TIDMLSL
RNS Number : 6286B
LSL Property Services
06 March 2014
For immediate release 6 March 2014
LSL Property Services plc ("LSL" or "the Group")
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 2013.
Highlights 2013 2012 % change
------------------------------------------------------------------ ------ ------ ---------
Group revenue GBPm 258.6 243.8 +6
Group Underlying Operating Profit(1) GBPm 37.1 35.1 +6
Group Underlying Operating Margin % 14.3 14.4 -0.1
------------------------------------------------------------------ ------ ------ ---------
Profit before tax GBPm 17.1 6.7 +155
Underlying profit before tax(1) GBPm 33.9 32.5 +4
Basic Earnings Per Share- pence 13.6 6.8 +100
Adjusted Basic Earnings Per Share - pence 25.3 23.8 +6
Cash inflow from operations before PI and exceptional costs GBPm 42.4 41.4 +2
Net Bank Debt(3) at 31(st) December GBPm 26.3 26.6 -1
Final proposed dividend per share - pence 7.2 6.4 +13
Full year dividend per share - pence 10.5 9.5 +11
------------------------------------------------------------------ ------ ------ ---------
Like-for-like(2) Group revenue - GBPm 258.6 238.3 +8
Like-for-like Group Underlying Operating Profit(1,2) GBPm 37.1 32.6 +14
Like-for-like operating profit margin % 14.3 13.7 +0.6
------------------------------------------------------------------ ------ ------ ---------
-- Excellent progress in the Estate Agency Division
-- Considerable improvement in the performance of the Surveying
Division during the second half of the year
-- Significant investment in capacity across both the Estate
Agency and Surveying Divisions to provide a platform for growth in
2014
-- Exceptional Professional Indemnity ("PI") charge confirmed,
as announced in November 2013, with costs currently tracking as
expected
-- Strong operational cash flow, balance sheet and dividend growth
-- Confidence in delivering growth and benefits from operational gearing in an improving market
______________________________
(1) Underlying Operating Profit and Underlying Profit before tax
are before exceptional costs, contingent consideration,
amortisation of intangible assets and share-based payments - refer
Note 3 for calculation
(2) Like-for-like excludes the impact of the insourcing of a
contract by a major Surveying client in June 2012 as announced in
the Interim Results in July 2012
(3) Refer to Note 7 for the calculation
Commenting on today's announcement, Roger Matthews, Chairman,
said:
"Market volumes have now grown year on year for ten consecutive
months. Feedback from lenders is that market transaction levels
will continue to improve. This positive view, combined with recent
encouraging news on unemployment and GDP growth, support the
Board's positive view of the market for 2014.
The Group has started the year strongly and, with a robust
balance sheet, relatively low levels of gearing and strong cash
generation at the operational level, is well placed to deliver
significant growth in 2014. The Board's confidence in the future
prospects of the business is reflected in the 13% increase in the
final dividend.
Overall, the business is well positioned to benefit from the
organic growth and operational gearing potential in a recovering
market, which combined with the possibility of bolt-on
acquisitions, will increase shareholder value."
For further information, please contact:
Ian Crabb, Group Chief Executive Officer
Steve Cooke, Group Finance Director
LSL Property Services plc 0207 382 0360
Richard Darby, Sophie McNulty, Helen Greenwood
Buchanan 0207 466 5000
Notes to Editors:
LSL is a leading provider of residential property services to
its key customer groups. Services to consumers include: residential
sales, lettings, surveying, conveyancing and advice on mortgages
and non investment insurance products. Services to mortgage lenders
include: valuations and panel management services, asset management
and property management services. For further information and a
copy of the full annual report, please visit LSL's website:
www.lslps.co.uk
Chairman's Statement
Introduction
After five years during which transaction volumes have been
depressed at less than half of normal historical levels, the market
has started to recover in 2013 with consistent growth since the
second quarter.
I am pleased to report that against this improving backdrop the
Group has made good progress, reporting Group Underlying Operating
Profit of GBP37.1m for the year. Group Revenue and Group Underlying
Operating Profit both increased by 6% compared to 2012 while on a
like-for-like basis(1) , Group revenue increased by 8% and Group
Underlying Operating Profit by 14% even after significant
investment in capacity for further growth.
The Estate Agency Division has delivered a strong performance,
particularly in the second half of the year. Residential Sales
income increased by 11% and Financial Services income by 13%.
Lettings income grew largely organically by 8% in a market which
continued to demonstrate strong growth. The Surveying Division
delivered an excellent second half performance during which it also
invested heavily to alleviate the capacity constraints which are
impacting the whole sector.
The business is extremely cash generative at the operational
level and has a strong balance sheet. I am delighted to report an
increase in our proposed final dividend of 13% to 7.2 pence per
share (2012: 6.4 pence). This will result in the total dividend for
the year increasing by 11% to 10.5 pence per share (2012: 9.5
pence), recognising our confidence in the future growth prospects
of the business.
The high level of year on year growth in the second half year in
both the Surveying and Estate Agency Divisions and the significant
increase in the Residential Sales pipeline at the end of the year
provides evidence of a recovering housing market. This, together
with the investment in capacity during the year, leaves the Group
well placed to deliver growth in 2014.
Financial Results
Group revenue increased by 6% to GBP258.6m (2012: GBP243.8m) and
Group Underlying Operating Profit increased by 6% to GBP37.1m
(2012: GBP35.1m). Group Underlying Operating Margin was 14.3%
(2012: 14.4%). On a like-for-like(1) basis, Group revenue increased
by 8% to GBP258.6m (2012: GBP238.3m) and Group Underlying Operating
Profit increased by 14% to GBP37.1m (2012: GBP32.6m), with
like-for-like Group Underlying Operating Profit margin increasing
from 13.7% in 2012 to 14.3%.
The Estate Agency Division increased Underlying Operating Profit
by 19% to GBP29.1m (2012: GBP24.4m). This performance was delivered
in a market where house purchase approvals increased by 21% to
736,000(2) (2012: 610,000). However, most of the market growth
occurred in the second half of the year and part of the benefit of
the fourth quarter market growth was reflected in the strength of
the closing pipeline. There was strong revenue growth in
Residential Sales income, Financial Services and Lettings. Marsh
& Parsons continued its expansion strategy with three new
branch openings and made good progress in a central London market
where stock levels remained low. In line with previous trends,
repossession volumes fell by 15% to 28,900(3) in the year (2012:
33,900) which impacted revenue and profit, although the Asset
Management business once again increased market share.
The Surveying Division faced a decline in market transaction
levels in the first quarter followed by significant growth for the
rest of the year. Turnover declined in 2013 as a result of the
insourcing of a major contract in 2012, as previously noted. There
has been a significant investment programme to
add capacity through a new graduate recruitment programme though
the additional resource was generally not productive in 2013 as the
new surveyors were still undergoing training. Total mortgage
approvals increased by 12% to 1.29m(2) (2012: 1.16m), including a
16% increase in remortgages to 393,000 (2012: 340,000). Surveying
Division revenue decreased by 3% and Underlying Operating Profit
was GBP13.1m (2012: GBP13.9m) with Underlying Operating Margin of
21.7% (2012: 22.4%). On a like for like(1) basis, Surveying revenue
increased by 7%, Underlying Operating Profit increased by 15% to
GBP13.1m (2012: GBP11.4m) and Underlying Operating Margin increased
to 21.7% (2012: 20.0%).
We have increased our PI provisions relating to the 2004 - 2008
high risk period by GBP12m as indicated in our Interim Management
Statement in November 2013. This is disappointing and reflects the
fact that the reduction in the rate of claims that we had expected
during the year, and assumed in setting the previous level of
provision, has not yet materialised. Since November 2013, the rate
of new claims and cost per claim has been consistent with the
assumptions behind the new provision. The additional provision
represents the Group's current best estimate of likely claims costs
but the process of resolving open claims and estimating future
claims is on-going. The provision required is highly sensitive to
the run rates of new claims and the costs per claim for both new
and existing claims.
Profit before tax, amortisation, share based payments,
contingent consideration and exceptional costs increased by 4% to
GBP33.9m (2012: GBP32.5m). Exceptional operating costs of GBP13.0m
(2012: GBP17.7m) included PI Costs of GBP12.0m (2012: GBP17.3m)
noted above. There was also a non-cash charge of GBP2.8m (2012:
GBP4.4m) relating to employment related contingent consideration in
acquisitions and amortisation of intangible assets during the year
was GBP0.4m (2012: GBP3.5m). Profit before tax increased to
GBP17.1m (2012: GBP6.7m) and profit after tax was GBP14.0m (2012:
GBP7.0m). On an adjusted basis, earnings per share, increased by 6%
to 25.3p (2012: 23.8p).
Cash generated from operations net of capital expenditure was
GBP19.0m (2012: GBP26.9m). Operating cashflow included PI cash
settlements of GBP14.4m (2012: GBP7.7m), which increased as a
result of the large rise in the number of claims received and
because of an increase in negotiated settlements with some lender
claimants. Capital expenditure increased to GBP7.9m (2012: GBP5.7m)
through investment in a number of new IT systems, including a
common platform for our Financial Services businesses and the
development of enhanced lettings systems in Marsh & Parsons,
Your Move and Reeds Rains.
Net Bank Debt at 31st December 2013 was GBP26.3m compared to
GBP26.6m at 31st December 2012 after investing GBP4.6m in
acquisitions (2012: GBP3.9m), the purchase of treasury shares via
LSL's Employee Benefit Trust and additional shares in Zoopla. Net
Bank Debt did not decline significantly in the year primarily
because of the increase in PI cash settlement costs. It is
anticipated that cash settlement costs will run at a similar level
during 2014 and then decline.
Net assets increased to GBP99.3m at 31st December 2013 (2012:
GBP76.1m), including a GBP22.5m valuation uplift following a review
of the fair value of the investment in Zoopla.
Dividend
As a result of the strong growth in underlying Group
profitability, the improving market conditions and the Board's
positive view of future prospects for the business, an increase in
the final dividend of 13% to 7.2p per share (2012: 6.4p) will be
proposed to Shareholders at the forthcoming AGM, increasing the
total dividend for 2013 by 11% to 10.5p per share (2012: 9.5p per
share). The proposed dividend payment is slightly over the upper
limit of our previously stated policy of applying a dividend payout
ratio of between 30% to 40% of Group Underlying Operating Profit
after interest and tax and reflects our confidence in the
future.
The ex dividend date for the final dividend is 26th March 2014
with a record date of 28th March 2014 and a payment date of 29th
April 2014. Shareholders have the opportunity to elect to reinvest
their cash dividend and purchase existing shares in LSL through a
dividend reinvestment plan.
Divisional performance
Estate Agency Division
2013 has been a year of excellent progress combined with major
investment in the Estate Agency Division. Profit per owned branch,
excluding Marsh & Parsons, increased to GBP32k (2012: GBP21k)
compared to the medium term target of GBP30k to GBP50k which the
Board set in 2011 when profit per owned branch was GBP5k. All key
income streams in the Division other than Asset Management have
grown strongly and operating margin increased to 14.7% (2012:
13.5%).
Residential Sales income, excluding Marsh & Parsons,
increased by 10% to GBP64.1m (2012: GBP58.1m) mainly driven by
improved mix and good progress increasing average fee. The rate of
income growth has accelerated during the year in line with the
improvement in the market. Our Lettings business has continued to
perform well, despite some counter cyclical reduction in the rate
of lettings market growth. Lettings income, excluding Marsh &
Parsons, increased by 9% to GBP39.2m (2012: GBP35.8m).
Marsh & Parsons made good progress in a challenging central
London market where stock levels remained flat all year. Total
revenue increased by 10% to GBP29.9m (2012: GBP27.3m) with
Residential Sales growth of 14% and Lettings growth of 6%.
Operating profit was GBP6.7m (2012: GBP7.2m) including the cost of
opening new branches and of putting in place infrastructure to
support the on-going branch opening programme.
Financial Services income delivered through our Estate Agency
Division branches and Financial Services intermediary networks
increased by 13% during 2013 to GBP35.8m (2012: GBP31.8m). Growth
was held back slightly by an exceptionally strong comparative where
insurance business was accelerated into quarter four 2012 ahead of
gender pricing changes in December 2012. Activity levels are
growing in line with the improving market. The Group arranged total
mortgage lending of GBP10.9bn in 2013 (2012: GBP7.1bn).
Asset Management delivered a solid result in a counter cyclical
market. Revenue declined by 9% to GBP14.3m (2012: GBP15.6m) in a
market where repossession volumes reduced by 15% to 28,900 (2012:
33,900) and have now fallen for four years running by a total of
41%. The business is continuing to target new property management
contracts, although the tender processes are relatively slow so
revenue improvement from this source will be geared to the medium
term.
Surveying Division
Following a major contract insourcing in 2012 and mortgage
transaction volumes contracting by 11% in the first quarter, the
Surveying Division began to build new capacity once the early signs
of market recovery appeared after Easter. Like-for-like volume
growth was 3% for the year which combined with some early signs of
fee improvement resulted in revenue growth of 7%.
Performance improved considerably during the year as the market
began to grow. While revenue in the first half fell by 2% year on
year in like-for-like terms, it increased by 15% year on year in
the second half. Revenue from the provision of surveying services
for private buyers continued to grow during the year, although we
began to prioritise resource away from this area to the provision
of valuation services to lender clients from the middle of the
year. Despite incurring the costs of recruiting graduates into the
new surveyor training scheme, there was a sharp increase in second
half operating profit, helped by short term under capacity in the
market leading to an easing of the pricing environment. Full year
operating margin increased to 21.7% against a like-for-like
comparative of 20.0%.
Developments
During 2013, we have continued to invest in the business with
headcount in the Estate Agency businesses increasing by 487. In
Surveying we launched a new graduate surveyor recruitment and
training programme and hired 43 new graduates during the year
bringing the total number of surveyors to 429. These new graduates
take at least 12 months to train and so will not become fully
productive until midway through 2014. This increase in headcount
provides a good platform for delivering further revenue growth in
both Estate Agency and Surveying with more investment is planned
for 2014 especially in the Surveying Division where there remains a
significant capacity shortfall across the sector.
During the year, Marsh & Parsons opened three new branches
in South Kensington, Bishops Park and Marylebone, all of which are
performing well. The business is committed to an opening programme
of three to four branches a year which will result in doubling the
number of branches over the next five years.
The Group has continued to make selective acquisitions and in
September we acquired Lawlors, which is an Essex based agent with
three branches offering residential sales and lettings services and
have also added five lettings businesses across the Estate Agency
Division.
Zoopla has continued to perform very strongly and in November
2013 LSL increased its shareholding in Zoopla by 0.12% at a cost of
GBP0.8m to bring our total shareholding to 4.91%. The Board has
reviewed the fair value of this shareholding and, using a value
equal to the price paid per share in November 2013, we have
increased the value of our holding to GBP35.1m (2012: GBP11.8m). In
February 2014, DMGT, the largest shareholder in Zoopla, announced
that the Board of Zoopla is exploring various strategic options for
the business.
Board and Corporate Governance
During the year, the Nominations Committee and the Board
considered at length the composition of the Board, which resulted
in a number of changes, namely the appointment of Ian Crabb as
Group Chief Executive Officer in September, when Simon Embley, the
former Group Chief Executive Officer stepped into the role of
Deputy Chairman.
Simon's new responsibilities took into account the Board's
desire to affect a smooth handover to Ian and to allow Simon to
support Ian on the execution of LSL's existing strategy to continue
delivering shareholder value as the market recovers. The Directors
feel that the changes reflect the Board's desire to implement an
orderly succession to a new Group Chief Executive Officer whilst
retaining Simon's significant knowledge of the residential property
market and, in particular, maintaining key client and industry
relations. Further, the recommendation for the appointment of Ian
took into account his experience in growing entrepreneurial
businesses in both 'business to business' and 'business to
consumer' markets. I welcome Ian to the Board and I am delighted to
report that the management transition is going extremely well.
In addition, in early January 2014, we appointed Bill Shannon as
an independent Non Executive Director and Chairman of the
Remuneration Committee, and at the same date Mark Pain stepped down
from the Board as an independent Non Executive Director. Bill has
significant PLC Board experience in strategy, operations, finance
and governance in consumer, financial services, residential and
commercial property sectors. I am confident that Bill will add
significant value to LSL's business during its next phase of
development and growth.
The Board is committed to high levels of corporate governance.
In respect of 2013, the Board has conducted an annual review of its
effectiveness and that of its Committees, taking into account the
balance of skills, experience, independence and knowledge of our
businesses and we concluded that the Board and its Committees are
effective and are able to discharge their respective duties and
responsibilities appropriately.
During 2013 and into 2014, the Board continues to recognise the
benefits of diversity in the boardroom, including gender diversity.
The current Board composition includes one female Director, Helen
Buck, who is an independent Non Executive Director. Whilst we
remain of the view that the setting of targets for the number of
female directors on the Board is not necessary and that we will
continue to appoint on merit, I will continue to ensure that our
searches for new directors take into account diversity, including
gender.
LSL remains committed to promoting diversity throughout the
Group and in 2013 we continued to build on the gender reviews
conducted during the previous two years. Further details of the
study and its conclusions are set out in our Corporate Social
Responsibility Report.
As Chairman, with the responsibility for leadership of the
Board, I personally review its effectiveness on all aspects of its
role and encourage feedback.
People
The Group expanded significantly during 2013 through investment
to build capacity and through a number of small bolt-on
acquisitions. In total the number of Group employees increased by
545 (11%) to 5,299 (2012: 4,754). I would like to extend a very
warm welcome to all of our new colleagues and wish them well in
their careers with LSL.
We are pleased that market conditions are improving but our
markets are extremely competitive and our success is ultimately
dependent on the customer service provided by colleagues in all
parts of the business. We have had a successful year in 2013 and I
would like to thank all of our employees for their hard work and
commitment which has contributed to this result.
Current trading and outlook
Market volumes have now grown year on year for ten consecutive
months. Feedback from lenders is that despite the recent changes to
the 'Funding for Lending' Scheme that market transaction levels
will continue to improve. The positive view from lenders, combined
with recent encouraging news on unemployment and GDP growth,
support the Board's positive view of the market for 2014.
The Group remains committed to its strategy of driving organic
growth in all parts of the business in order to capitalise fully on
the improved market conditions and of evaluating selective
acquisitions. Significant investment was made during 2013 to
provide a platform for future growth and we will continue to invest
in 2014 in both Estate Agency and Surveying.
The Group has started the year strongly and is well placed to
deliver significant growth in 2014.
The Group has a robust balance sheet with relatively low levels
of gearing and is extremely cash generative at the operational
level. The business is well positioned to benefit from the organic
growth and operational gearing potential in a recovering market,
which combined with the possibility of bolt on acquisitions, will
increase shareholder value.
Roger Matthews
Chairman
6(th) March 2014
(1) Like for-like excludes the impact of the insourcing of a
contract by a major Surveying client in June 2012 as announced in
the Interim Results in July 2012.
(2) Bank of England
(3) Council of Mortgage Lenders
Business Review - Estate Agency Division
The Estate Agency Division delivered excellent profit growth
2013 2012 %
Financial GBPm GBPm change
------------------------------------ ------- ------- -------
Residential Sales exchange income 80.0 72.0 11.0
Lettings income 52.2 48.0 8.5
Asset Management income 14.3 15.6 (8.5)
Financial Services income 35.8 31.8 12.8
Other income(1) 15.9 14.1 17.9
Total income 198.2 181.6 9.1
Operating expenditure (169.1) (157.2) 7.5
Underlying Operating Profit 29.1 24.4 19.2
KPIs
------------------------------------ ------- ------- -------
Exchange units(2) 27,129 26,255 3.3
Underlying Operating Margin (%) 14.7 13.5 1.2
Fee per unit(2) 2,831 2,654 6.7
House purchases (000's)(3) 736 610 20.6
Repossessions(4) 28,900 33,900 (14.7)
------------------------------------ ------- ------- -------
1 'Other income' includes franchising income, conveyancing
services, EPCs, Home Reports, utilities and other products and
services to clients of the branch network.
2 Exchange units and fee per exchange are on a like for like
basis (excluding branch openings and closures)
3 Source: Bank of England for "House Purchase Approvals" 2013
4 Source: Council of Mortgage Lenders arrears and repossessions
data relating properties taken into possession by first-charge
mortgage lenders for 2013.
Estate Agency Performance
After five years where transaction volumes have been depressed
at less than half the normal historic levels, 2013 has been a year
of transition for the Estate Agency Division with strong
performance in key income lines together with investment in
capacity to support further growth. After continued market
contraction in the first quarter of the year there was strong
transaction growth every month since April 2013. The number of
mortgage approvals for house purchases for the full year increased
by 21% to 736,000 (2012: 610,000)(3) which compares to historic
normalised levels of 1.2m. Allowing for the lag between mortgage
approval and completion, it is estimated that the number of
mortgage completions in the year, which is the key driver for LSL's
Residential Sales income, increased by 14% to 687,000 (2012:
603,000)(3) .
LSL has a balanced Estate Agency model and over the last six
years has significantly built its exposure to counter-cyclical and
non-cyclical income streams such as Lettings and Asset Management
Income. These income streams have grown at a compound annual rate
of 32% over the period, increasing from GBP12.8m in 2007 to
GBP66.5m in 2013. Given the change in the economic cycle in 2013,
the Group expects to see a reduction in this growth rate during the
next period in the cycle when housing transactions are expected to
grow significantly. The Estate Agency Division delivered an
excellent performance in 2013 with total income growing by 9% to
GBP198.2m (2012: GBP181.6m). The benefit of operational gearing can
be seen as 28% of the increase in revenue fell through to
Underlying Operating Profit even after substantial investment to
support future growth. Underlying Operating Profit increased by 19%
to GBP29.1m (2012: GBP24.4m).
Investment in the Estate Agency Division during 2013 included
the recruitment of an additional 487 heads, as well as the opening
of three new Marsh & Parsons branches. This will allow the
Estate Agency Division to capitalise on market growth in 2014 and
beyond.
Estate Agency Division Branches
Your Move, Reeds Rains and the seven LSLi brands all continued
to perform well during the year. Residential Sales income increased
by 11% to GBP80.0m (2012: GBP72.0m) due mainly to an improvement in
the average fee which increased by 12% to GBP2,908 (2012: GBP2,596)
driven partly by improved mix. This change in mix has created a
platform for making progress on both market share and fee growth
moving into 2014.
Marsh & Parsons
Marsh & Parsons delivered a solid performance in a
challenging Central London market. Although, there has been a
favourable pricing environment during 2013, there has been a
scarcity of stock particularly in Central London in which Marsh
& Parsons operates. This has created pressure on both volume
growth as well as commission percentages. Against this backdrop,
Marsh & Parsons revenue increased by 10% to GBP29.9m (2012:
GBP27.3m) and operating profit was GBP6.7m (2012: GBP7.2m).
Operating profit reduced year on year because of an increase in
the cost base driven by investment in new branch openings as well
as a new head office to give the business the capacity to expand
going forward. During 2013, three branches were opened in South
Kensington, Fulham and Marylebone which are performing well. The
Group is targeting four new branch openings in 2014.
Financial Services
Total Financial Services income delivered through the Estate
Agency Division's branches and intermediary networks of First
Complete, Pink Homes Loans and Linear Mortgage Network increased by
13% during 2013 to GBP35.8m (2012: GBP31.8m). Revenue has grown by
a compound annual growth rate of 24% since 2010 as a result of
significant organic growth including the successful roll out of
Financial Services to all branches and the acquisition of new
intermediary networks. In total the Group arranged mortgage lending
of GBP10.9bn during 2013 (2012: GBP7.1bn) giving the Group an
important position as a mortgage distributor for lender clients as
well as a growing revenue and profit stream.
Counter-Cyclical Income
Early 2013 was a turning point in the current economic cycle.
Unsurprisingly with the improvement in the residential market, the
Lettings market and LSL Lettings income will not continue to grow
at the same rates as those experienced in recent years. However,
the Group is continuing to invest in acquiring lettings businesses
and has recruited additional Lettings consultants during the year.
Total Lettings income grew by 8% year on year. This growth rate
fell slightly during the year from 9% in the first half to 8% in
the second half year.
The Group had previously set a target in a flat housing market
of increasing Lettings Income to the same level as Residential
Sales Income. As Residential Sales income grows strongly in this
part of the cycle the ratio of Lettings Income to Residential Sales
Income would be expected to reduce and in 2013, the ratio decreased
to 65% (2012: 67%).
With the improvements in the economy, repossession volumes fell
by a further 15% to 28,900 in 2013 (2013: 33,900)(4) . The market
has now declined for each of the last four years from 48,900 in
2009. The Directors are pleased that during this period LSL's
market share in Asset Management has increased and did so again in
2013. However, the decline in the size of the market as well as
continued fee pressure has resulted in a 9% reduction in revenue to
GBP14.3m (2012: GBP15.6m). Despite this contraction, LSL's Asset
Management business is well positioned to capitalise on an increase
in repossession volumes which may occur once interest rates start
to rise.
In order to offset the decline in repossession volumes, the
Asset Management business has started to develop its corporate
property management offering.
The Group now benefits from total counter-cyclical income from
Lettings and Asset Management of GBP66.5m compared to GBP63.7m in
2012 which represents 34% of the Estate Agency Division's revenue
and 26% of Group revenue.
4 Council of Mortgage Lenders
Developments
As well as investing in headcount to increase capacity LSL also
started a programme of investment in new front end systems in Your
Move, Reeds Rains and the LSLi brands during 2013. LSL provides
excellent service to its customers and this has been underpinned by
high quality systems. In 2013 the Group began a project to design
and implement next generation front end lettings systems and this
is expected to complete in 2014.
LSL Land & New Homes was created in 2010. Following
substantial investment, growth has been significant in 2013.
Services now include Land Sales and Acquisition, Planning Advice,
Conveyancing, Professional Photography, Audio Tours, EPCs, RICS
surveys, Desktop valuations, New Homes Sales, PX & Assisted
Move, Sales Management, Sale by Tender, Financial Services. LSL
Part Exchange Hub is the only one to hold ISO certification (ISO
9001:2008). Further investment has been made at the start of 2014
and Manpower will double with particular emphasis on a growing
specialist land team. LSL Land & New Homes conducts business
with many of the top 25 national developers but also offers a one
stop solution for the medium to small builders who are starting to
return to the market.
In addition LSL is in the process of rolling out a new common
platform across our Financial Services Intermediary networks,
trading as Pink Home Loans, First Complete and Linear Mortgage
Network which will improve customer service and increase
operational efficiency.
The Mortgage Market Review will be implemented on 26th April
2014. The FCA's aim for the MMR is to deliver a 'sustainable market
for all participants and is flexible for consumers'. LSL has made
substantial investment and taken significant steps in readiness for
the new requirements including selection and investment in new
software and training of the employed and network financial
services staff as required.
As noted earlier, Marsh & Parsons has continued with its
branch opening programme. Marsh & Parsons has invested in a new
head office and also in a new lettings system to provide a strong
platform to support significant future growth.
LSL has also invested significantly in Asset Management to win
new property management contracts and successfully brought the
first of these on stream during 2013.
During 2013, the Group has continued to make selective
acquisitions and has added to the Estate Agency Division in the
South East through the acquisitions of Lawlors and five lettings
businesses.
In 2014 LSL will continue with the same strategy focusing on
driving organic growth in Residential Sales, Lettings and Financial
Services and rolling out new branches in Marsh & Parsons. The
Group will also continue to evaluate selective estate agency
acquisitions funded from LSL's cash flows.
Regulation
First Complete and Pink Home Loans (the trading name of Advance
Mortgage Funding) are both directly authorised by the Financial
Conduct Authority in relation to the sale of mortgage, pure
protection and general insurance products. Your Move, Reeds Rains
Financial Services and Reeds Rains along with the LSLi subsidiaries
are all appointed representatives of First Complete, while Linear
Mortgage Network is an appointed representative of Advance Mortgage
Funding for mortgage and insurance business and also an appointed
representative of Openwork (for investment business). During 2013,
Reeds Rains was also an appointed representative of Letsure Limited
for the sale of rent indemnity insurance. This appointment ceased
on 31st December 2013, and with effect from the 1st January 2014,
Reeds Rains is authorised for the sale of rent indemnity insurance
under its existing appointed representative arrangement with First
Complete.
As a result of Linear Mortgage Network's appointment by
Openwork, LSL has a small indirect shareholding of Openwork.
Branch numbers
Breakdown of Estate Agency branches as at 31(st) December
2013
Owned Franchised Totals
--------------- ----- ---------- ------
Your Move 214 79 293
Reeds Rains 123 48 171
LSLi 45 6 51
Marsh &Parsons 18 - 18
Totals 400 133 533
--------------- ----- ---------- ------
The above branch numbers include four virtual branches.
Surveying Division
Strong second half performance
Total Like for Like(5)
2013 2012 % 2013 2012 %
Financial GBPm GBPm Change GBPm GBPm Change
---------------------------------- ------ ------ ------- ------ ------ -------
Revenue 60.4 62.2 (2.9) 60.4 56.7 6.6
Operating expenditure (47.3) (48.3) 2.0 (47.3) (45.3) (4.4)
Underlying Operating Profit 13.1 13.9 (5.8) 13.1 11.4 15.3
---------------------------------- ------ ------ ------- ------ ------ -------
KPIs
---------------------------------- ------ ------ ------- ------ ------ -------
Profit margin (%) 21.7 22.4 (0.7) 21.7 20.0 1.7
Jobs Performed (000s) 396 408 (3.0) 396 384 3.1
Revenue from private surveys
(GBPm) 4.9 4.0 20.4 4.9 4.0 20.4
Income per job (GBP) 153 152 0.2 153 148 3.3
PI insurance (Balance Sheet)
provision at 31(st) Dec (GBPm) 25.9 24.2 7.0 25.9 24.2 7.0
Number of qualified surveyors
at 31(st) Dec 386 378 2.1 386 378 2.1
Mortgage approvals (000's)(6) 1,286 1,151 11.8
---------------------------------- ------ ------ ------- ------ ------ -------
5 Like-for-like excludes the impact of the insourcing of a
contract by a major Surveying client in June 2012 as announced in
the Interim Results in July 2012
6 Bank of England for "Total Mortgage Approvals" 2013
Surveying Division Performance
After a difficult first quarter when transaction volumes fell by
11%, the surveying market has shown significant improvement since
April. Total mortgage approvals have increased by 19% year on year
for the period from April to December with a 12% full year increase
in total mortgage approvals to 1.29m (2012: 1.15m).
Surveying turnover was GBP60.4m (2012: GBP62.2m) and the total
number of jobs performed was 396,000 (2012: 408,000). The reduction
in volumes was driven by the decision of a major lender client to
transfer their valuations and associated panel management
instructions back in house. On a like for like basis, excluding the
impact of this contract, revenue increased by 7% to GBP60.4m (2012:
GBP56.7m) and the total numbers of jobs performed increased by 3%
to 396,000 (2012: 384,000). Since the improvement in the market in
April 2013, on a like-for-like basis the number of jobs has
increased by 7% following a decline of 8% in the first quarter of
the year.
The surveying market is currently suffering from significant
capacity constraints and in order to improve the Group's position a
new graduate recruitment and training programme was launched during
2013. This represents a major investment for the business
especially given the time required to train the new graduate
surveyors. A total of 43 new graduates were hired during 2013 and a
further 31 were taken on in January 2014. Constrained capacity is a
wider market issue and has resulted in a short term improvement in
the pricing environment. It is expected that some of this benefit
will continue into early 2014 but it remains to be seen what the
impact will be on negotiations relating to longer term contracts
which come up for renewal later in the year. In prior years, the
Division made excellent progress in developing surveying services
for private buyers. Given the current capacity constraints LSL
decided to reduce the focus on this area. Although full year
revenue from surveying services for private buyers increased by 20%
to GBP4.9m (2012: GBP4.0m) in the second half of the year it
declined by 2% year on year instead.
Underlying Operating Profit was GBP13.1m (2012: GBP13.9m) and
the Underlying Operating Profit margin was 21.7% (2012: 22.4%). On
a like for like basis, Underlying Operating Profit increased by
15.3% to GBP13.1m (2012: GBP11.4m) and the Underlying Operating
Profit margin was 21.7% (2012: 20.0%).
Surveying Division Developments
The major growth initiative in the Surveying Division has been
investment in a new graduate recruitment and training programme to
increase capacity. Capacity constraints have been geographically
concentrated particularly in London and the South East and LSL has
responded to this challenge by moving surveyors around the country
on a short term basis. In addition, in order to meet obligations to
provide valuation services to our major lender clients the
Surveying Division has reduced the level of private surveys where
possible.
The Surveying Division serves key lender clients through both
exclusive contracts and through panel management arrangements. LSL
is continuing to invest in the Surveying Division business in order
to maintain high service levels for all clients. During 2013 LSL
have successfully rolled out new tablet computers for surveyors to
use when performing valuations on site and feedback has been
positive.
The Surveying Division has a number of contracts which come up
for renewal in 2014 and negotiations relating to some of these have
commenced. Although it is too soon to predict the outcome of these
discussions, the Surveying Division has also recently finalised a
number of other contracts with lenders to provide surveying and
valuation services with improved pricing. Given the capacity
shortage in the market, if any volumes were lost from existing
contracts, it is likely that e.surv could provide additional
capacity to other lenders which would mitigate any reduction in
revenue.
PI Costs
LSL has increased the PI provisions relating to the 2004 - 2008
high risk period by GBP12m as indicated in the Interim Management
Statement issued in November 2013. This is disappointing and
reflects the fact that a reduction in the rate of claims that LSL
had expected during the year, and assumed in setting the previous
level of provision, has not yet materialised. Since November 2013,
the rate of new claims and cost per claim has been consistent with
the assumptions behind the new provision. The additional provision
represents the Group's current best estimate of likely claims costs
but the process of resolving open claims and estimating future
claims is on-going. The provision required is highly sensitive to
the run rates of new claims and the costs per claim for both new
and existing claims.
Financial Review
The key drivers of the financial performance of LSL in 2013 are
summarised below:
Income statement
Revenue
Revenue increased by 6.0% to GBP258.6m in the year ended 31(st)
December 2013 (2012: GBP243.8m). On a like-for-like basis,
excluding the impact of the insourcing of a contract by a major
Surveying Division client in June 2012, revenue increased by 8.5%
to GBP258.6m (2012: GBP238.3m).
Operating Expenses Excluding Exceptional Costs, Amortisation and
Share Based Payment
Operating expenses increased by 6.9% to GBP225.6m (2012:
GBP211.1m). This was mainly in the Estate Agency Division and
included investment to support revenue growth in 2014. The average
number of full time equivalent employees during the year was 4,327
(2012: 4,113).
Underlying Operating Profit
Group Underlying Operating Profit increased by 5.6% to GBP37.1m
(2012: GBP35.1m) with the Underlying Operating Profit margin of
14.3% (2012: 14.4%). On a like for like basis, Group Underlying
Operating Profit increased by 13.8% to GBP37.1m (2012: GBP32.6m)
with the Underlying Operating Profit margin of 14.3% (2012:
13.7%).
Exceptional Items
Total net exceptional costs in 2013 were GBP15.2m (2012:
GBP21.7m). The main exceptional costs in 2013 were PI Costs of
GBP12.0m; movements in the provision for contingent consideration
on acquisitions which were expensed of GBP2.8m; and redundancy and
other associated branch closure costs of GBP0.9m. These costs were
offset by a gain on the sale of freehold properties totalling
GBP0.1m. In 2012, exceptional costs comprised of PI Costs of
GBP17.3m; movements in the provision for contingent consideration
on acquisitions which were expensed of GBP4.4m; and redundancy and
other associated branch closure costs including onerous lease
provisions of GBP1.9m. These costs were offset by a gain on the
sale of freehold properties totalling GBP1.4m.
Provision for PI claims/notifications
Since early 2012 the Group has experienced a high level of
claims relating to the 2004 to 2008 period, which was a period of
relatively high risk lending characterised by higher house prices,
high loan-to-value ratios and considerable levels of buy-to-let and
sub-prime lending. As a result the provision for PI Costs was
increased by GBP17.3m in June 2012 and again by GBP12.0m in
November 2013.
The PI provision at 31st December 2013 was made up of a
'Specific Provision' and 'Incurred But Not Reported' (IBNR). The
Specific Provision was based on the Group's review of any
notifications or claims which had been made against the Group as at
31st December 2013. The main factors considered in quantifying the
Specific Provision were the likelihood that a claim would be
successful, an assessment of the likely cost for each claim,
including any associated legal costs, and whether any reduction in
the claim is considered likely due to contributory negligence of
the lender. The IBNR provision, was based on the Directors'
estimates of the number of claims which would be received in the
future with regard to work completed before 31st December 2013. The
Directors have then applied an average cost per case, based on
historical averages, to estimate the IBNR provision.
In June 2012, it was assumed that the run rate of new claims
would reduce significantly from July 2013 following the change in
legislation governing civil litigation taking effect in April 2013
(the Jackson Reforms). This reduction has not yet materialised and
the run rate of new cases has remained at the level established in
June 2012. In addition, the cost per claim has increased and in
most recent months has been running higher than assumed in 2012.
The increasing trend in cost per claim has been driven by a
relatively small number of high value claims and by increases in
legal costs.
As announced in November 2013, an additional exceptional charge
of GBP12.0m (cGBP9.2m after tax) has been made in the year ending
31(st) December 2013 in order to increase the PI provision. Since
November 2013, the rate of new claims and cost per claim has been
consistent with the assumptions behind the new provision. This
additional provision represents the Directors' current best
estimate of likely claims costs but the process of resolving open
claims and estimating future claims is on-going.
A number of risks and uncertainties remain, in particular the
actual monthly run rate of new claims, the date at which the high
rate of claims will significantly reduce, and the average cost per
case both for existing open claims and for claims yet to be
received. The cost of these factors could differ materially from
the Board's estimates, which could result in a further provision
being required.
At 31(st) December 2013 the total provision for PI costs was
GBP25.9m. The Board has considered sensitivity analysis on the key
risks and uncertainties discussed above as set out in Note 22 of
the Financial Statements. If the run rate of new claims was 10%
higher or lower than assumed in the year end provision of GBP25.9m,
an additional or lower provision of GBP3.1m would be required. If
the average cost per case for both existing open claims and for
claims yet to be received was 5% higher or lower than assumed in
the year end provision of GBP25.9m, an additional or lower
provision of GBP1.8m would be required.
Contingent consideration
Certain contingent consideration arrangements have been
accounted for as remuneration as the arrangements potentially
involve the vendors forfeiting amounts otherwise due if continued
services are not provided.
Contingent consideration relating to the 2011 acquisition of
Marsh & Parsons has been treated as an expense of GBP0.4m
(2012: GBP1.8m) in 2013. LSLi has acquired a number of subsidiaries
whereby the contingent consideration is also considered to be
remuneration under IFRS 3. A further expense of GBP2.4m (2012:
GBP2.6m) was recorded in 2013.
Net Financial Costs
Net financial costs (excluding exceptional finance costs)
amounted to GBP3.1m (2012: GBP2.6m). The finance costs related
principally to interest and fees on the revolving credit facility,
however, GBP0.7m (2012: GBP0.5m) of the costs relates to the
unwinding of discounts on provisions.
Taxation
The UK standard corporation tax rate has reduced from 28% as at
1st January 2011 to 23% at 31st December 2013 with a further
reduction to 22% occurring on 5th April 2014. The effective rate of
corporation tax for the year was 21.4% (2012: 19.0%) excluding
prior year adjustments. The effective tax rate for 2013 and 2012
was impacted by non taxable income for joint ventures and
dividends, the impact of a rate change on the deferred tax
liability, contingent consideration recognised as an expense and
the impact of temporary differences on certain non-qualifying
properties no longer being recognised. Excluding these impacts the
effective tax rate is 24.0% (2012: 28.6%). Income tax charged
directly to other comprehensive income was GBP4.4m (2012:GBP2.5m)
and related to the revaluation of financial assets (see Note
16).
Adjusted Basic Earnings Per Share
The Basic Earnings Per Share was 13.6p (2012: 6.8p). The
Adjusted Basic Earnings Per Share (as calculated in Note 10 of the
Financial Statements) is 25.3p (2012: 23.8p). The Directors
consider that the adjustments made to exclude the after tax effect
of exceptional items, contingent acquisition consideration treated
as remuneration, and amortisation of acquisition intangibles
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 GBP7.1m (2012:
GBP5.3m) and an additional GBP0.7m (2012: GBP0.3m) has been spent
internally on developing new software which has been treated as an
intangible asset.
Bank Facilities
LSL refinanced its bank facility during the year and now has a
GBP100.0m revolving credit facility in place until August 2017
(2012: GBP75.0m). Further details on the Group's financial
commitments as well as the Group's treasury and risk management
policies are set out in Note 29.
Net Bank Debt
As at 31st December 2013 Net Bank Debt was GBP26.3m (2012:
GBP26.6m) and Shareholders' funds amounted to GBP99.3m (2012:
GBP76.1m) giving balance sheet gearing of 26.5% (2012: 35%). The
decrease in Net Bank Debt was achieved in spite of the payment of
GBP5.4m for various new acquisitions by the Estate Agency Divisions
and payment of PI claims of GBP14.4m (2012: GBP7.7m). Net Bank Debt
represented 5.8% of the Group's market capitalisation at 31st
December 2013, and 64% of the Group's adjusted EBITDA for the year
(2012: 10% and 67% respectively).
Cash Flow
The Group produced GBP42.4m (2012: GBP41.4m) of operating
cashflow which is before capital expenditure including software of
GBP7.9m (2012: GBP5.7m) and before PI claims paid out of GBP14.4m
(2012: GBP7.7m) and exceptional costs of GBP1.1m (2012: GBP1.1m).
The increase was due to improved Group Underlying Operating Profit.
During the year the Group sold a number of freehold properties
receiving net proceeds of GBP1.4m (2012: GBP6.2m) and generating an
exceptional profit of GBP0.1m (2012: GBP1.4m).
Zoopla
In November 2013, the Group increased its stake in Zoopla to
4.91% by acquiring a further 48,178 shares at GBP17.50 per share.
Based on this transaction and the current profitability of Zoopla,
the Directors increased the valuation of the Group's stake in
Zoopla to GBP35.1m (2012:GBP11.8m).
Net Assets
The Group's net assets as at 31st December 2013 were GBP99.3m
(2012: GBP76.1m).
Treasury and Risk Management
LSL has an active debt management policy. The Group has interest
rate swaps in place which fixes the interest on borrowings up to
GBP25.0m at an average LIBOR rate of 2.93%, which provides a degree
of predictability on finance costs. The interest rate swaps expire
in the first half of 2014 and LSL is currently considering whether
additional hedging should be put in place once these expire. 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.
Principal Risks & Uncertainties
This risk management and internal controls framework
includes:
a) Ownership of the risk management and internal controls
framework by the Board, supported by the Company Secretary, Head of
Risk and Internal Audit and the Group Financial Controller;
b) A network of Risk Owners in each of LSL's businesses with
specific responsibilities relating to risk management and internal
controls;
c) The documentation and monitoring of risks are recorded and
managed through standardised risk registers which undergo regular
reviews and scrutiny by local boards and the Head of Risk and
Internal Audit;
d) The Board regularly reviews a consolidated risk register as
part of the planning and reporting cycle to ensure that risks which
impact the Group are identified, monitored and mitigated; and
e) Reporting by the Chairman of the Audit Committee to the Board
on any matters which have arisen from the Audit Committee's review
of the way in which the risk management and internal control
framework has been applied together with any breakdowns in, or
exceptions to, these procedures.
Listed below are the risks which the Board has identified as
being significant, and therefore the principal risks and
uncertainties faced by LSL, together with details of key mitigation
initiatives, which are subject to regular review.
LSL also faces other risks which, although important and subject
to regular review, have been assessed as less significant and are
not listed below. This may include some risks which were included
in previous Annual Report & Accounts and which through changes
in external factors and careful management are no longer material
to the Group as a whole.
However, many risk factors remain beyond the direct control of
LSL and the risk management framework and procedures can only
provide reasonable but not absolute assurance that the principal
risks and uncertainties are managed to an acceptable level.
Further information relating to the management of these risks
and uncertainties is set out in the Audit Committee Report
(Internal Controls) of the Annual Report & Accounts 2013.
Principal Risk and Uncertainty Mitigation
------------------------------------------------------------- -----------------------------------------
The Board regularly reviews trends
* Although the UK housing market started to recover in in market volumes and monitors
2013, there is still economic uncertainty in both the the Group's operational gearing
UK and finance sector and there is some dependence on to decide on the appropriate
stimuli added to the housing market through Help to level of resourcing. In addition,
Buy. In addition political uncertainty around the the Board regularly focuses on
2015 election may impact the market towards end of counter-cyclical income streams
year and results in some uncertainty over whether the to ensure that the growth in
market improvement will be sustained. Any impact on income in Lettings and Asset
transaction volumes (both house purchase and Management set off any impact
remortgage) and house prices may adversely affect the on residential transaction numbers.
profitability and cash flow of all our key brands and
businesses.
------------------------------------------------------------- -----------------------------------------
Marsh & Parsons is a well managed
* LSL has an exposure to the Central London property business with a diversified strategy.
market via Marsh & Parsons. While historically the It operates in all key segments
London market has been more robust compared to the of the London market. The Board
rest of the UK, there is a risk that the London closely monitors the company's
market fails to grow or that LSL fails to maximise performance. Further, regular
the potential growth. reviews of trends in market volumes
are undertaken and decisions
made on any cost base reductions
measures.
------------------------------------------------------------- -----------------------------------------
There has been an increased investment
* Loss of key Surveying or Corporate Client Services in customer services to retain
clients or contracts at their renewal date or existing clients and attract
significant reduction in volumes combined with new ones. In addition, LSL is
pressure on fees, either as a result of adverse continuing to develop its private
market conditions, market consolidation, competition survey proposition to provide
or inadequate service delivery. In 2014, a number of an alternative income stream.
major Surveying contracts are up for retender Improvements in the market has
increasing this risk. led to an increased demand for
valuation services which has
reduced the risk on loss of contracts
or reduced pricing when the surveying
contracts come up for renewal
in 2014.
------------------------------------------------------------- -----------------------------------------
Monitoring arrangements include
* Liability for inaccurate professional services advice oversight by the Board (including
to clients (e.g. legal claims relating to valuation regular review of the PI provision)
services) together with the risk that LSL fails to and appropriate quality controls
maintain appropriate risk management arrangements. and Risk and Internal Audit reviews
of services provided on a sample
basis. There are also specific
operational controls implemented
within the Surveying Division
which include a risk based criteria
for the identification of transactions
to be reviewed by on-site specialists.
In light of the improving market
and the availability of higher
LTV mortgages, LSL have undertaken
a review of the valuation controls
and processes to mitigate this
risk.
------------------------------------------------------------- -----------------------------------------
Regular monitoring by the Board
* Failure to effectively deliver and manage the market is undertaken on the Estate Agency
share and fee growth initiatives for the Estate Division's progress.
Agency Division.
------------------------------------------------------------- -----------------------------------------
LSL business units are supported
* Failure to comply with existing legislation/ by the Compliance and Legal Services
regulation or changes to legislation/regulation teams who closely monitor existing
and/or Government policy which may impact on business business practices and any reform
results or the UK housing market in general. proposals. Where appropriate
Government departments and/or
trade bodies are engaged in a
dialogue.
------------------------------------------------------------- -----------------------------------------
The Board is monitoring the impacts
* In response to the financial crisis, significant of these changes and assessing
changes to financial services regulations have what changes to business practices
occurred which have included the implementation of may be required to ensure compliance
the recommendation from the Retail Distribution with new legislation Where required,
Review which came in on 31(st) December 2012 and specialist have been engaged
Mortgage Market Review which will come into effect on to provide advice on the impacts
26(th) April 2014. of the incentives review and
Risk and Internal Audit have
provided the Board with reports
on the implementation of these
recommendation.
In addition, a new IT platform
has been developed for the Financial
Services business which will
assist in ensuring compliance
with the new legislation.
------------------------------------------------------------- -----------------------------------------
The Board closely monitors any
* The continued growth of LSL's Financial Services new service offering proposed
business may result in increased regulation from the by the Financial Services business
FCA and increased compliance requirements as well as any new acquisition.
particularly if new offerings are introduced. Where necessary external specialists
are engaged to provide advice
to ensure that all laws and regulations
are adhered to and that a culture
of treating customers fairly
is embedded in the Group.
------------------------------------------------------------- -----------------------------------------
Each Division has plans in place
* Failure to identify appropriate targets for to identify acquisition opportunities
acquisition and once acquired, the businesses are not and wherever necessary additional
successfully integrated into the Group. external consultants are hired
to assist with this process.
Where opportunities arise, thorough
due diligence is carried out
and all significant acquisitions
are approved by the Board. A
detailed 100 day plan is prepared
by management and then implemented
once the business has been acquired.
Post acquisition, a review will
be presented to the Board on
the financial and operational
success of the acquisition, the
integration of the business and
together with any learnings and
improvements arising from the
process.
In addition, with the continued
focus on acquisition, LSL is
in the process of strengthening
its acquisitions team.
------------------------------------------------------------- -----------------------------------------
Dedicated in house IT departments
* Failure or interruptions of IT services on which the with specialist staffing. Maintenance
Group is reliant for operational performance and of a formalised business continuity
financial information infrastructure and contingency
plans in the event of a system
failure. Regular monitoring by
subsidiary company management,
external specialists and Risk
and Internal Audit, with any
system issues highlighted to
the Board
------------------------------------------------------------- -----------------------------------------
The executive team focuses on
* Loss of senior management who are key to delivering retention of all senior management
the future growth strategy of the Group. and ensures that adequate remuneration
policies management development
and succession plans are in place.
This is supported by annual reviews
by the Remuneration and Nominations
Committees.
------------------------------------------------------------- -----------------------------------------
Group Income Statement
for the year ended 31(st) December 2013
2013 2012
Note GBP'000 GBP'000
--------- -----------
Revenue 258,603 243,845
Operating expenses:
Employee and subcontractor costs (150,158) (142,224)
Establishment costs (19,386) (18,459)
Depreciation on property, plant and equipment (3,977) (3,499)
Other (52,125) (46,926)
--------- -----------
(225,646) (211,108)
Other operating income 2,376 1,120
Gain on sale of property, plant and equipment 38 -
Group's share of profit after tax in
joint ventures 1,731 1,283
Group operating profit before contingent
consideration, exceptional costs, amortisation
and share-based payments 37,102 35,140
Share-based payments (1,323) (647)
Amortisation of intangible assets (375) (3,472)
Exceptional cost 4 (12,990) (17,684)
Contingent consideration 4 (2,793) (4,410)
Group operating profit 4 19,621 8,927
--------- -----------
Finance income 7 10
Finance costs (3,154) (2,633)
Exceptional finance credits 4 606 429
Net financial costs (2,541) (2,194)
Profit before tax 17,080 6,733
Taxation
- related to exceptional costs and contingent
consideration 2,879 5,288
- others (5,945) (5,004)
6 (3,066) 284
--------- -----------
Profit for the year 14,014 7,017
--------- -----------
Attributable to
- Owners of the parent 14,001 7,001
- Non-controlling interest 13 16
Earnings per share expressed in pence
per share:
Basic 3 13.6 6.8
Diluted 3 13.5 6.8
Adjusted - basic 3 25.3 23.8
Adjusted - diluted 3 25.2 23.8
Group Statement of Comprehensive Income
for the year ended 31(st) December 2013
2013 2012
Note GBP'000 GBP'000
------- -------
Profit for the year 14,014 7,017
------- -------
Items to be reclassified to profit and
loss in subsequent periods:
Revaluation of financial assets 23,806 10,677
Income tax effect (4,380) (2,456)
------- -------
Net other comprehensive income to be
reclassified to profit and loss in subsequent
periods: 19,426 8,221
Other comprehensive income for the year,
net of tax 19,426 8,221
------- -------
Total comprehensive income for the year,
net of tax 33,440 15,238
------- -------
Attributable to
- Owners of the parent 33,427 15,222
- Non-controlling interest 13 16
------- -------
Group Balance Sheet Company No. 05114014
as at 31(st) December 2013
2013 2012
Note GBP'000 GBP'000
---------- ----------
Non-current assets
Goodwill 125,642 120,361
Other intangible assets 19,080 18,509
Property, plant and equipment 16,230 13,501
Financial assets 36,574 11,921
Investments in joint ventures 3,239 2,313
Total non-current assets 200,765 166,605
Current assets
Trade and other receivables 35,340 29,432
Current tax receivables 771 2,242
Cash and cash equivalents 469 225
---------- ----------
Total current assets 36,580 31,899
Non-current assets held for sale 276 1,097
---------- ----------
Total assets 237,621 199,601
---------- ----------
Current liabilities
Financial liabilities (5,113) (2,396)
Trade and other payables (54,090) (48,297)
Provisions for liabilities (8,458) (2,305)
---------- ----------
Total current liabilities (67,661) (52,998)
---------- ----------
Non-current liabilities
Financial liabilities (43,749) (42,165)
Deferred tax liability (9,014) (5,464)
Provisions for liabilities (17,881) (22,895)
---------- ----------
Total non-current liabilities (70,644) (70,524)
---------- ----------
Total Liabilities (138,305) (123,522)
Net assets 99,316 76,079
---------- ----------
Equity
Share capital 208 208
Share premium account 5,629 5,629
Share-based payment reserve 2,475 1,526
Treasury shares (4,292) (2,691)
Fair value reserve 27,647 8,221
Retained earnings 67,567 63,117
---------- ----------
Equity attributable to owners of parent 99,234 76,010
Non-controlling interests 82 69
Total equity 99,316 76,079
---------- ----------
Group Statement of Cash Flows
for the year ended 31(st) December 2013
31 December 31 December
2013 2012
Note GBP'000 GBP'000 GBP'000 GBP'000
Cash generated from operating activities
Profit before tax 17,080 6,733
Adjustments to reconcile profit
before tax to net cash from
operating activities
Exceptional operating costs
and contingent consideration
(non-cash) 4 15,491 23,262
Amortisation of intangible assets 375 3,472
Finance income (7) (10)
Finance costs 3,580 2,891
Exceptional finance credit (606) (429)
Share-based payments 1,323 647
--------- --------
Total adjustments 20,156 29,833
--------- ---------
Group operating profit before
amortisation and share-based
payments 37,236 36,566
Depreciation 3,977 3,499
Dividend income (1,141)
Share of results of joint ventures (1,731) (1,283)
Gain on sale of property, plant
and equipment (172) (1,426)
--------- --------
933 790
(Increase)/decrease in trade
and other receivables (4,656) 12
Increase/(decrease) in trade
and other payables 4,881 (2,078)
Decrease in provisions (11,544) (2,699)
--------- --------
(11,319) (4,765)
--------- ---------
Cash generated from operations 26,850 32,591
Interest paid (3,270) (2,084)
Tax paid (2,537) (7,252)
---------
(5,807) (9,336)
--------- ---------
Net cash generated from operating
activities 21,043 23,255
Cash flows from investing activities
Cash acquired on purchase of
subsidiary undertaking 24 223
Acquisitions of subsidiaries
and other businesses (3,515) (3,926)
Payment of contingent consideration (520) -
Investment in joint venture - (10)
Investment in financial assets (847) (897)
Dividends received from joint
venture 805 748
Dividends received from financial
assets 1,141 -
Interest received 7 10
Purchase of property, plant
and
Equipment and intangible assets (7,859) (5,680)
Proceeds from sale of property,
plant and equipment 1,475 6,290
Net cash expended on investing
activities (9,289) (3,242)
31 December 31 December
2013 2012
Note GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from financing
activities
Drawdown/(repayment) of loans 510 (10,962)
Payment of deferred consideration (494) -
Purchase of treasury shares (2,625) -
Proceeds from exercise of 1,084 -
share options
Dividends paid (9,985) (9,261)
-------- ---------
Net cash used in financing
activities (11,510) (20,223)
Net increase/(decrease) in
cash and cash equivalents 244 (210)
Cash and cash equivalents
at the beginning of the year 225 435
--------- ---------
Cash and cash equivalents
at the end of the year 469 225
--------- ---------
Group Statement of Changes in Equity
Year ended 31(st) December 2013
Share Share- Non-controlling
Share premium based Treasury Fair Retained Total interests
capital account payment shares value earnings equity Total
reserve Reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st)
January 2013 208 5,629 1,526 (2,691) 8,221 63,117 76,010 69 76,079
Profit for the
year - - - - - 14,001 14,001 13 14,014
Other
comprehensive
income - - - - 19,426 - 19,426 - 19,426
Total
comprehensive
income for
the year - - - - 19,426 14,001 33,427 13 33,440
Exercise of
options - - (374) 1,024 - 434 1,084 - 1,084
Investment in
treasury
shares - - - (2,625) - - (2,625) - (2,625)
Share-based
payments - - 1,323 - - - 1,323 - 1,323
Dividend
payment - - - - - (9,985) (9,985) - (9,985)
At 31(st)
December 2013 208 5,629 2,475 (4,292) 27,647 67,567 99,234 82 99,316
--------- --------- --------- ---------- --------- ---------- -------- ----------------- --------
Year ended 31(st) December 2012
Share Share- Non-controlling
Share premium based Treasury Fair Retained Total interests
capital account payment shares value earnings equity Total
reserve Reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st) January
2012 208 5,629 912 (2,747) - 68,328 72,330 53 72,383
Profit for the
year - - - - - 7,001 7,001 16 7,017
Other
comprehensive
income - - - - 8,221 - 8,221 - 8,221
Total
comprehensive
income for the
year - - - - 8,221 7,001 15,222 16 15,238
Exercise of
options - - (33) 56 - (23) - - -
Put option over
non-controlling
interests - - - - - (2,928) (2,928) - (2,928)
Share-based
payments - - 647 - - - 647 - 647
Dividend payment - - - - - (9,261) (9,261) - (9,261)
At 31(st)
December 2012 208 5,629 1,526 (2,691) 8,221 63,117 76,010 69 76,079
--------- --------- --------- ---------- --------- ---------- -------- ----------------- --------
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(st) December 2013 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 AGM. 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(st) January 2013 which are applicable
to the Group. During the year ended 31(st) December 2013, the Group
has adopted a number of new IFRS, IAS or amendments issued by the
IASB or interpretation issued by the IFRS Interpretations Committee
which have had a significant impact on the Group's consolidated
financial statements. These are as follows:
IFRS 13 Fair Value Measurement
IFRS 13 establishes a single source of guidance for all fair
value measurements. IFRS 13 does not change when an entity is
required to use fair value, but rather provides guidance on how to
measure fair value under IFRS when fair value is required or
permitted. The resulting calculations under IFRS 13 affected the
principles that the Group uses to assess the fair value, but the
assessment of fair value under IFRS 13 has not materially changed
the fair values recognised or disclosed. IFRS 13 mainly impacts the
disclosures of the Group. It requires specific disclosures about
fair value measurements and disclosures of fair values, some of
which replace existing disclosure requirements in other
standards.
IAS 1 Presentation of Items of Other Comprehensive Income -
Amendments to IAS 1
The amendments to IAS 1 became effective 1(st) July 2012 and
were first applied by the Group on 1st January 2013. The amendments
introduce a grouping of items presented in other comprehensive
income (OCI). Items that will be reclassified ('recycled') to
profit or loss at a future point in time (e.g., net loss or gain on
available-for-sale financial assets) have to be presented
separately from items that will not be reclassified (e.g.
revaluation reserve). The amendment affected presentation only and
had no impact on the Group's financial position or performance.
Recoverable Amount Disclosures for Non-Financial Assets -
Amendments to IAS 36 Impairment of Assets
These amendments remove the unintended consequences of IFRS 13
on the disclosures required under IAS 36. In addition, these
amendments require disclosure of the recoverable amounts for the
assets or CGUs for which impairment loss has been recognised or
reversed during the period. These amendments are effective
retrospectively for annual periods beginning on or after 1st
January 2014 with earlier application permitted, provided IFRS 13
is also applied. The Group has early adopted these amendments to
IAS 36 in the current period since the amended/additional
disclosures provide useful information as intended by the IASB.
Accordingly, these amendments have been considered while making
disclosures for impairment of non-financial assets in Note 14.
These amendments would continue to be considered for future
disclosures.
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. It operates a network
of high street branches. As part of this process, the division also
provides marketing and conveyancing services. 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
Mortgage Network. It also operates a financial services segment as
a separate mortgage and insurance distribution company providing
products and services to financial intermediaries. The results of
this financial services segment, which does not meet the
quantitative criteria for separate reporting under IFRS have been
aggregated with those of Estate Agency and Related Services.
-- The Surveying and Valuation Services segment provides a
valuations and professional survey service of residential
properties to various lending corporations and individual
customers.
Each segment has various products and services and the revenue
from these products and services are disclosed in the Business
Review section of the Strategic Report of the Annual Report and
Accounts 2013.
The Management Team 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.
2. Segment analysis of revenue and operating profit (continued)
Operating segments
The following table presents revenue and profit information
regarding the Group's operating segments for the financial year
ended 31(st) December 2013 and financial year ended 31(st) December
2012 respectively.
Year ended 31(st) December 2013
Estate Surveying
Agency and and Valuation
Related Services
Services GBP'000 Unallocated Total
GBP'000 GBP'000 GBP'000
----------- -------------- ------------- ---------
Segmental revenue 198,170 60,433 - 258,603
----------- -------------- ------------- ---------
Segmental result:
- before exceptional costs,
contingent consideration,
amortisation and share-based
payments 29,116 13,096 (5,110) 37,102
- after exceptional costs,
contingent
consideration, amortisation
and share-based payments 25,966 204 (6,123) 20,047
----------- -------------- ------------- ---------
Finance income 7
Finance costs (3,580)
Exceptional finance costs 606
---------
Profit before tax 17,080
Taxation (3,066)
Profit for the year 14,014
---------
Year ended 31(st) December 2012
Estate Surveying
Agency and and Valuation
Related Services
Services GBP'000 Unallocated Total
GBP'000 GBP'000 GBP'000
----------- -------------- ------------- ---------
Segmental revenue 181,627 62,218 - 243,845
----------- -------------- ------------- ---------
Segmental result:
- before exceptional costs,
contingent consideration,
amortisation and share-based
payments 24,430 13,910 (3,200) 35,140
- after exceptional costs,
contingent
consideration, amortisation
and share-based payments 20,168 (6,070) (4,913) 9,185
----------- -------------- ------------- ---------
Finance income 10
Finance costs (2,891)
Exceptional finance costs 429
---------
Profit before tax 6,733
Taxation 284
Profit for the year 7,017
---------
3. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the
year attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
year. Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
year 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.
Profit Weighted 2013 Profit Weighted 2012
after average Per share after average Per share
tax number of amount tax number of amount
shares Pence shares Pence
GBP'000 GBP'000
Basic EPS 14,001 102,955,662 13.6 7,001 102,912,662 6.8
Effect of dilutive
share options - 410,999 - - - -
Diluted EPS 14,001 103,366,661 13.5 7,001 102,912,662 6.8
--------- ------------ ----------- --------- ------------ -----------
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.
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:
2013 2012
GBP'000 GBP'000
---------- ----------
Group operating profit before contingent
consideration in acquisitions linked to
employment, exceptional costs, share-based
payments and amortisation (excluding non-controlling
interest): 37,089 35,124
Net finance costs (excluding exceptional
costs and unwinding of discount on contingent
consideration) (3,147) (2,623)
Normalised taxation (7,892) (7,963)
Adjusted profit after tax(1) before exceptional
costs, share-based payments and amortisation 26,050 24,538
---------- ----------
Adjusted Weighted 2013 Adjusted Weighted 2012
profit average number Per share profit(1) average Per share
(1) of shares amount GBP'000 number amount
GBP'000 Pence of shares Pence
Adjusted Basic
EPS 26,050 102,955,662 25.3 24,538 102,912,662 23.8
Effect of dilutive
share options - 410,999 - - - -
Adjusted Diluted
EPS 26,050 103,366,661 25.2 24,538 102,912,662 23.8
--------- ---------------- ----------- ----------- -------------- -----------
(1) This represents adjusted profit after tax attributable to
equity holders of the parent. Effective tax rate considered to
calculate normalised taxation in 2013 is 23.25% (2012: 24.5%)
4. Exceptional items and contingent consideration
2013 2012
GBP'000 GBP'000
---------- ----------
Exceptional costs:
Branch closure costs including redundancy
costs 924 1,200
Acquisition related costs 200 (98)
Gain on disposal of freehold properties (134) (1,426)
Onerous leases - 675
Provision for professional indemnity claims/notifications 12,000 17,333
---------- ----------
Total operating exceptional costs 12,990 17,684
Contingent consideration:
Contingent consideration on acquisitions 2,793 4,410
---------- ----------
2,793 4,410
Exceptional finance credits:
Movement in fair value of interest rate
swap (606) (429)
---------- ----------
(606) (429)
---------- ----------
15,177 21,665
---------- ----------
5. Dividends paid and proposed
2013 2012
GBP'000 GBP'000
---------- ------------
Declared and paid during the year:
Equity dividends on ordinary shares:
2011 Final: 5.9p - 6,071
2012 Interim: 3.1p - 3,190
2012 Final: 6.4p 6,584 -
2013 Interim: 3.3p 3,401 -
---------- ------------
9,985 9,261
---------- ------------
Dividends on Ordinary Shares proposed (not
recognised as a liability as at 31(st)
December):
Equity dividends on Ordinary Shares:
Dividend: 7.2p per share (2012: 6.4p) 7,395 6,584
---------- ------------
6. Taxation
(a) Tax on profit on ordinary activities
The major components of income tax charge in the Group income
statements are:
2013 2012
GBP'000 GBP'000
------- -------
UK corporation
tax - current year 4,474 2,997
- adjustment in respect of prior
years (574) (1,407)
-------
3,900 1,590
Deferred tax:
Origination and reversal of temporary differences (814) (1,718)
Adjustment in respect of prior year (20) (156)
------- -------
Total deferred tax credit (834) (1,874)
------- -------
Total tax charge/(benefit) in the income
statement 3,066 (284)
------- -------
Income tax charged directly to other comprehensive income is
GBP4,380,000 (2012:GBP2,456,000) and relates to the revaluation of
financial assets (Note 16)
In March 2013, the UK government announced proposals to reduce
the main rate of corporation tax to 20% from 1 April 2015. As of 31
December 2013 reductions to the main rate of corporation tax to 20%
had been enacted. Accordingly this is the rate at which deferred
tax has been provided.
(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is lower (2012:
lower) than the standard UK corporation tax rate, because of the
following factors:
2013 2012
GBP'000 GBP'000
-------- --------
Profit on ordinary activities before tax 17,080 6,733
-------- --------
Tax calculated at UK standard rate of corporation
tax rate of 23.25% (2012 - 24.5%) 3,971 1,650
Non taxable goodwill (127) -
Non taxable income from joint ventures and
dividends (667) (314)
Benefit of deferred tax asset not previously
recognised - (49)
Disallowable expenses 248 295
Impact of movement in contingent consideration
charge to Income Statement 650 1,017
Share-based payment relief 62 29
Temporary differences on non-qualifying
properties no longer recognised (94) (1,060)
Brought forward losses not previously recognised (62) -
utilised
Impact of rate change on deferred tax (321) (289)
-------- --------
3,660 1,279
Prior period adjustments - current tax (574) (1,407)
Prior period adjustment - deferred tax (20) (156)
-------- --------
Total taxation charge/(benefit) 3,066 (284)
-------- --------
7. Analysis of net bank debt (excluding loan notes)
2013 2012
GBP'000 GBP'000
--------- --------
Interest bearing loans and borrowings
* Current 5,113 2,396
* Non-current 43,749 42,165
--------- --------
48,862 44,561
Less: 12% unsecured loan notes (9,339) (8,660)
Add: cash and short-term deposits (469) (225)
Less: deferred and contingent consideration (12,745) (9,028)
--------- --------
Net bank debt at the end of the year 26,309 26,648
--------- --------
During the year, the Group has repaid GBP0.5m (2012: repaid
GBP10.4m) 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 GBP100.0m facility (2012: GBP75.0m).
8. Acquisitions during the year
The Group acquired the following businesses during the year
a. Walker Fraser Steele LLP
In June 2013, the Group acquired the trade and assets of Walker
Fraser Steele LLP, a Scottish surveying business for an initial
consideration of GBP25,000 and a contingent consideration, valued
based on estimates of the payments due under the contract,
calculated to be to GBP1,081,000. The fair value of the
identifiable assets, except for cash and cash equivalents, and
liabilities of Walker Fraser Steele LLP as at the date of
acquisition have been determined as below:
Provisional
fair value
recognised
on acquisition
GBP'000
Intangible assets 24
Total identifiable net liabilities acquired 24
Purchase consideration 1,106
Goodwill 1,082
===================
Purchase consideration discharged by:
Cash 25
Contingent consideration 1,081
------
1,106
------
Analysis of cash flow on acquisition GBP'000
--------
Transaction costs (included in cash flows
from operating activities) 54
Net cash acquired with the subsidiary (included
in cash flows from investing activities) -
Purchase consideration discharged in cash
(included in cash flows from investing activities) 25
Net cash outflow on acquisition 79
========
9. Acquisitions during the year (continued)
The acquisition accounting above, is considered provisional as
LSL is still reviewing estimates of the likely payments under the
contract, but the calculation above represents our best estimate at
31(st) December 2013.
The goodwill of Walker Fraser Steele LLP comprises certain
intangible assets that cannot be individually separated and
reliably measured from the acquiree due to their nature. These
items include an experienced management team with a good record of
delivering a quality service to customers against the backdrop of
challenging market conditions, the expected value of synergies and
the potential to significantly grow the business. No determination
has been made yet as to what proportion, if any, of the goodwill
will be tax deductible.
b. Lawlors Limited
In September 2013 the Group acquired 75% of Lawlors, a 3 branch
estate agency chain operating in Essex for a cash consideration of
GBP2.0m. The remaining 25% is subject to put and call options which
are exercisable in two tranches in 2017 and 2019 dependent on
profit performance. Due to the nature of the payment terms, the
deferred consideration is considered to be a capital payment for
accounting purposes.
The fair value of the identifiable assets, except for cash and
cash equivalents, and liabilities of Lawlors as at the date of
acquisition have been determined as below:
Provisional
fair value
recognised
on acquisition
GBP'000
----------------
Intangible assets 202
Property, plant and equipment 23
Trade and other receivables 124
Cash and cash equivalents 24
Trade and other payables (138)
Current tax liabilities (108)
Total identifiable net liabilities acquired 127
Purchase consideration 2,870
Goodwill 2,743
================
Purchase consideration discharged by:
Cash 2,006
Deferred consideration 864
------
2,870
------
Analysis of cash flow on acquisition GBP'000
--------
Transaction costs (included in cash flows
from operating activities) 73
Net cash acquired with the subsidiary (included
in cash flows from investing activities) (24)
Purchase consideration discharged in cash
(included in cash flows from investing activities) 2,006
Net cash outflow on acquisition 2,055
========
9. Acquisitions during the year (continued)
The acquisition accounting above, is considered provisional as
LSL is still reviewing estimates of the likely payments under the
contract, but the calculation above represents our best estimate at
31(st) December 2013.
The goodwill of Lawlors comprises certain intangible assets that
cannot be individually separated and reliably measured from the
acquiree due to their nature. These items include the high quality,
dynamic and experienced management team with a good record of
delivering strong and profitable growth against the backdrop of
challenging market conditions, the expected value of synergies and
the potential to significantly grow the business.
c. Lettings acquisitions
During the year, Your Move and LSLi (through its subsidiaries)
acquired 5 lettings businesses for an aggregate consideration of
GBP1,536,000 of which GBP52,000 has been deferred which have then
been amalgamated into the existing businesses. The combined fair
values of the identifiable assets and liabilities as at the date of
acquisition of the above acquisitions as at the date of acquisition
have been determined as below:
Provisional
fair value
recognised
on acquisition
GBP'000
----------------
Property, plant and equipment 26
Current tax liabilities (4)
Total identifiable net liabilities acquired 22
Purchase consideration 1,536
Goodwill 1,514
================
Purchase consideration discharged by:
Cash 1,484
Deferred consideration 52
------
1,536
------
Analysis of cash flow on acquisition GBP'000
--------
Transaction costs (included in cash flows
from operating activities) 73
Net cash acquired with the subsidiary (included
in cash flows from investing activities) -
Purchase consideration discharged in cash
(included in cash flows from investing activities) 1,484
Net cash outflow on acquisition 1,557
========
The acquisition accounting above, is considered provisional as
LSL is still reviewing estimates of the likely payments under the
contract, but the calculation above represents our best estimate at
31(st) December 2013.
9. Acquisitions during the year (continued)
Transaction costs have been expensed and are included under
exceptional costs (see Note 4) and totalled GBP200,000 in the year.
The goodwill of the acquired businesses comprises certain
intangible assets that cannot be individually separated and
reliably measured from the acquiree due to their nature. These
items include the high quality, dynamic and experienced management
team with an outstanding record of delivering strong and profitable
growth against the backdrop of challenging market conditions, the
expected value of synergies and the potential to significantly grow
the business.
From the date of acquisition to 31(st) December 2013, the
acquisitions in aggregate have contributed to GBP1.3m of revenue
and GBP0.4m profit before tax of the Group, excluding the impact of
movements in the contingent consideration recorded through the
profit and loss. If all of these combinations had taken place at
the beginning of the year, the consolidated revenue would have been
higher by GBP3.4m and the consolidated profit before tax would have
been higher by GBP1.0m. Of the total goodwill arising on all
acquisitions, none is expected to be deductible for tax
purposes.
9. Annual General Meeting (AGM)
The AGM will be held at the London offices of LSL, 1-3 Sun
Street, London EC2A 2EP on 24(th) April 2014 starting at
2.30pm.
Definitions
"2011 EBT" employee benefit trust established in November 2011
as part of the acquisition of Marsh & Parsons
"Adjusted Basic Earnings Per Share" is defined at note 10of the
Financial Statements
"AGM" Annual General Meeting
"AMF" and "Advance Mortgage Funding" are trading names of
Advance Mortgage Funding Limited
"AMI" Association of Mortgage Intermediaries
"ARLA"Association of Residential Lettings Agents
"ASA"Advertising Standards Authority
"Asset Management" refers to LSL's repossessions asset
management and property management for multi property landlords
services
"Audit Committee" LSL's audit committee
"Auditor Independence Policy" LSL policy relating to non audit
services provided by the external auditor
"Basic Earnings Per Share" is defined at Note 10 of the
Financial Statements
"BDS" and "BDS Mortgage Group " are trading names of BDS
Mortgage Group Limited
"Board" the Board of Directors of LSL
"BSi" British Standards Institute
"Committees" refers to LSL's Nominations Committee, the Audit
Committee and the Remuneration Committee
"Companies Act" Companies Act 2006
"Corporate Client Services"comprising LSL Corporate Client
Services Limited, Templeton LPA Limited and St Trinity Limited
providing repossession, asset management and corporate letting
services
"Chancellors Associates" trading name of Chancellors Associates
Limited
"Chairman" Roger Matthews
"Chairman of the Audit Committee"Mark Morris
"CML" Council of Mortgage Lenders
"Code" UK Code of Corporate Governance by the Financial
Reporting Council (September 2012)
"Company Secretary" Sapna B FitzGerald
"Connells" Connells Limited
"CSOP" company share ownership plan
"CSR" corporate social responsibility
"Davis Tate" trading name of Davis Tate Limited
"Director" an Executive Director or Non Executive Director of
LSL
"DMGT" trading name of Daily Mail and General Trust plc
"EBITDA" earnings, before interest, taxes, depreciation and
amortisation
"EPC" energy performance certificate
"EPS" earnings per share
"Ernst & Young" Ernst & Young LLP
"ESG" environmental, social and governance
"ESOT" LSL's employee share trust
"Estate Agency Division" or "Estate Agency" includes LSL's
Residential Sales, Lettings, Financial Services, LPA fixed charge
receiver and Asset Management businesses
"Estate Agency and Related Services" refers to LSL's Estate
Agency Division
"e.surv" or "e.surv Chartered Surveyors" trading names of e.surv
Limited
"Executive Director(s)" refers to Steve Cooke, Ian Crabb, Simon
Embley and David Newnes.
"FCA" Financial Conduct Authority
"Financial Services" refers to LSL's financial services
(including mortgage and protection brokerage and the operation of
intermediary networks
"First Complete" trading name of First Complete Limited
"Financial Statements" financial statements contained in this
Report
"FRC" Financial Reporting Council
"Frosts" trading name of David Frost Estate Agents Limited
"FSA" Financial Services Authority
"FSMA" Financial Services and Markets Act 2000
"Group" LSL Property Services plc and its subsidiaries
"Group Chief Executive Officer" Ian Crabb
"Group Finance Director" Steve Cooke
"Growth Shares" the B1, B2 and C classes of ordinary shares
(each GBP0.001) in Marsh & Parsons (Holdings) Limited
"Goodfellows" trading name of GFEA Limited
"HEAL" or "Halifax" Halifax Estate Agencies Limited
"HEAL Business" HEAL branches and St Trinity Asset Management
(formerly HEAL Corporate Services)
"HEAL Corporate Services" the asset management business operated
by HEAL
"Home of Choice" or "HoC" division within First Complete
"Home Report" a report which includes a single survey, energy
report and property questionnaire and which must accompany all
residential property marketing in Scotland
"IBNR" incurred but not report and relates to the Surveying
Divisions' PI claims
"IFRS" International Financial Reporting Standards
"Intercounty" trading name of ICIEA Limited
"JNP" trading name of JNP Estate Agents Limited
"JSOP" joint share ownership plan
"KPI" key performance indicators
"Lauristons" trading name of Lauristons Limited
"Lawlors" trading name of Lawlors Limited.
"Legal Marketing Services"trading name of Cybele Solutions
Holdings Limited
"Lettings" refers to LSL's residential property lettings and
property management services
"Linear" and "Linear Financial Services" are trading names of
Linear Mortgage Network Limited and Linear Financial Services
Limited
"Lloyds Banking Group" Lloyd Bank plc group of companies
"LMS Direct Conveyancing"trading name of LMS Direct Conveyancing
Limited
"LPA" the Law of Property Act 1925
"LSLi" LSLi Limited and its subsidiaries JNP, Intercounty,
Frosts, Goodfellows, Davis Tate, Lauristons and Lawlors
"LSL" LSL Property Services plc and its subsidiaries
"LSL Corporate Client Department" trading name of LSL Corporate
Client Services Limited
"LSL Land & New Homes"trading style used by members of the
Estate Agency Division
"LTIP" long term incentive plan
"Lush Retail" Lush Retail Limited
"Management Team" senior management teams within the Group
including the Executive Directors
"Marsh & Parsons" trading name of Marsh & Parsons
Limited
"NAEA" National Association of Estate Agents
"NBS" New Bridge Street Limited
"Net Bank Debt" see Note 30 of the Financial Statements
"NFoPP"National Federation of Property Professional
"Non Executive Director"refers to Helen Buck, Adrian Gill, Roger
Matthews, Mark Morris and Bill Shannon (since January 2014) and in
respect of 2013 Mark Pain.
"Notice of Meeting" the circular made available to shareholders
setting out details of the AGM
"Note" refers to notes to the Financial Statements
"OCI" refers to other comprehensive income
"Openwork" trading name of Openwork Limited
"Ordinary Shares" 0.2p ordinary shares in LSL
"PI" professional indemnity
"PI Costs" costs relating to ongoing and expected future legal
claims relating to Surveying and Valuation Services
"Pink Home Loans" or "Pink" are trading names for Advance
Mortgage Funding Limited and BDS Mortgage Group Limited
"RCF" revolving credit facility
"Reeds Rains" trading name of Reeds Rains Limited
"Reeds Rains Financial Services"trading name of Reeds Rains
Financial Services Limited
"Registered Office" Newcastle House, Albany Court, Newcastle
Business Park, NE4 7YB
"Report" LSL's annual report and accounts 2013
"Residential Sales" refers to LSL's services for residential
property sales
"RICS" Royal Institution of Chartered Surveyors
"Sainsbury's" Sainsbury's Supermarkets Limited
"SAYE" save-as-you-earn
"Senior Independent Non Executive Director" Mark Morris
"Shareholders" shareholders of LSL
"SIP" share incentive plan
"St Trinity Asset Management"trading name of St Trinity
Limited
"Surveying Division" or"Surveying" includes LSL's surveying and
valuation businesses
"Surveying and Valuation Services" or"Surveying Services" refers
to LSL's Surveying Division
"Templeton" trading name of Templeton LPA Limited
"The Mortgage Alliance" or"TMA" are trading names of First
Completes' mortgage club
"TPO" The Property Ombudsman
"Trust" or "Employee Benefit Trust" LSL Property Services plc
Employee Benefit Trust
"Trustees" Capita Trustee Limited
"TSI" Trading Standards Institute
"TSR" total shareholder return "Underlying Group Operating
Margin" Group Operating Profit before exceptional costs,
amortisation and share based payments shown as a percentage of
turnover
"Underlying Group Operating Profit/Loss" before exceptional
costs, amortisation of intangible assets and share based
payments
"VEM" Vibrant Energy matters Limited
"Walker Fraser Steele" a trading name of e.surv
"Your Move" trading name of your-move.co.uk Limited
"Zoopla" trading name of Zoopla Property Group Limited
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFFDVFIEIIS
Lsl Property Services (LSE:LSL)
Historical Stock Chart
From Jun 2024 to Jul 2024
Lsl Property Services (LSE:LSL)
Historical Stock Chart
From Jul 2023 to Jul 2024
