint winner - with
Reeds Rains
ii. Bronze - Best Estate Agency Franchise
c. Sunday Times Lettings Estate Agency of the Year Awards:
i. Silver - Best Lettings Franchise
ii. Silver - Best Lettings Customer Service
iii. Silver - Best Lettings Training & Development
iv. Bronze - Best Large Lettings Agency
v. Bronze - Best Lettings Technology Online
d. Estate Agent and Letting Agent of the Year Awards (ESTAs)
2010 by RICS, Home Let and Estate Agency Today:
i. Bronze - Best Large Estate Agency Chain
ii. Bronze - Best Large Lettings Agency
2. Reeds Rains:
Sunday Times Estate Agency of the Year Awards - Bronze - Best
Financial Services Provider - joint winner with Your Move.
3. Phillip Green & Partners (a trading name of ICIEA
Ltd)
Sunday Times Estate Agency of the Year Awards:
i. Gold - Best Small Estate Agency South East
ii. Silver - Best Small Estate Agency UK
4. Pink Home Loans
2011 Mortgage Strategy Awards - Finalist in the Best Mortgage
Network Category
5. Linear Financial Services
2011 Mortgage Strategy Awards - Best Broker for Protection
6. First Complete
2011 Mortgage Strategy Awards - Finalist in the Best Mortgage
Network Category
Regulation
First Complete, Advance Mortgage Funding and BDS Mortgage Group
are all directly authorised by the FSA in relation to the sale of
mortgage, pure protection and general insurance products. During
2010, Your Move cancelled its permission and became an appointed
representative of First Complete, along with Reeds Rains who ceased
to be an appointed representative of Openwork. This restructuring
was undertaken to simplify LSL's financial services operating
model. Linear has become an Appointed Representative of Advance
Mortgage Finding for mortgage and insurance business and continues
to also be an appointed representative of Openwork (for investment
business) and Reeds Rains has also remained an appointed
representative of Letsure for the sale of rent indemnity
insurance.
As a result of Linear's appointments by Openwork, LSL has a
small indirect shareholding of Openwork.
Business Review - Financial Review
The key drivers of the financial performance of LSL are
summarised below.
Income statement
Revenue
Revenue increased by 31% to GBP206.6m in the year ended 31(st)
December 2010 (2009: GBP157.7m) due to the impact of the HEAL
Business acquisition and also market share gains in both Estate
Agency Division and Surveying Division as mentioned in the segment
review.
Operating Expenses excluding exceptional costs, amortisation and
share based payment
Operating Expenses increased by 36% to GBP176.3m (2009:
GBP129.9m). This was mainly due to an increase in employee related
costs due to recruitment of additional colleagues to support our
organic growth and also colleagues who have joined the Group
through an acquisition made during the year. Average full time
equivalent employees during the year was 3,649 (2009: 2,534).
Underlying Operating Profit
Underlying Operating Profit was GBP31.9m (2009: GBP28.3m) with
the Underlying Operating Profit margin of 15.5% (2009: 17.9%).
Like-for-like Underlying Operating Margin increased from 17.9% to
19.3%.
Exceptional Items
Exceptional profit in the year ended 31(st) December 2010
amounted to GBP10.2m (2009: costs of GBP0.4m). Exceptional profit
was mainly due to negative goodwill arising on the HEAL Business
acquisition as net assets of GBP29.8m were acquired for GBP1. This
exceptional profit was offset by exceptional costs of GBP19.6m, of
which GBP13.8m related to the HEAL Business reorganisation
undertaken to right size the cost base, GBP2.8m to increasing the
PI provision and GBP2.0m to finance costs.
Net Financial Costs
Net financial costs (excluding exceptional finance costs)
amounted to GBP2.2m (2009: GBP2.2m). The finance costs did not
decrease in line with the decrease in net debt due to the existence
of the interest rate swap (entered into in April and May 2009)
which fixed the interest at an average of 2.93% on GBP25m of debt.
In view of the low level of net debt of the Group at 31(st)
December 2010, LSL are currently reviewing the exit options
available to cancel the interest rate swap. However, no decision
has been made in this regard as at the date of approval of the
financial statements.
The exceptional finance cost is GBP2.0m. Of this, GBP1.1m
relates to discontinuance of hedge accounting on interest rate swap
and GBP0.9m relates to arrangement fees and costs relating to the
extension of the banking facility to March 2014.
Taxation
The effective rate of corporation tax for the year was 4.0%
(2009: 29.3%). The effective tax for 2010 was very low due to the
impact of non-taxable negative goodwill arising on the HEAL
Business acquisition. After excluding the effect of negative
goodwill the effective tax rate is 23.2% (2009: 29.3%). The
effective tax rate is still low due to the impact of non-taxable
income on profit made on disposal of the investment in Hometrack
Data Systems Limited
Adjusted Basic Earnings Per Share
The Adjusted Basic Earnings Per Share (as calculated in note 3)
is 21.0p (2009: 18.1p). The Directors consider this provides a
better and more consistent indicator of the Group's underlying
performance.
Balance Sheet
Capital Expenditure
Total capital expenditure in the year amounted to GBP5.0m (2009:
GBP0.7m). The capital expenditure predominantly comprised
expenditure on refurbishment of the Estate Agency branches.
Financial Structure
As at 31(st) December 2010 net debt was GBP4.9m (2009:
GBP25.7m). LSL has a GBP75.0m revolving credit facility in place
till March 2014 (2009: GBP75.0m)
Cash Flow
The business is cash generative and has low capital expenditure
requirements. The Group generated net cash from operations before
exceptional cost payment of GBP35.7m (2009: GBP30.8m). The improved
cash generation is due principally to increased profitability and a
positive movement in working capital.
Net Assets
The net assets as at 31(st) December 2010 were GBP68.1m (2009:
GBP45.9m).
Treasury & Risk Management
LSL has an active debt management policy and due to the cash
generative nature of the business and the cash acquired on the HEAL
Business acquisition, the Group's net debt position at 31st
December 2010 is GBP4.9m (2009: GBP25.7m). As mentioned under Net
Financial Costs above, the Group is currently reviewing the exit
options available with respect to the interest rate swaps. LSL does
not hold or issue derivatives or other financial instruments for
trading purposes.
International Financial Reporting Standards (IFRS)
The Financial Statements have been prepared under IFRS as
adopted by the European Union. LSL commenced reporting under IFRS
from 1(st) January 2005.
Principal Risks & Uncertainties
The Board continually identify, evaluate and manage material
risks and uncertainties which could adversely affect the business,
operating results and financial condition of LSL. These risks are
recorded and managed through a risk register, and the principal
risks and uncertainties identified are:
-- The continued volatility and uncertainty of the UK housing
market. In particular, transaction volumes (both house purchase and
remortgage), house prices and the availability of credit which will
adversely affect the profitability and cash flow of all our key
brands and businesses.
-- Loss of key surveying or corporate services clients or
contracts at their renewal date or significant reduction in
volumes, either as a result of adverse market conditions, market
consolidation, competition or inadequate service delivery.
-- Liability for inaccurate professional services advice to
clients (e.g. inaccurate valuations) together with the risk that
LSL fails to maintain appropriate risk management arrangements.
-- Failure to effectively deliver and manage the integration and
expansion of newly acquired or created businesses and initiatives
into the Group.
-- Being subjected to investigations or enforcement action
(including any fines) by a regulator resulting in the loss of any
licences or permissions necessary for the performance of the Group
business. The reputation and profitability of LSL could be
adversely affected by the actions of one or a limited number of
employees or franchisees.
-- Failure or interruptions of information technology services
on which the Group is reliant for operationalperformance and
financial information.
-- The development of alternative products and services in
competition with traditional estate agency and surveying services -
for example web based estate agency or Automated Valuation Models
in relation to surveying.
-- Changes in legislation or regulation (e.g. Mortgage Market
Review) or Government policy may impact on business results or the
UK housing market in general.
Further information relating to the management of these risks
and uncertainties is set out in the Corporate Governance Review
(Internal Controls) of the Annual Report.
Relationships
The Corporate Social Responsibility (CSR) statement in the
Annual Report details the arrangements for all Group companies in
relation to: Employment (including Equal Opportunities); Health,
Safety & Welfare, Environmental and Social and Community
Interests (including social and ethical issues).
Other than our shareholders, the Group's performance and value
are influenced by other stakeholders, principally our customers,
suppliers, employees, Government and our strategic partners. The
Group's approach with all these parties is founded on the
principles of open and honest dialogue based on a mutual
understanding of needs and objectives. For example:
-- Lenders' relationships are managed via dedicated account
managers.
-- Employees are managed and consulted both on an individual
basis and via representative groups with LSL recognising Unite as
an employee representative body.
-- Group companies participate in relevant trade associations
and industry groups, such as RICS, the Association of Mortgage
Intermediaries, the National Association of Estate Agents, the
Association of Residential Lettings Agents, The National Federation
of Property Professionals and The Property Ombudsman, because these
give us genuine access to customer views and decision makers in
government and other regulatory bodies.
-- Further, the Group aims to build partnerships with the
communities in which it operates and to offer support in addition
to providing employment and training, using local services and
suppliers where possible and paying taxes.
Environmental Matters
LSL recognises that the environment has an intrinsic value,
central to the quality of life and underpins economic development.
LSL understands that its stakeholders are interested in how LSL
manages its impact on the environment and how it is performing.
Further, stakeholders may also provide LSL with views and opinions
which can strengthen LSL's approach to environmental management.
Accordingly, LSL is committed to communicating on environmental
matters with all interested parties and to report on progress at
regular intervals via the website (www.lslps.co.uk). Appropriate
guidance and training is also provided to all employees to ensure
they have an awareness of their impact on the environment and the
role that they play in managing the impact.
Group Income Statement
for the year ended 31 December 2010
2010 2009
Note GBP'000 GBP'000
--------- ---------
Revenue 2 206,607 157,703
Operating expenses:
Employee and subcontractor costs (115,763) (80,100)
Establishment costs (14,891) (10,991)
Depreciation on property, plant and
equipment (1,748) (1,407)
Other (43,960) (37,374)
--------- ---------
(176,362) (129,872)
Rental income 1,690 488
Group operating profit before exceptional
costs, amortisation and share-based
payments 2 31,935 28,319
Share-based payments (298) (532)
Amortisation of intangible assets (8,077) (8,635)
Exceptional profit/(loss) 4 12,189 (400)
Gain on sale of available-for-sale financial
assets 3,923 -
Group operating profit 39,672 18,752
--------- ---------
Dividend income 516 24
Finance income 5 54
Finance costs (2,228) (2,221)
Exceptional finance costs 4 (2,007) -
Net financial costs (3,714) (2,143)
Profit before tax 35,958 16,609
Taxation 6
- related to exceptional costs 4,911 112
- others (6,334) (4,974)
(1,423) (4,862)
--------- ---------
Profit for the year 34,535 11,747
--------- ---------
Attributable to
- Owners of the parent 34,500 11,747
- Non-controlling interest 35 -
Earnings per share expressed in pence per
share:
Basic 3 33.6 11.4
Diluted 3 33.4 11.4
--------- ---------
Group Statement of Comprehensive Income
for the year ended 31 December 2010
2010 2009
Note GBP'000 GBP'000
--------- --------
Profit for the year 34,535 11,747
--------- --------
Recycling of unrealised gains reserve (3,900) -
Net deficit on cash flow hedge - (87)
Recycling of cash flow hedge 87 -
Income tax effect (24) 24
--------- --------
63 (63)
--------- --------
Other comprehensive loss for the year,
net of tax (3,837) (63)
Total comprehensive income for the year,
net of tax 30,698 11,684
--------- --------
Attributable to 30,663 11,684
- Owners of the parent 35 -
- Non-controlling interest
--------- --------
Group Balance Sheet
as at 31 December 2010
2010 2009
Note GBP'000 GBP'000
--------- ---------
Non-current assets
Goodwill 8 74,742 66,472
Other intangible assets 17,613 22,895
Property, plant and equipment 13,850 2,077
Financial assets 1,097 4,052
Deferred tax asset - 621
Total non-current assets 107,302 96,117
Current assets
Trade and other receivables 25,136 20,052
Cash and cash equivalents 7 338 858
--------- ---------
Total current assets 25,474 20,910
--------- ---------
Total assets 132,776 117,027
--------- ---------
Current liabilities
Financial liabilities 7 (92) (993)
Trade and other payables (45,085) (33,209)
Current tax liabilities (258) (2,183)
Provisions for liabilities and charges (584) (748)
--------- ---------
Total current liabilities (46,019) (37,133)
--------- ---------
Non-current liabilities
Financial liabilities 7 (5,155) (25,573)
Trade and other payables - (27)
Deferred tax liability (2,183) -
Provisions for liabilities and charges (11,309) (8,437)
--------- ---------
Total non-current liabilities (18,647) (34,037)
--------- ---------
Net Assets 68,110 45,857
--------- ---------
Equity
Share capital 208 208
Share premium account 5,629 5,629
Share-based payment reserve 1,014 2,259
Treasury shares (3,139) (2,805)
Unrealised gain reserve - 3,900
Hedging reserve - (63)
Retained earnings 64,363 36,729
--------- ---------
Equity attributable to owners of parent 68,075 45,857
Non-controlling interests 35 -
Total equity 68,110 45,857
--------- ---------
Group Cash Flow Statement
for the year ended 31 December 2010
31 December 31 December
2010 2009
Note GBP'000 GBP'000 GBP'000 GBP'000
Cash generated from operating activities
Profit before tax 35,958 16,609
Adjustments to reconcile
profit before tax to net
cash inflows from operating
activities
Negative goodwill 4 (29,825) -
Exceptional operating costs
(excluding negative
goodwill and share-based
payments) 17,636 358
Gain on sale of
available-for-sale
financial asset (3,923) -
Amortisation of intangible
assets 8,077 8,635
Dividend income (516) (24)
Finance income (5) (54)
Finance costs 2,228 2,221
Exceptional finance costs 2,007 -
Share-based payments 298 574
--------- --------
(4,023) 11,710
--------- ---------
Group operating profit
before amortisation and
share-based payments 31,935 28,319
Depreciation 1,748 1,407
Gain on sale of property,
plant
and equipment (17) 6
--------- --------
1,731 1,413
Decrease/(increase) in
trade and other
receivables 4,679 (6,128)
(Decrease)/increase in
trade and other payables
and provisions (2,675) 7,233
--------- --------
2,004 1,105
--------- ---------
Cash generated from
operations pre exceptional
costs 35,670 30,837
Exceptional operating costs
paid (17,636) (232)
Exceptional finance costs
paid (924) (18,560) - (232)
---------
Cash generated from
operations 17,110 30,605
Interest paid (1,957) (2,397)
Tax paid (3,485) (3,578)
---------
(5,442) (5,975)
--------- ---------
Net cash generated from
operating activities 11,668 24,630
Cash flows from investing
activities
Cash acquired on purchase
of subsidiary undertaking 25,946 -
Purchase of subsidiary
undertakings (3,742) (150)
Dividends received 516 54
Interest received 5 24
Purchase of property, plant
and
Equipment (4,982) (662)
Proceeds from sale of
property, plant and
equipment 738 13
Purchase of
available-for-sale
financial assets (195)
Proceeds from sale of
available-for-sale
financial asset 1,961 -
--------- --------
Net cash generated
from/(expended on)
investing activities 20,247 (721)
Group Cash Flow Statement (continued)
for the year ended 31 December 2010
31 December 2010 31 December 2009
Note GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from
financing activities
Repayment of loans (23,692) (23,698)
Purchase of treasury
shares (net of
consideration received
on reissue of treasury
shares) (597) -
Dividends paid (8,146) -
--------- ---------
Net cash used in financing
activities (32,435) (23,698)
Net (decrease)/increase in
cash and cash equivalents (520) 211
Cash and cash equivalents
at the beginning of the year 858 647
--------- -----------
Cash and cash equivalents
at the end of the year 338 858
--------- -----------
Group Statement of changes in equity
for the year ended 31 December 2010
Year ended 31 December 2010
Share-
Share based Unrealised
Share premium payment Treasury gains Hedging Retained Total Minority
capital account reserve shares reserve reserve earnings equity interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2010 208 5,629 2,259 (2,805) 3,900 (63) 36,729 45,857 - 45,857
Profit for
the year - - - - - - 34,500 34,500 35 34,535
Other
comprehensive
income - - - - (3,900) 63 - (3,837) - (3,837)
-------- -------- -------- --------- ----------- -------- --------- -------- --------- --------
Total
comprehensive
income 208 5,629 2,259 (2,805) - - 71,229 76,520 35 76,555
Purchase
of treasury
shares - - - (1,007) - - - (1,007) - (1,007)
Reissuance
of treasury
shares - - (1,543) 673 - - 1,280 410 - 410
Share-based
payments - - 298 - - - 298 - 298
Dividend
payment - - - - - - (8,146) (8,146) - (8,146)
At 31 December
2010 208 5,629 1,014 (3,139) - - 64,363 68,075 35 68,110
-------- -------- -------- --------- ----------- -------- --------- -------- --------- --------
Year ended 31 December 2009
Share- Investment
Share based in Unrealised
Share premium payment treasury gains Hedging Retained Total
capital account reserve shares reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2009 208 5,629 531 (2,934) 3,900 - 26,395 33,729
Change in
accounting
policy - - 1,413 - - - (1,413) -
-------- -------- -------- ----------- ----------- -------- --------- --------
Restated
balance 208 5,629 1,944 (2,934) 3,900 - 24,982 33,729
Profit for
the year - - - - - - 11,747 11,747
Other
comprehensive
loss - - - - - (63) - (63)
-------- -------- -------- ----------- ----------- -------- --------- --------
Total
comprehensive
income - - - - - (63) 11,747 11,684
Reissuance
of treasury
shares - - (109) 129 - - - 20
Share-based
payments - - 424 - - - - 424
At 31 December
2009 208 5,629 2,259 (2,805) 3,900 (63) 36,729 45,857
-------- -------- -------- ----------- ----------- -------- --------- --------
Notes to the Preliminary Results
The financial information in this preliminary announcement does
not constitute LSL's statutory financial statements for the year
ended 31 December 2010 but has been extracted from the financial
statements, and as such, does not contain all information required
to be disclosed in the financial statements prepared in accordance
with IFRS.
Statutory financial statements for this year will be filed
following the Annual General Meeting. The auditors have reported on
these financial statements. Their report was unqualified and did
not contain a statement under section 498 (2) or (3) of the
Companies Act 2006
1 Basis of preparation
The accounting policies adopted are consistent with those of the
previous financial year except for the adoption of new Standards
and Interpretations as of 1 January 2010 which are applicable to
the Group, as noted below:
IFRS 3 (revised) Business Combinations
The amendment to IFRS 3 changes the treatment of
acquisition-related costs and contingent consideration relating to
acquisitions after 1 January 2010. The standard also changes the
treatment of non-controlling interests (formerly minority
interests) with an option to recognise these at full fair value as
at the acquisition date and a requirement for previously held
non-controlling interests to be fair valued as at the date control
is obtained, with gains and losses recognised in the income
statement.
Some of the key features of the revised IFRS3 include:
- Acquisition-related costs to be expensed and not included in
the purchase price;
- Contingent consideration to be recognised at fair value on the
acquisition date (with subsequent changes recognised in the income
statement and not as a change to goodwill); and
- Changes to the accounting treatment of step acquisitions.
Revised IFRS 3 applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after 1 July
2009.
The Group treated theacquisition-related costs in respect of
acquisitions made in the year ended 31 December 2010 as exceptional
costs and these were expensed to the income statement.
IAS 27R Consolidated and Separate Financial Statements
The revision to this Standard requires the Group to attribute
losses to non-controlling interests even if this results in the
non-controlling interest having a deficit balance. This change is
applicable prospectively and the controlling shareholder will not
be able to recover any past losses absorbed under the old
rules.
The revision of the Standard had no material effect on the
results for the year ended 31 December 2010.
The amendments to the following standards below did not have any
impact on the accounting policies, financial position or
performance of the Group:
0 IAS 39 Financial Instruments: Recognition and Measurement -
Eligible hedged items
0 IFRIC 12 Service Concession Arrangements
0 IFRIC 15 Agreements for the Construction of Real Estate
0 IFRIC 17 Distribution of Non-cash Assets to Owners
0 IFRIC 18 Transfers of Assets from Customers
0 Improvements to IFRSs (issued 2009)
2. Segment analysis of revenue and operating profit
For management purposes, the Group is organised into business
units based on their products and services and has two reportable
operating segments as follows:
-- The estate agency and related services provides services
related to the sale and letting of housing via a network of high
street branches. In addition, it provides repossession asset
management services to a range of lenders. It also sells mortgages
for a number of lenders and sells life assurance and critical
illness policies, etc for a number of insurance companies via the
estate agency branch and Linear network. It also operates as a
mortgage and insurance distribution company providing products and
services to financial intermediaries.
-- The surveying and valuation segment provides a professional
survey service of domestic properties to various lending
corporations and individual customers.
No operating segments have been aggregated to form the above
reported operating segments.
Management monitors the operating results of its business units
separately for the purpose of making decisions about resource
allocation and performance assessment. Segment performance is
evaluated based on operating profit or loss which in certain
respects, as explained in the table below, is measured differently
from operating profit or loss in the group financial statements.
Head office costs, group financing (including finance costs and
finance incomes) and income taxes are managed on a group basis and
are not allocated to operating segments.
The geographic segment has not been reported separately as all
the revenue and expense arises in the United Kingdom and all assets
are situated in the United Kingdom.
Operating segments
The following table presents revenue and profit information
regarding the Group's operating segments for the financial year
ended 31 December 2010 and financial year ended 31 December 2009
respectively.
Year ended 31 December 2010
Estate
agency and Surveying
related and valuation
services services Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
------------- -------------- ----------- ---------
Income statement
information
Segmental revenue 125,672 80,934 - 206,606
------------- -------------- ----------- ---------
Segmental result:
- before exceptional
costs, amortisation
and share-based
payments 7,236 27,301 (2,602) 31,935
- after exceptional
costs,
amortisation and
share-based
payments 20,447 22,139 (2,914) 39,672
------------- -------------- ----------- ---------
Dividend income 516
Finance income 5
Finance costs (2,228)
Exceptional finance
costs (2,007)
---------
Profit before tax 35,958
Taxation (1,423)
Profit for the
year 34,535
---------
2. Segment analysis of revenue and operating profit
(continued)
Estate
agency and Surveying
related and valuation
Year ended 31 December services services Unallocated Total
2009 GBP'000 GBP'000 GBP'000 GBP'000
----------- -------------- ----------- --------
Income statement
information
Segmental revenue 87,655 70,048 - 157,703
----------- -------------- ----------- --------
Segmental result:
- before exceptional
costs, amortisation
and share-based payments 6,705 23,554 (1,940) 28,319
----------- -------------- ----------- --------
- after exceptional costs,
amortisation
and share-based payments 4,910 15,782 (1,940) 18,752
----------- -------------- ----------- --------
Dividend income 24
Finance income 54
Finance costs (2,221)
--------
Profit before tax 16,609
Taxation (4,862)
--------
Profit for the year 11,747
--------
3. Earnings per share
Basic earnings/(loss) per share amounts are calculated by
dividing net profit/(loss) for the period attributable to ordinary
equity holders of the parent by the weighted average number of
ordinary shares outstanding during the period.
Diluted earnings/(loss) per share amounts are calculated by
dividing the net profit/(loss) attributable to ordinary equity
holders of the parent by the weighted average number of ordinary
shares outstanding during the period plus the weighted average
number of ordinary shares that would be issued on the conversion of
all the dilutive potential ordinary shares into ordinary
shares.
2010 2009
Profit Weighted Per Profit Weighted Per
after average share after average share
tax number amount tax number amount
GBP'000 of shares Pence GBP'000 of shares Pence
Basic EPS 34,500 102,777,043 33.6 11,747 102,818,875 11.4
Effect of
dilutive
share
options - 418,857 - - 360,830 -
Diluted
EPS 34,500 103,195,900 33.4 11,747 103,179,705 11.4
-------- ------------ ------- -------- ------------ --------
There have been no other transactions involving ordinary shares
or potential ordinary shares between the reporting date and the
date of completion of these financial statements.
3. Earnings per share (continued)
Adjusted basic and diluted EPS
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
2010 2009
GBP'000 GBP'000
--------- ---------
Group operating profit before exceptional
costs, share-based payments and amortisation
(excluding minority interest) 31,900 28,319
Net finance costs (excluding exceptional
costs) (1,707) (2,143)
Normalised taxation (8,654) (7,541)
Adjusted Profit after tax(1) before exceptional
costs, share-based payments and amortisation 21,539 18,635
--------- ---------
(1) This represents adjusted profit after tax attributable to
equity holders of the parent. Tax has been adjusted to exclude the
prior year tax adjustments, and the tax impact of exceptional
items, amortisation and share-based payments.
Adjusted basic and diluted EPS
Adjusted 2010 Adjusted 2009
profit Weighted Per profit Weighted Per
after average share after average share
tax(2) number amount tax(1) number amount
GBP'000 of shares Pence GBP'000 of shares Pence
Adjusted
Basic
EPS 21,539 102,777,043 21.0 18,635 102,818,875 18.1
Effect of
dilutive
share
options - 418,857 - - 360,830 -
Adjusted
Diluted
EPS 21,539 103,195,900 20.9 18,635 103,179,705 18.1
--------- ------------ ------- --------- ------------- -------
(2) This represents adjusted profit after tax attributable to
equity holders of the parent
4. Exceptional profit and other exceptional costs
2010 2009
GBP'000 GBP'000
----------- ----------
Exceptional profit arising through acquisition
of HEAL Business:
Negative goodwill arising on acquisition 29,825 -
Employee costs
Redundancy costs due to branch closures
and business reorganisation of the acquisition (7,730) -
Other
Acquisition and re-branding costs (6,125) -
----------- ----------
Exceptional profit arising through acquisition
of HEAL Business 15,970 -
Other exceptional costs:
Employee costs
Redundancy costs due to branch closures
and business reorganisation (756) (232)
Accelerated share-based payments - (42)
Other
Impairment of goodwill - (126)
Others (133) -
Acquisition related costs (96) -
Provision for professional indemnity claims (2,796) -
----------- ----------
Total operating exceptional profit/(costs) 12,189 (400)
Finance costs
Banking and legal fees incurred for extension
of facility (924) -
Interest rate swap (see note below) (1,083) -
----------- ----------
(2,007) -
----------- ----------
Net exceptional profit/ (cost) 10,182 (400)
----------- ----------
During April and May 2009, the Group entered into three fixed
interest rate swap arrangements with their banker for a total
principal amount of GBP25m to hedge against potential increase in
future LIBOR payable on the Revolving Credit Facility (RCF). In
2009 this hedge was treated as cash flow hedge and accounted for
under hedge accounting.
The terms of the interest rate swap agreements are now not
expected to match the terms of the commitments due to the reduction
in the RCF utilisation during 2010. The cash flow hedge of the
expected future interest payment was assessed to be ineffective and
as at 31 December 2010 an unrealised loss of GBP 1,083,000 relating
to the hedging instrument that arose in the period is included in
the income statement as exceptional finance costs.
During 2009, property-careers.com Limited ceased trading and an
impairment review was conducted in accordance with the accounting
policy. As a result of this impairment review, the entire value of
goodwill in intangible assets of GBP126,000 was impaired. In
addition, some employee costs were incurred due to the cessation of
trading of this operation.
5. Dividends paid and proposed
2010 2009
GBP'000 GBP'000
--------- ---------
Declared and paid during the year:
Equity dividends on ordinary shares:
2009 full year: 5.4 pence 5,567 -
2010 Interim: 2.5 pence 2,579 -
--------- ---------
8,146 -
--------- ---------
Dividends on ordinary shares proposed (not recognised
as a liability as at 31 December):
Equity dividends on ordinary shares:
Dividend: 5.9 pence per share (2009
- 5.4 pence) 6,064 5,555
--------- ---------
6. Taxation
The major components of income tax (credit)/charge in the group
income statements are:
2010 2009
GBP'000 GBP'000
--------- ---------
UK corporation
tax - current year 1,280 5,615
- adjustment in respect
of prior years 281 401
--------- ---------
1,561 6,016
Deferred tax:
Origination and reversal of temporary
differences (966) (603)
Impact of rate change on deferred tax (80)
Adjustment in respect of prior year 908 (551)
--------- ---------
Total deferred tax (138) (1,154)
--------- ---------
Total tax charge in the income statement 1,423 4,862
--------- ---------
Income tax credited directly to equity is GBP24,000 (2009 -
charged GBP24,000) which relates to deferred tax on the net loss on
the cash flow hedge.
On 22 June 2010 the UK government announced proposals to reduce
the main rate of corporation tax from 28% to 24% over four years
with effect from 1 April 2011. As of 31 December 2010 only the
reduction to 27% has been enacted. In addition changes to the
capital allowances regime were proposed including a reduction in
the rate of capital allowances on plant and machinery additions
form 20% to 18% with effect from 1 April 2012. If these proposals
had been substantially enacted, the deferred tax liability at 31
December 2010 would have reduced by GBP217,000.
6. Taxation (continued)
Factors affecting tax charge for the year
The tax assessed in the profit and loss account is lower (2009 -
higher) than the standard UK corporation tax rate, because of the
following factors:
2010 2009
GBP'000 GBP'000
--------- ---------
Profit on ordinary activities before tax 35,958 16,609
--------- ---------
Tax charge on ordinary activities multiplied
by rate of corporation tax rate in the UK
of 28% (2009 - 28%) 10,068 4,651
Non taxable negative goodwill on acquisition (8,351) -
Non taxable income (145) (26)
Non taxable profit on disposal of available
for sale financial asset (1,098) -
Benefit of deferred tax asset not previously
recognised (998) -
Disallowable expenses 796 387
Impact of rate change on deferred tax (80) -
Others 42 -
--------- ---------
234 5,012
Prior period adjustments - current tax 281 401
Prior period adjustment - deferred tax 908 (551)
--------- ---------
Total taxation charge 1,423 4,862
--------- ---------
7. Analysis of net debt
2010 2009
GBP'000 GBP'000
--------- ---------
Interest bearing loans and borrowings
- Current 92 993
- Non-current 5,155 25,573
--------- ---------
5,247 26,566
Less: cash and short-term deposits (338) (858)
Net debt at the end of the year 4,909 25,708
--------- ---------
During the year, the Group has repaid GBP23.6m (2009 - repaid
GBP22.7m) of the revolving credit facility. The utilisation of this
revolving credit facility may vary each month as long as this does
not exceed the maximum GBP75m facility. The banking facility was
renewed for a period till March 2014. The revolving credit facility
is repayable when funds permit.
8. Acquisitions during the year
Year ended 31 December 2010
The Group acquired the following businesses during the year:
a. Halifax Estate Agencies Limited
On 15 January 2010, the Group completed the acquisition of the
entire share capital of Halifax Estate Agencies Limited (HEAL) for
the consideration of GBP1 (one pound). The HEAL network, comprising
218 estate agency branches, were absorbed into the main brands
within LSL, namely Your Move, Reeds Rains and Intercounty. The
acquisition also brought HEAL's asset management business into the
LSL Group.
The fair value of the identifiable assets and liabilities of
HEAL as at the date of acquisition were:
Fair value
recognised
on acquisition
GBP'000
----------------
Customer relationships 2,500
Property, plant and equipment 8,928
Financial assets (investments) 750
Trade and other receivables 5,623
Cash and cash equivalents 25,946
Trade and other payables (10,816)
Deferred tax liabilities (3,106)
----------------
Total identifiable net assets acquired 29,825
Purchase consideration -
Negative goodwill (29,825)
================
Analysis of cash flow on acquisition GBP'000
--------
Transaction costs (including rebranding) (included
in cash flows from operating activities) (6,125)
Net cash acquired with the subsidiary (included
in cash flows from investing activities) 25,946
Net cash flow on acquisition 19,821
========
Transaction costs (including rebranding costs) have been
expensed and are included under exceptional costs (see note 7).
From the date of acquisition to 31 December 2010, HEAL assets
have contributed to GBP24.2m of revenue and GBP3.2m loss before tax
of the Group. If the combination had taken place at the beginning
of the year, the consolidated group operating profit (before
exceptional costs, amortisation and share-based payments) would
have been lower by GBP1.1m and revenue would have been higher by
GBP0.8m.
b. Home of Choice and Advance Mortgage Funding Limited
On 7 May 2010, the Group completed the acquisition of the trade
and assets of Home of Choice Limited (HoC) from administrators for
a total consideration of GBP0.4m. HoC is a multi-tied specialist
mortgage network provider to approximately 500 self employed
mortgage advisers with extensive financial services expertise and
knowledge of the mortgage market. Subsequent to acquisition, the
trade and assets of Home of Choice were integrated into First
Complete Limited.
On 1 December 2010, the Group completed the acquisition of 100%
of the issued capital of Advance Mortgage Funding Limited (AMF) and
its subsidiary BDS Mortgage Group Limited (BDS) (together trading
as Pink Home Loans). AMF operates as a mortgage and insurance
distribution company providing products and services to financial
intermediaries, while BDS operates as a mortgage and insurance
network and packager.
8. Acquisitions during the year (continued)
(b) Home of Choice and Advance Mortgage Funding Limited
(continued)
The provisional fair value of the identifiable assets and
liabilities of HoC and Pink Home Loans as at the dates of
acquisition were:
Provisional fair
value recognised
on acquisition
GBP'000
Intangible assets (brand) 180
Property, plant and equipment 112
Deferred tax asset 206
Trade and other receivables 1,931
Trade and other payables (5,631)
Financial liabilities (750)
------------------
Total identifiable net liabilities acquired (3,952)
Purchase consideration 2,400
Goodwill arising on acquisition 6,352
==================
Purchase consideration discharged by:
Cash 1,990
Deferred consideration 410
------------------
Total 2,400
------------------
The goodwill of GBP4,146,000 for Home of Choice and GBP2,386,000
for Pink Home Loans comprises certain intangible assets that cannot
be individually separated and reliably measured from the acquiree
due to their nature. These items include the expected value of
synergies, self employed mortgage advisors, appointed
representative network and an assembled workforce. Goodwill is
allocated entirely to Estate Agency and related activities segment.
Goodwill relating to Home of Choice is expected to be deductible
for income tax purposes as this is a trade and asset acquisition
and this does not represent goodwill arising on consolidation.
From the date of acquisition to 31 December 2010, Home of Choice
and Pink Home Loans have together contributed to GBP2,842,000 of
revenue and GBP12,000 to profit after tax of the Group. If the
combination had taken place at the beginning of the year, the
consolidated group operating profit (before exceptional costs,
amortisation and share-based payments) would have been lower by
GBP954,000 and revenue would have been higher by GBP4,653,000.
c. Other acquisitions
During 2010 the Group also acquired:
-- the entire share capital of Templeton LPA Limited (Templeton)
on 8 February 2010 for a total consideration of GBP454,000 of which
GBP362,000 was paid in cash and a further GBP92,000 is deferred
consideration payable in January 2011. -- the assets of the estate
agency, land and new home and lettings business of Goodfellows
Group plc (Goodfellows) on 28 May 2010 for a cash consideration of
GBP1,030,000. Goodwill on this is included as part of LSLi Limited.
-- Lettings business of Phillip Green Estate Agents for a cash
consideration of GBP360,000 in June 2010 (referred to as PG
Lettings below). Goodwill on this is included as part of LSLi
Limited.
8. Acquisitions during the year (continued)
(c) Other acquisitions (continued)
The combined fair values of the identifiable assets and
liabilities as at the date of acquisition of the above three
acquisitions were:
GBP000
--------
Intangible assets (brand) 115
Property, plant and equipment 220
Trade and other receivables 246
Trade and other payables (283)
Deferred tax liability (16)
--------
Total identifiable net assets acquired 282
Purchase consideration 1,844
Goodwill arising on acquisition 1,562
========
Purchase consideration discharged by:
Cash 1,752
Deferred consideration 92
Total 1,844
========
Analysis of cash flow on acquisition
Transaction costs (included in cash flows from
operating activities) (55)
Cash consideration (1,752)
(1,807)
========
From the dates of acquisition to 31 December 2010, Templeton,
Goodfellows and PG Lettings have together contributed to
GBP3,120,000 of revenue and GBP182,000 to profit after tax of the
Group. If the combination had taken place at the beginning of the
year, the consolidated group operating profit (before exceptional
costs, amortisation and share-based payments) would have been
higher by GBP165,000 and revenue would have been higher by
GBP1,326,000.
9. Annual General Meeting (AGM)
The AGM will be held at the London offices of LSL, 1 Sun Street,
London EC2A 2EP on 20th April 2011 starting at 2.30pm.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAPDFEASFEFF
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