TIDMLSL
RNS Number : 2853O
LSL Property Services
05 August 2014
For immediate release 5(th) August 2014
LSL Property Services plc
("LSL")
Amendment to Interim Results - Dividend Record and Payment
Date
The following amendments have been made to the 'Interim Results'
announcement released today at 07:00 a.m. under RNS No 2260O.
Two changes have been made to the Interim dividend paragraph
regarding the record date and the payment date. The record date has
been amended to 15(th) August 2014 and the payment date to the
9(th) September 2014.
All other details remain unchanged.
The full amended text is shown below.
LSL Property Services plc (LSL)
Interim Results For the six months ended 30(TH) june 2014
LSL Property Services plc (LSL) a leading provider of
residential property services incorporating estate agency and
surveying businesses (Group), announces its interim results for the
six months ended 30(th) June 2014.
2014 2013 Change
-------------------------------------- ---------- ---------- -------
Group revenue GBP139.8m GBP118.8m 18%
Group Underlying Operating Profit(1) GBP15.1m GBP11.5m 31%
Overall operating margin 10.8% 9.7% 1.1%
-------------------------------------- ---------- ---------- -------
Profit before tax GBP31.4m GBP8.4m 275%
Basic earnings per share 24.2p 6.3p 285%
Adjusted basic earnings per share 10.6p 7.6p 39%
Net Bank Debt(2) at 30(th) June GBP18.7m GBP31.7m (41%)
Half year dividend 4.0p 3.3p 21%
Special dividend 16.5p - -
-------------------------------------- ---------- ---------- -------
(1) Underlying Operating Profit is before exceptional gains and
costs, amortisation of intangible assets and share based
payments
(2) See Note 13 for calculation. 2014 includes proceeds of
GBP18.9m received from Zoopla sale proceeds
-- Strong market growth in the first quarter followed by more
modest growth in the second quarter.
-- Excellent performance from the Estate Agency Division.
-- Major contract secured in the Surveying Division and on-going
investment in capacity.
-- Excellent value creation from investment in Zoopla Property
Group PLC (Zoopla) investment - Total value created of GBP34.2m
(net of tax) as at the 30(th) June 2014, GBP18.0m exceptional
profit, special dividend of 16.5p per share and retention of 51% of
original holding.
-- Substantial increase in interim dividend of 21% to 4.0 pence
(2013: 3.3 pence).
Estate Agency Division Performance
-- Revenue increased by 20% to GBP108.6m (2013: GBP90.3m).
-- Underlying Operating Profit increased by 46% to GBP12.2m
(2013: GBP8.4m).
-- Estate Agency Division operating margin increased to 11.3%
(2013: 9.3%).
-- Residential Sales up 27% including average fee growth of
11%.
-- Lettings revenue up 12% to GBP27.7m and financial services
revenue up 27% to GBP19.9m year on year.
-- Excluding Marsh & Parsons, profit per branch up 43% to
GBP38k on rolling 12 month basis (2013: GBP26k).
-- Strong performance from Marsh & Parsons with revenue up
19% and operating profit increased by 20% year on year.
Surveying Division Performance
-- Revenue up 10% to GBP31.3m (2013: GBP28.5m).
-- Underlying Operating Profit up 5% to GBP5.7m (2013: GBP5.4m)
after GBP1.1m cost of on-going investment in new capacity.
-- Surveying Division operating margin 18.2% (2013: 19.0%).
-- Secured multi-year contract with Barclays Bank.
Commenting on today's announcement, Roger Matthews, Chairman,
said:
"The Group has delivered a strong first half performance. Key
economic growth indicators and consumer confidence remain positive
but recent changes such as the implementation of MMR and tighter
lending criteria have affected mortgage approval levels and
sentiment in the housing market. The outlook from lenders remains
positive and as a result we expect the market to continue to grow,
but at more modest levels, in the second half of the year. The
Board remains confident of delivering significant growth in
2014.
The business is very cash generative at the operational level
and has a strong balance sheet. By focusing the strategy on driving
benefit from operational gearing in the improved market, the Group
is extremely well positioned to deliver increased 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, Sophie Cowles
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, 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 for
a copy of the half yearly report for the period to 30(th) June
2014, please visit LSL's website: www.lslps.co.uk
Chairman's Statement
Introduction
I am pleased to report an 18% increase in Group revenue to
GBP139.8m (2013: GBP118.8m) and a 31% increase in Group Underlying
Operating Profit(1) to GBP15.1m (2013: GBP11.5m). This was a strong
performance in a market which showed significant growth in the
period despite more modest growth during the second quarter,
following the implementation of changes to mortgage application
processing by lenders following the Mortgage Market Review (MMR) in
April.
The Estate Agency Division delivered another excellent result
driven by the benefit of operational gearing on all key income
streams. Residential Sales increased by 27% including average fee
growth of 11% while Financial Services and Lettings income grew by
27% and 12% respectively.
We are delighted to have secured a new multi-year valuation
services contract with Barclays Bank plc (Barclays). While volume
growth in the period has recently been constrained by availability
of qualified surveyors we have continued to invest in new capacity
through our graduate recruitment scheme and we are in a very good
position to provide a high level of service to all of the Group's
clients.
The Group is very cash generative at the operational level and
maintains a strong balance sheet. However, as expected we have
continued to absorb high levels of PI cash outflows. Net Bank Debt
at 30(th) June 2014 was GBP18.7m. Excluding the GBP17.8m net(2)
benefit from the sale of Zoopla shares, Net Bank Debt increased by
GBP4.8m to GBP36.5m at 30(th) June 2014 (30(th) June 2013:
GBP31.7m).
The business remains extremely well placed to benefit from the
higher market transaction levels in 2014 and as a result we have
announced a substantial increase in our interim dividend of 21% to
4.0 pence per share (2013: 3.3 pence). As previously announced, we
are also returning the net proceeds after tax of the sale of Zoopla
shares of GBP16.8m to shareholders by way of a special dividend of
16.5 pence per share to be paid at the same time as the interim
dividend payment.
Financial Results
Group revenue increased by 18% to GBP139.8m (2013: GBP118.8m).
Group Underlying Operating Profit increased by 31% to GBP15.1m
(2013: GBP11.5m) and Group Underlying Operating Margin increased
from 9.7% to 10.8%.
The Estate Agency Division increased revenue by 20% to GBP108.6m
(2013: GBP90.3m) and Underlying Operating Profit by 46% to GBP12.2m
(2013: GBP8.4m) in a market where house purchase approvals(3)
increased by 19% in the six months to 30(th) June 2014 compared to
2013.
The Surveying Division revenue increased by 10% to GBP31.3m
(2013: GBP28.5m) compared to a 10% year on year increase in total
mortgage approvals(3) for the six months to 30(th) June 2014.
Underlying Operating Profit growth was constrained to a 5% increase
to GBP5.7m (2013: GBP5.4m) because of the investment of GBP1.1m in
new graduates in the period.
Net interest payable was GBP1.2m (2013: GBP1.3m) and Group
profit before tax, amortisation and exceptionals was GBP13.9m(4)
(2013: GBP10.2m). Group profit before tax was GBP31.4m (2013:
GBP8.4m) including an exceptional profit of GBP18.7m (2013: loss of
GBP1.7m) of which GBP18.0m related to the sale of the Zoopla
shares. The effective tax rate for the period was 21%. If the
impact of exceptional costs and the prior year tax adjustments are
excluded, the underlying tax rate would remain at 21%. Group profit
after tax was GBP24.9m (2013: GBP6.5m). Earnings per share was
24.2p (2013: 6.3p) and adjusted earnings per share increased by 39%
to 10.6p (2013: 7.6p).
(1) Underlying Operating Profit is before exceptional costs,
amortisation of intangible assets and share-based payments
(2) Net of reinvestment in additional Zoopla shares
(3) Source: Bank of England for "House Purchase Approvals" and "Total Mortgage Approvals"
Cash generated from operations was GBP4.2m (2013: GBP3.9m).
Operating cash flow included PI cash settlements of GBP6.5m (2013:
GBP5.0m). Capital expenditure increased to GBP4.6m (2013: GBP3.4m)
due to 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 Your Move and Reeds Rains, new
branches in Marsh & Parsons and the refurbishment of a number
of Reeds Rains and Your Move branches.
Net assets at 30(th) June 2014 were GBP113.3m (2013: GBP77.3m)
which was driven by the revaluation of the investment in Zoopla.
Net Bank Debt at 30(th) June 2014 was GBP18.7m compared to GBP31.7m
at 30(th) June 2013. Compared to 31(st) December 2013, Net Bank
Debt has decreased by GBP7.6m driven by the proceeds from the sale
of Zoopla shares offset by the normal seasonality of the Estate
Agency Division cashflows, continuing high levels of PI cash
outflows, the acquisition of Hawes & Co and other businesses
and the payment of dividend, tax and bonuses.
Interim Dividend
The Board has declared an interim dividend payable of 4.0 pence
per share, an increase of 21% on last year (2013: 3.3p). The
dividend payment reflects our strong performance during the period,
our confidence in future prospects and the strength of our cash
generation and balance sheet. The ex dividend date for the interim
dividend is 13(th) August, with a record date of 15(th) August 2014
and a payment date of 9(th) September 2014. Shareholders have the
opportunity to elect to reinvest their cash dividend and purchase
existing shares in LSL through a dividend reinvestment plan.
Zoopla Disposal and Special Dividend
We were extremely pleased that the initial public offering (IPO)
of Zoopla was successful and this represented a point of
significant value creation for the Group. The cost of the
investment was GBP1.9m and this increased in value to GBP44.0m on
IPO. As a result of the sale of part of our shareholding we have
generated an GBP18.0m exceptional profit on disposal while still
retaining a shareholding which has been revalued in the balance
sheet at GBP27.2m. In addition we received a total dividend of
GBP1.1m from Zoopla during the period (2013: GBP0.5m).
The Board has declared a special dividend payable of 16.5 pence
per share which returns to shareholders the net after tax proceeds
of GBP16.8m from the sale of the Zoopla shares, including the sale
of shares in July. Payment of the special dividend reflects the
strength of the balance sheet and the Board's confidence in the
growth prospects of the Group. The special dividend has the same ex
dividend and record dates as the interim dividend. As with the
interim dividend, Shareholders have the opportunity to elect to
reinvest their cash dividend and purchase existing shares in LSL
through a dividend reinvestment plan.
Estate Agency Division
The Estate Agency Division capitalised on the growing market and
delivered an excellent performance driven by very good growth
across all Estate Agency branch income streams. Despite another
market driven decline in Asset Management, the benefit of strong
operational gearing increased overall the Estate Agency Division's
operating margin to 11.3% (2013: 9.3%).
Residential Sales income increased by 27% to GBP44.4m (2013:
GBP34.9m) including average fee growth of 11%. Financial Services
revenue increased by 27% to GBP19.9m (2013: GBP15.7m) and in total
the Group arranged mortgage lending of GBP5.0bn during the first
half (2013: GBP2.9bn). We were particularly pleased that our
Lettings income increased by 12% to GBP27.7m (2013: GBP24.7m)
primarily driven by organic growth, despite the anticipated
slowdown in the Lettings market.
(4) Note 5 of the financial statements
The Estate Agency Division has continued to make very strong
progress towards our branch profitability target of GBP50k per
branch. Estate Agency Division branches, excluding Marsh &
Parsons, increased profit per owned branch on a rolling 12 month
basis by 43% to GBP38k (2013: GBP26k).
Marsh & Parsons enjoyed a strong first half with revenue
increasing by 19% to GBP16.1m (2013: GBP13.5m) driven by
Residential Sales and Lettings growth of 16% and 22% respectively.
Operating profit increased by 20% to GBP3.2m (2013: GBP2.6m)
despite the on-going costs of the new branch opening programme. One
new branch was opened during the period in Askew Road, Shepherds
Bush and is trading in line with expectations. We plan to open a
further three new branches during the second half of the year.
While the market has grown strongly overall during the period,
there was a significant reduction in the rate of growth during the
second quarter. House purchase approvals increased by 35% in the
first quarter compared to 2013 but by only 7% in the second
quarter. This reduction was partly expected given the more
challenging comparatives since April but also reflects the impact
of changes to mortgage application processing by lenders following
the MMR in April. In prime central London, there has been evidence
of a slowdown in the rate of price growth and an increase in the
time taken to sell towards the end of first half of 2014.
Asset Management revenue declined by 10% in the period to
GBP6.4m (2013: GBP7.1m). However, this reduction compares to an
estimated 20% decline in the repossession market from 28,900 in
2013 to 23,000 in 2014. The business is making good progress in
developing new property management contracts but lengthy tender
processes mean that financial benefit will be geared to the medium
term.
We have continued with our strategy of targeting selective
acquisitions and purchased Hawes & Co, a six branch estate
agency business trading in South London in addition to three
separate lettings books.
Surveying Division
The Surveying Division has traded satisfactorily in the first
half and increased revenue by 10% in a market which grew by 10%. We
continued to build new capacity during the period with further
investment in our graduate recruitment programme while maintaining
a strong focus on delivery of excellent service to lender clients.
A GBP1.1m cost of investment constrained operating profit growth to
5% but as the productivity of new capacity improves, profitability
will increase at a higher rate in the second half of the year. If
this cost were excluded, operating profit growth would have been
25%.
As noted in the comments on our Estate Agency division, there
has been a significant change in the market during the second
quarter. Total mortgage approvals increased by 25% in the first
quarter compared to 2013 but reduced by 1% in the second
quarter.
We are delighted to announce that we secured a major contract in
the period with Barclays. This is a renewal following on from the
previous arrangement which expired in June 2014. The new contract
is non-exclusive and is for a multi-year term beginning on 1(st)
July 2014. Contract terms reflect current improved conditions in
the mortgage market.
Since announcing in November 2013 an increase in our PI Costs
provisions for work performed in the 2004 to 2008 period, the rate
of new claims and the cost per claim through to 30(th) June 2014
has overall been consistent with the assumptions behind the
provision. Notification levels in recent months have remained at a
high level but we are assuming that new notifications will reduce
significantly during the second half of the year and beyond as the
period for high risk lending ended in 2008. The basis of the
provisions therefore remains unchanged at the half year and
represents the Group's best estimate of likely claim costs. However
the provision remains highly sensitive to the rate of new
notifications and the average cost of current and future
claims.
Outlook
Key economic growth indicators and consumer confidence remain
positive but recent changes such as the implementation of MMR and
tighter lending criteria have affected mortgage approval levels and
sentiment in the housing market. The outlook from lenders remains
positive and as a result we expect the market to continue to grow,
but at more modest levels, in the second half of the year. The
Board remains confident of delivering significant growth in
2014.
LSL is continuing with its strategy of delivering organic growth
and evaluating selective acquisitions. This has resulted in a
strong first half performance and both the Estate Agency Division
and the Surveying Division will continue to selectively invest in
order to drive future returns.
The business is very cash generative at the operational level
and has a strong balance sheet. By focusing the strategy on driving
benefit from operational gearing in the improved market the Group
is extremely well positioned to deliver increased shareholder
value.
Roger Matthews
5(th) August 2014
Principal risks and uncertainties
There are a number of risks and uncertainties facing the LSL
business in the second half of the financial year. These risks and
uncertainties and mitigating factors are described in more detail
on page 27 of LSL's Annual Report and Accounts 2013, dated 6(th)
March 2014 (a copy of which is available on LSL's website at
www.lslps.co.uk). The Board has reviewed these risks and
uncertainties, and a summary of this review is below. Following
this review, the Board consider the risk and uncertainties
specified in LSL's Annual Report and Accounts 2013 as updated
below, to be appropriate.
Updated risks and uncertainties
-- Market uncertainty most recently caused by the implementation
of MMR, tightening of lending criteria and some cooling of
sentiment in the housing market. In addition to these risks there
is also medium term political risk around the 2015 general
election. Overall there is uncertainty over whether market
improvement seen over the last 12 months will be sustained in the
second half and beyond.
-- Liability for inaccurate professional services advice
especially resulting in claims relating to the high risk lending
period from 2004 to 2008. Notifications relating to this period are
still being received. Our provision for PI costs represents the
Group's best estimate of likely claim costs. It remains sensitive
to the rate of new notifications and the average cost of current
and future claims.
-- Loss of key Surveying or Asset Management clients or contracts.
-- Failure to effectively deliver and manage the market share initiatives for Estate Agency.
-- Change in legislation, regulation or government policy.
Forward-Looking Statements
This statement may contain forward-looking statements with
respect to certain plans, goals and expectations relating to the
future financial condition, business performance and results of
LSL. By their nature, all forward-looking statements involve risk
and uncertainty because they relate to future events and
circumstances that are beyond the control of LSL, and they may
cause the actual results or performance of LSL to be materially
different from the results or performance implied by such
statements. Any forward-looking statements will be by reference to
the date of this statement only and must not be regarded as
guarantees of future performance. Further, nothing in this
statement should be construed as a profit forecast. Some of the
factors which may affect LSL's actual future financial conditions,
business performance and results are contained within the Business
Review in the 'principal risks and uncertainties section' on pages
27 of LSL's Annual Report and Accounts 2013 and on this page 7 of
this statement, together with information on the management of the
principal risks and uncertainties faced by LSL.
Definitions
Definitions for words and expressions referred to and included
in this statement which are not expressly defined within, can be
found at page 135 to 138 of LSL's Annual Report and Accounts 2013
(a copy of which is available on LSL's website at:
www.lslps.co.uk). All references to 'note(s)' in the statement, are
unless expressly stated otherwise, references to the 'Notes to the
Interim Condensed Group Financial Statements'
included in this statement.
Responsibility statement of the Directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- The interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board
Steve Cooke
Director
Interim Group Income Statement
for the six months ended 30(th) June 2014
Unaudited Audited
Six Months Ended Year Ended
30(th) June 30(th) June 31(st) December
2014 2013 2013
Note GBP'000 GBP'000 GBP'000
----------- ----------- ---------------
Revenue 3,4 139,838 118,767 258,603
Operating expenses:
Employee and subcontractor costs (84,528) (72,400) (150,158)
Establishment costs (10,211) (9,264) (19,386)
Depreciation on property, plant
and equipment (2,346) (1,904) (3,977)
Other (29,686) (25,164) (52,125)
----------- ----------- ---------------
(126,771) (108,732) (225,646)
Other operating income 3 1,613 771 2,376
Gain on sale of property, plant
and equipment 13 32 38
Group's share in post tax profits
of joint ventures 405 694 1,731
Group operating profit before
contingent consideration, exceptional
costs, amortisation and share-based
payments 4 15,098 11,532 37,102
Share-based payments (1,119) (328) (1,323)
Amortisation of intangible assets (310) (119) (375)
Contingent consideration 6 915 (1,036) (2,793)
Exceptional gains 6 18,111 43 134
Exceptional costs 6 (298) (707) (13,124)
Group operating profit 4 32,397 9,385 19,621
Finance income 3 - 10 7
Finance costs (1,217) (1,334) (3,154)
Exceptional finance credit 6 230 308 606
-----------
Net finance costs (987) (1,016) (2,541)
Profit before tax 4 31,410 8,369 17,080
Taxation (charge)/credit
- related to exceptional costs (3,638) 83 2,879
- other (2,865) (1,985) (5,945)
----------- ----------- ---------------
8 (6,503) (1,902) (3,066)
Profit for the period/year 24,907 6,467 14,014
----------- ----------- ---------------
Attributable to:
- Owners of the parent 24,887 6,471 14,001
- Non-controlling interest 20 (4) 13
Earnings per share expressed in
pence per share:
Basic 5 24.2 6.3 13.6
Diluted 5 23.9 6.3 13.5
Adjusted - basic 5 10.6 7.6 25.3
Adjusted - diluted 5 10.5 7.6 25.2
Interim Group Statement of Comprehensive Income
for the six months ended 30(th) June 2014
Unaudited Audited
Six Months Ended Year Ended
30(th) June 30(th) 31(st) December
2014 June 2013
2013
GBP'000 GBP'000 GBP'000
----------- -------- ---------------
Profit for the period 24,907 6,467 14,014
Items to be reclassified to profit
and loss in subsequent periods:
Reclassification adjustments for
disposal of financial assets (18,602) - -
Income tax effect 3,721 - -
Revaluation of financial assets 10,597 1,175 23,806
Income tax effect (2,120) (201) (4,380)
----------- -------- ---------------
Net other comprehensive income
to be reclassified to profit and
loss in subsequent periods: (6,404) 974 19,426
----------- -------- ---------------
Total other comprehensive income,
net of tax (6,404) 974 19,426
----------- -------- ---------------
Total comprehensive income, net
of tax 18,503 7,441 33,440
----------- -------- ---------------
Attributable to
- Owners of the parent 18,483 7,445 33,427
- Non-controlling interest 20 (4) 13
----------- -------- ---------------
Interim Group Balance Sheet
as at 30(th) June 2014
Unaudited Audited
Six Months Ended Year Ended
30(th) 30(th) June 31(st) December
June 2013 2013
2014
Note GBP'000 GBP'000 GBP'000
---------- ------------ ----------------
Non-current assets
Goodwill 130,431 121,732 125,642
Other intangible assets 20,058 18,716 19,080
Property, plant and equipment 18,584 14,221 16,230
Financial assets 9 28,863 13,096 36,574
Investments in joint ventures 2,342 2,204 3,239
----------
Total non-current assets 200,278 169,969 200,765
----------
Current assets
Trade and other receivables 40,812 35,566 35,340
Current tax receivables - - 771
Cash and cash equivalents 1,025 218 469
---------- ------------ ----------------
Total current assets 41,837 35,784 36,580
---------- ------------ ----------------
Non-current assets held for sale 10 - 654 276
---------- ------------ ----------------
Total assets 242,115 206,407 237,621
---------- ------------ ----------------
Current liabilities
Financial liabilities 11 (4,218) (1,969) (5,113)
Trade and other payables (53,833) (49,226) (54,090)
Current tax liabilities (4,570) (1,184) -
Provisions for liabilities 12 (8,345) (3,010) (8,458)
---------- ------------ ----------------
Total current liabilities (70,966) (55,389) (67,661)
---------- ------------ ----------------
Non-current liabilities
Financial liabilities 11 (37,882) (49,542) (43,749)
Deferred tax liability (7,284) (5,566) (9,014)
Provisions for liabilities 12 (12,730) (18,615) (17,881)
---------- ------------ ----------------
Total non-current liabilities (57,896) (73,723) (70,644)
---------- ------------ ----------------
Total Liabilities (128,862) (129,112) (138,305)
----------
Net assets 113,253 77,295 99,316
---------- ------------ ----------------
Equity
Share capital 208 208 208
Share premium account 5,629 5,629 5,629
Share-based payment reserve 3,066 1,626 2,475
Treasury shares (2,452) (2,689) (4,292)
Fair value reserve 21,243 9,195 27,647
Retained earnings 85,457 63,261 67,567
---------- ------------ ----------------
Equity attributable to owners
of parent 113,151 77,230 99,234
Non-controlling interests 102 65 82
Total equity 113,253 77,295 99,316
---------- ------------ ----------------
Interim Group Cash Flow Statement
for the 6 months ended 30(th) June 2014
Unaudited Unaudited Audited
30(th) June 30(th) June 31(st) December
2014 2013 2013
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash generated from operating
activities
Profit before tax 31,410 8,369 17,080
Adjustments to reconcile
profit before tax to net
cash from operating activities
Exceptional operating income
and costs and contingent
consideration (non-cash) (18,693) 1,539 15,491
Amortisation of intangible
assets 310 119 375
Finance income - (10) (7)
Finance costs 1,217 1,538 3,580
Exceptional finance credit (230) (308) (606)
Share-based payments 1,119 328 1,323
----------- -------- ---------
(16,277) 3,206 20,156
------------- ---------- ---------
Group operating profit before
amortisation and share-based
payments 15,133 11,575 37,236
Depreciation 2,346 1,904 3,977
Dividend income (1,160) (489) (1,141)
Share of results of joint
ventures (405) (694) (1,731)
Gain on sale of property,
plant
and equipment (48) (75) (172)
----------- -------- ---------
733 646 933
Increase in trade and other
receivables (5,358) (5,006) (4,656)
(Decrease)/increase in trade
and other payables (934) 572 4,881
Decrease in provisions (5,339) (3,917) (11,544)
----------- -------- ---------
(11,631) (8,351) (11,319)
------------- ---------- ---------
Cash generated from operations 4,235 3,870 26,850
Interest paid (809) (830) (2,142)
Payment of contingent consideration
relating to remuneration (1,160) - -
Loan refinance costs paid - (1,128) (1,128)
Tax (paid)/refund (1,022) 1,425 (2,537)
----------- --------
(2,991) (533) (5,807)
------------- ---------- ---------
Net cash generated from
operating activities 1,244 3,337 21,043
Unaudited Unaudited Audited
30(th) June 30(th) June 31(st) December
2014 2013 2013
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from investing
activities
Cash acquired on purchase
of subsidiary undertaking 250 - 24
Acquisition of subsidiaries
and other businesses (3,887) (1,030) (3,515)
Payment of contingent consideration (88) - (520)
Investment in financial
assets (1,155) - (847)
Cash received on sale of
financial assets 18,850 - -
Dividends received from
joint ventures 1,302 - 805
Dividends received from
financial assets 1,160 1,292 1,141
Interest received - 10 7
Purchase of property, plant
and
equipment and intangible
assets (4,576) (3,381) (7,859)
Proceeds from sale of property,
plant and equipment 92 973 1,475
-------- ---------- --------
Net cash from/(used in)
investing activities 11,948 (2,136) (9,289)
Cash flows from financing
activities
(Repayment)/drawdown of
loans (6,787) 5,345 510
Payment of deferred consideration - - (494)
Purchase of LSL shares by
the employee benefit trust
(EBT) (Treasury Shares) - (626) (2,625)
Proceeds from exercise of
share options 1,557 657 1,084
Dividends paid (7,406) (6,584) (9,985)
-------- ---------- --------
Net cash used in financing
activities (12,636) (1,208) (11,510)
Net increased/(decrease)
in cash and cash equivalents 556 (7) 244
Cash and cash equivalents
at the beginning of the
year 469 225 225
--------- -------- ---------
Cash and cash equivalents
at the end of the year 1,025 218 469
--------- -------- ---------
Interim Group Statement of changes in equity
for the 6 months ended 30(th) June 2014
Unaudited six months ended 30(th) June 2014
Share-
Share based Fair
Share premium payment Treasury value Retained Total Non-controlling
capital account reserve shares Reserve earnings equity interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st)
January 2014 208 5,629 2,475 (4,292) 27,647 67,567 99,234 82 99,316
Disposal of
financial
assets (net
of tax) - - - - (14,881) - (14,881) - (14,881)
Revaluation of
financial
assets (net
of tax) - - - - 8,477 - 8,477 - 8,477
Other
comprehensive
income for
the period - - - - (6,404) - (6,404) - (6,404)
Profit for the
period - - - - - 24,887 24,887 20 24,907
Total
comprehensive
income for
the period - - - - (6,404) 24,887 18,483 20 18,503
Exercise of
options - - (692) 1,840 - 409 1,557 - 1,557
Share-based
payments - - 1,119 - - - 1,119 - 1,119
Tax on
share-based
payments - - 164 - - - 164 - 164
Dividend
payment - - - - - (7,406) (7,406) - (7,406)
At 30 June
2014 208 5,629 3,066 (2,452) 21,243 85,457 113,151 102 113,253
--------- --------- -------- ---------- --------- ---------- --------- ----------------- ---------
In July 2014, LSL's employee benefit trust (EBT) acquired
1,485,000 shares in the Group for GBP5,621,000. During the period
616,043 share options were exercised relating to LSL's various
share option schemes resulting in the shares being sold by the EBT.
LSL received GBP1,557,000 on exercise of these options.
Unaudited six months ended 30(th) June 2013
Share-
Share based Fair
Share premium payment Treasury value Retained Total Non-controlling
capital account reserve Shares Reserve earnings equity interest Total
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
Revaluation of
financial
assets (net
of tax) - - - - 974 - 974 - 974
Other
comprehensive
income for
the period - - - - 974 - 974 - 974
Profit for the
period - - - - - 6,471 6,471 (4) 6,467
Total
comprehensive
income for
the period - - - - 974 6,471 7,445 (4) 7,441
Investment in
Treasury
Shares - - - (626) - - (626) - (626)
Exercise of
options - - (228) 628 - 257 657 - 657
Share-based
payments - - 328 - - - 328 - 328
Dividend
payment - - - - - (6,584) (6,584) - (6,584)
At 30(th) June
2013 208 5,629 1,626 (2,689) 9,195 63,261 77,230 65 77,295
--------- --------- -------- ---------- --------- ---------- -------- ----------------- --------
During the six month period ended 30(th) June 2013, the EBT
acquired 185,000 shares in the Group for GBP626,000. In addition,
during the period 271,156 share options were exercised relating to
LSL's various share option schemes resulting in the shares being
sold by the EBT. LSL received GBP657,000 on exercise of these
options.
Audited year ended 31(st) December 2013
Share-
Share based Fair
Share premium payment Treasury value Retained Total Non-controlling
capital account reserve Shares Reserve earnings equity interest Total
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
Revaluation of
financial
assets (net
of tax) - - - - 19,426 - 19,426 - 19,426
Other
comprehensive
income for
the year - - - - 19,426 - 19,426 - 19,426
Profit for the
year - - - - - 14,001 14,001 13 14,014
Total
comprehensive
income for
the year - - - - 19,426 14,001 33,427 13 33,440
Investment in
Treasury
Shares - - - (2,625) - - (2,625) - (2,625)
Exercise of
options - - (374) 1,024 - 434 1,084 - 1,084
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
--------- --------- -------- ---------- --------- ---------- -------- ----------------- --------
During the year ended 31(st) December 2013, the EBT acquired
640,485 shares in the Group for GBP2,625,000. In addition, during
the period 442,625 share options were exercised relating to LSL's
various share option schemes resulting in the shares being sold by
the EBT. LSL received GBP1,084,000 on exercise of these
options.
Notes to the Interim Condensed Group Financial Statements
The interim condensed group financial statements for the period
ended 30(th) June 2014 were approved by the LSL Board on 4(th)
August 2014. The interim financial statements are not the statutory
accounts. The financial information for the year ended 31(st)
December 2013 is extracted from the audited statutory accounts for
the year ended 31(st) December 2013, which have been filed with the
Registrar of Companies. The auditor's report was unqualified and
did not contain an emphasis of matter paragraph, and did not make a
statement under section 498 (2) or (3) of the Companies Act
2006.
1 Basis of preparation
The interim condensed group financial statements for the period
ended 30(th) June 2014 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and IAS 34 Interim Financial Reporting (as adopted by the
EU). The interim condensed group financial statements have been
prepared on a going concern basis.
The interim condensed group financial statements do not include
all the information and disclosures required in the annual
financial statements, and should be read in conjunction with the
Group's annual financial statements as at 31(st) December 2013.
There have been no significant related party transactions in the
period to 30(th) June 2014.
Significant accounting policies
The accounting policies adopted in the preparation of the
interim condensed group financial statements are consistent with
those followed in the preparation of the Group's annual financial
statements for the year ended 31(st) December 2013.
Judgements and estimates
The preparation of financial information in conformity with IFRS
as adopted by European Union requires management to make
judgements, estimates and assumptions that affect the application
of policies and reporting amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making the judgements about carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next six months are
largely the same as those as at 31(st) December 2013. These
assumptions are discussed in detail on pages 79 and 80 and in notes
7, 14, 16, 21 and 22 of the Group's annual financial statements for
the year ended 31(st) December 2013. The assumptions discussed are
as follows:
-- Valuation in acquisitions
-- Impairment of intangible assets
-- Assessment of the useful life of an intangible asset
-- Professional indemnity claims
-- Contingent consideration
-- Valuation of financial assets
1. Basis of preparation (continued)
Significant accounting policies (continued)
New standards and interpretations
The following new standards, new interpretations and amendments
to standards and interpretations have been issued and were
effective from 1(st) January 2014.
International Accounting Standards (IAS/IFRSs) Effective
date
IFRS 10 Consolidated Financial Statements 1(st) January
2014
IFRS 11 Joint Arrangements 1(st) January
2014
IFRS 12 Disclosure of Interests in Other 1(st) January
Entities 2014
IAS 27 (Revised) Separate Financial Statements 1(st) January
2014
IAS 28 (Revised) Investments in Associates and Joint 1(st) January
Ventures 2014
IFRIC Interpretation Levies 1(st) January
21 2014
Amendments to Offsetting Financial Assets and Financial 1(st) January
IAS 32 Liabilities 2014
The adoption of the above standards and interpretations did not
have a material impact on the Group's Financial Statements, other
than additional disclosures, in the period of initial
application.
Going concern
The Group has a GBP100m banking facility which expires in August
2017. These facilities are subject to financial performance
covenants. The Board has prepared a working capital forecast based
upon assumptions as to trading and has concluded that the Group has
adequate working capital, will meet the financial performance
covenants and that therefore it is appropriate to use the going
concern basis of preparation for this financial information.
2. Seasonality of operations
Due to the seasonal nature of the residential property market
turnover is normally higher in the second half of the year.
3. Revenue
Six months ended Year Ended
30(th) 31(st) December
30(th) June June 2013
2014 2013 GBP'000
GBP'000 GBP'000
Revenue from services 139,838 118,767 258,603
------------ --------- ----------------
Operating revenue 139,838 118,767 258,603
------------ --------- ----------------
Rental income 453 282 1,235
Dividend income 1,160 489 1,141
------------ --------- ----------------
Other operating income 1,613 771 2,376
------------ --------- ----------------
Finance income - 10 7
Total revenue 141,451 119,548 260,986
------------ --------- ----------------
4. 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 segment provides
services related to the sale and letting of residential properties.
It operates a network of high street branches. As part of this
process, the Estate Agency Division also provides marketing and
arranges conveyancing services. In addition, it provides
repossession asset management services to a range of lenders. It
also arranges mortgages for a number of lenders and arranges pure
protection and general insurance policies for a panel of insurance
companies via the estate agency branches, Pink Homes Loans, First
Complete and Linear Mortgage Network. The financial services
segment included within the Estate Agency division includes two
mortgage and insurance distribution networks providing products and
services for sale via financial intermediaries. The results of this
financial services segment, does not meet the quantitative criteria
for separate reporting under IFRS and has therefore 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 lenders and individual customers.
Each segment has various products and services and the revenue
from these products and services are disclosed in the LSL's Annual
Report and Accounts 2013 within the Business Review section of the
Strategic Report.
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.
4. Segment analysis of revenue and operating profit (continued)
Operating segments
The following tables presents revenue and profit information
regarding the Group's operating segments for the six months ended
30(th) June 2014, for the six months ended 30(th) June 2013 and for
the year ended 31(st) December 2013.
Six months ended 30(th) June 2014
Estate agency Surveying
and related and valuation
services services
GBP'000 GBP'000 Unallocated Total
Income statement information GBP'000 GBP'000
-------------- -------------- ------------- ---------
Segmental revenue 108,568 31,270 - 139,838
-------------- -------------- ------------- ---------
Segmental result:
- before exceptional costs,
contingent
consideration, amortisation
and
share-based payments 12,235 5,685 (2,822) 15,098
- after exceptional costs,
contingent
consideration, amortisation
and
share-based payments 30,976 5,365 (3,944) 32,397
-------------- -------------- ------------- ---------
Finance income -
Finance costs (1,217)
Exceptional finance credit 230
---------
Profit before tax 31,410
Taxation (6,503)
Profit for the period 24,907
---------
In the period ended 30(th) June 2014, there is no revenue from
one customer that accounts for 10% or more of the Group's total
revenue (2013 - none). The Estate Agency and Related Services
segment result includes a gain of GBP17,989,000 relating to sale of
Zoopla shares (see note 9)
Balance sheet information
Segment assets - intangible 139,602 10,887 - 150,489
Segment assets - other 79,097 10,569 1,960 91,626
-------- -------- -------- ---------
Total Segment assets 218,699 21,456 1,960 242,115
Total Segment liabilities (61,681) (34,229) (32,952) (128,862)
-------- -------- -------- ---------
Net assets/(liabilities) 157,018 (12,773) (30,992) 113,253
-------- -------- -------- ---------
All of the joint venture interests of the Group are recorded in
the Estate Agency and Related Services segment. Unallocated net
liabilities comprise certain property, plant and equipment
(GBP29,000), cash and bank balances (GBP1,025,000), other assets
(GBP906,000), other taxes and liabilities (GBP217,000), accruals
(GBP1,120,000), financial liabilities (GBP19,761,000) and deferred
and current tax liabilities (GBP11,854,000).
4. Segment analysis of revenue and operating profit (continued)
Operating segments
Six months ended 30(th) June 2013
Estate agency Surveying
and related and valuation
services services
GBP'000 GBP'000 Unallocated Total
Income statement information GBP'000 GBP'000
-------------- -------------- ------------- ---------
Segmental revenue 90,297 28,470 - 118,767
-------------- -------------- ------------- ---------
Segmental result:
- before exceptional costs,
contingent
consideration, amortisation
and
share-based payments 8,374 5,425 (2,267) 11,532
- after exceptional costs,
contingent
consideration, amortisation
and
share-based payments 7,862 4,619 (3,096) 9,385
-------------- -------------- ------------- ---------
Finance income 10
Finance costs (1,334)
Exceptional finance credit 308
---------
Profit before tax 8,369
Taxation (1,902)
Profit for the period 6,467
---------
Balance sheet information
Segment assets - intangible 129,668 10,780 - 140,448
Segment assets - other 56,306 8,131 1,522 65,959
-------- -------- -------- ---------
Total Segment assets 185,974 18,911 1,522 206,407
Total Segment liabilities (57,309) (31,635) (40,168) (129,112)
-------- -------- -------- ---------
Net assets/(liabilities) 128,665 (12,724) (38,646) 77,295
-------- -------- -------- ---------
All of the joint venture interests of the Group are recorded in
the Estate Agency and Related Services segment. Unallocated net
liabilities comprise certain property, plant and equipment
(GBP30,000), cash and bank balances (GBP218,000), other assets
(GBP1,274,000), other taxes and liabilities (GBP219,000), accruals
(GBP1,288,000), financial liabilities (GBP31,382,000), deferred and
current tax liabilities (GBP6,750,000), interest rate swap
(GBP528,000).
4. Segment analysis of revenue and operating profit (continued)
Operating segments
Year ended 31(st) December 2013
Estate agency Surveying
and related and valuation
services services
GBP'000 GBP'000 Unallocated Total
Income statement information 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 25,540 204 (6,123) 19,621
-------------- -------------- ------------- ---------
Finance income 7
Finance costs (3,154)
Exceptional finance credit 606
---------
Profit before tax 17,080
Taxation (3,066)
Profit for the year 14,014
---------
Estate Surveying
agency and and valuation
related services
activities GBP'000 Unallocated Total
GBP'000 GBP'000 GBP'000
------------------ -------------- ------------- ---------
Balance sheet information
Segment assets - intangible 133,840 10,882 - 144,722
Segment assets - other 79,907 10,640 2,352 92,899
------------------ -------------- ------------- ---------
Total Segment assets 213,747 21,522 2,352 237,621
Total Segment liabilities (61,209) (39,444) (37,652) (138,305)
------------------ -------------- ------------- ---------
Net assets/(liabilities) 152,538 (17,922) (35,300) 99,316
------------------ -------------- ------------- ---------
All of the joint venture interests of the Group are recorded in
the Estate Agency and Related Services segment. Unallocated net
liabilities comprise certain property, plant and equipment
(GBP28,000), cash and bank balances (GBP469,000), other assets
(GBP1,084,000), other taxes and liabilities (GBP219,000), accruals
(GBP1,642,000) financial liabilities (GBP26,548,000), deferred and
current tax liabilities (GBP8,243,000), interest rate swap
(GBP230,000).
5. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the
period attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
period.
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
period plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
Six months ended 30(th) June
Weighted 2014 Weighted 2013
Profit average Per share Profit average Per share
after number of amount after number of amount
tax shares Pence tax shares Pence
GBP'000 GBP'000
Basic EPS 24,887 102,993,275 24.2 6,471 103,016,142 6.3
Effect of dilutive
share options - 1,031,362 - - 426,217 -
Diluted EPS 24,887 104,024,637 23.9 6,471 103,442,359 6.3
---------- -------------- ------------- ------------ -------------- -------------
Year ended 31(st) 2013
December 2013 Profit Weighted average Per share
after tax number of amount
GBP'000 shares Pence
----------- ------------------ ----------
Basic EPS 14,001 102,955,662 13.6
Effect of dilutive
share options - 410,999 -
Diluted EPS 14,001 103,366,661 13.5
----------- ------------------ ----------
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:
Six months ended Year Ended
30(th) 31(st)
30(th) June June December
2014 2013 2013
GBP'000 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) 15,078 11,536 37,089
Net finance costs (excluding exceptional
costs and unwinding of discount on
contingent consideration) (1,217) (1,324) (3,147)
Normalised taxation (2,980) (2,374) (7,892)
Adjusted profit after tax(1) before
exceptional costs, share-based payments
and amortisation 10,881 7,838 26,050
------------ --------- -------------
5. EPS (continued)
Six months ended 30(th) June
Adjusted Adjusted
profit Weighted 2014 profit Weighted 2013
after average Per share after average Per share
tax(1) number amount tax(1) number amount
GBP'000 of shares Pence GBP'000 of shares Pence
Adjusted basic EPS 10,881 102,993,275 10.6 7,838 103,016,142 7.6
Effect of dilutive
share options - 1,031,362 - - 426,217 -
Adjusted diluted
EPS 10,881 104,024,637 10.5 7,838 103,442,359 7.6
--------- ------------ ----------- --------- ------------ -----------
Year ended 31(st) December 2013
Adjusted
profit Weighted 2013
after average Per share
tax(1) number amount
GBP'000 of shares Pence
Adjusted basic EPS 26,050 102,955,662 25.3
Effect of dilutive - 410,999 -
share options
Adjusted diluted
EPS 26,050 103,366,661 25.2
----------- ------------ -----------
(1) This represents adjusted profit after tax attributable to
equity holders of the parent. Tax has been adjusted to exclude the
prior year tax adjustments, and the tax impact of exceptional
items, amortisation and share-based payments. The effective tax
rate used is 21.5% (30(th) June 2013: 23.25%; 31(st) December 2013:
23.25%).
6. Exceptional items
Six Months Ended Year Ended
30(th) June 30(th) 31(st) December
2014 June 2013
2013
Exceptional costs: GBP'000 GBP'000 GBP'000
-------------- ----------- ------------------
Provision for professional indemnity
claims/notifications - - (12,000)
Branch closure costs including redundancy
costs (170) (672) (924)
Acquisition related costs (128) (35) (200)
-------------- ----------- ------------------
Total operating exceptional costs (298) (707) (13,124)
Contingent consideration on acquisitions 915 (1,036) (2,793)
-------------- ----------- ------------------
915 (1,036) (2,793)
-------------- ----------- ------------------
Exceptional gains
Gain on disposal of freehold properties 35 43 134
Settlement of legal dispute 87 - -
Sale of Zoopla shares 17,989 - -
-------------- ----------- ------------------
18,111 43 134
-------------- ----------- ------------------
Finance costs
Movement in fair value of interest
rate swap 230 308 606
-------------- ----------- ------------------
230 308 606
-------------- ----------- ------------------
Net exceptional gain/(cost) 18,958 (1,392) (15,177)
-------------- ----------- ------------------
6. Exceptional items (continued)
Provision for professional indemnity (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 Costs provision at 30(th) June 2014 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
30(th) June 2014. 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 30(th) June 2014. 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. An additional exceptional charge of GBP12.0m (cGBP9.2m
after tax) was made in the year ending 31(st) December 2013 in
order to increase the PI Costs provision. Since December 2013, the
rate of new claims and cost per claim has overall been consistent
with the assumptions behind the provision. This provision
represents our 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 Directors' estimates, which could result in a further provision
being required.
At 30(th) June 2014 the total provision for PI Costs was
GBP20.8m. The Directors have considered sensitivity analysis on the
key risks and uncertainties discussed which is set out in note 12.
The Group has continued to build a provision for estimated PI Costs
relating to valuations completed since 2009, and an income
statement charge has been made in these results, which has been
considered as an operating expense rather than as an exceptional
cost.
Sale of Zoopla shares
On 18(th) June 2014, Zoopla underwent an IPO and successfully
completed a listing on the London Stock Exchange. As part of the
IPO, LSL sold 8,889,317 Zoopla shares at an average price of
GBP2.19 per share. The total gain on sale of the shares was
GBP17,989,000 net of associated costs. LSL estimates that it will
pay tax of GBP3,626,000 on sale of these shares. Further details on
the transaction are disclosed in note 9.
Freehold properties
During the period, freehold properties with a book value
totalling GBP29,000 (31(st) December 2013: GBP1,227,000 and 30(th)
June 2013: GBP846,000) were sold for net proceeds of GBP64,000
(31(st) December 2013: GBP1,361,000 and 30(th) June 2013:
GBP889,000) resulting in a gain on disposal of GBP35,000 (31(st)
December 2013: GBP134,000 and 30(th) June 2013: GBP43,000).
Contingent consideration on acquisitions
The expense for contingent consideration on the acquisition of
Marsh & Parsons (in 2011) amounted to GBP731,000 (Dec 2013:
GBP352,000 and June 2013: GBP610,000). The exceptional contingent
consideration credit recognised in the year relating to other
acquisitions, all by LSLi, is GBP1,646,000 (31(st) December 2013:
GBP2,441,000 expense and 30(th) June 2013: GBP426,000 expense).
7. Dividends paid and proposed
Six Months Ended Year Ended
30(th) June 30(th) June 31(st) December
2014 2013 2013
GBP'000 GBP'000 GBP'000
----------- ----------- ---------------
Declared and paid during the period
Equity dividends on ordinary shares:
Interim dividend for 2013: 3.3 pence - - 3,401
Final dividend for full year 2013:
7.2 pence (full year 2012: 6.4 pence) 7,406 6,584 6,584
----------- ----------- ---------------
Dividends on ordinary shares proposed
(not recognised as a liability as at
30(th) June):
Interim dividend for 2014: 4.0 pence
per share (201: 3.3 pence) 4,074 3,401 7,406
Special dividend for 2014: 16.5 pence
per share (2013: nil pence) 16,805 - -
----------- ----------- ---------------
8. Taxation
The major components of income tax charge in the interim Group
income statements are:
Six Months Ended Year Ended
30(th) June 30(th) June 31(st) December
2014 2013 2013
GBP'000 GBP'000 GBP'000
----------- ----------- ---------------
UK corporation tax:
- current year 6,305 2,058 4,474
- adjustment in respect of prior years (10) (56) (574)
----------- ---------------
6,295 2,002 3,900
Deferred tax:
Origination and reversal of temporary
differences 74 (93) (814)
Adjustment in respect of prior year 134 (7) (20)
----------- ----------- ---------------
208 (100) (834)
----------- ----------- ---------------
Total tax charge in the income statement 6,503 1,902 3,066
----------- ----------- ---------------
Income tax charged directly to other comprehensive income is
GBP2,120,000 (30(th) June 2013: GBP201,000 and 31(st) December
2013: GBP4,380,000) and relates to the revaluation of financial
assets. Income tax credited directly to the share based payment
reserve is GBP164,000 (30(th) June 2013 and 31(st) December 2013:
GBP nil).
In March 2013, the UK government announced additional proposals
to reduce the main rate of corporation tax to 20% from 1(st) April
2015. As of 30(th) June 2014 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.
9. Financial assets
Six Months Ended Year Ended
Available-for-sale financial assets 30(th) June 30(th) June 31(st) December
2014 2013 2013
GBP'000 GBP'000 GBP'000
----------- ----------- ---------------
Unquoted shares at fair value 1,687 13,096 36,574
Quoted shares at fair value 27,176 - -
----------- ----------- ---------------
28,863 13,096 36,574
----------- ----------- ---------------
Opening balance 36,574 11,921 11,921
Acquisitions 1,155 - 847
Disposals (19,463) - -
Fair value adjustment recorded through
other comprehensive income 10,597 1,175 23,806
Closing balance 28,863 13,096 36,574
----------- ----------- ---------------
9. Financial assets (continued)
The financial assets include unlisted equity instruments which
are carried at fair value. Fair value is judgemental given the
assumptions required and have been valued using a level 3 valuation
techniques (see note 15). Financial assets also include shares
Zoopla which are listed on the London Stock Exchange and again are
carried at fair value. These shares are valued using a level 1
valuation technique.
Zoopla
On 18(th) June 2014, Zoopla underwent an IPO. Prior to the IPO,
LSL owned 4.91% of Zoopla which was valued at GBP17.50 per share,
GBP35.1m As part of the IPO, LSL received 10 shares in the new
company for each share it owned reducing the value to GBP1.75 per
new share. The IPO price was GBP2.20 per share so revaluing LSL's
investment prior to the IPO at GBP44,039,000.
LSL sold 44.3% of its stake in Zoopla for GBP18,850,000, net of
associated costs, GBP15,224,000 net of tax. The gain on the
disposal of the shares recognised in the income statement was
GBP17,989,000 gross, GBP14,363,000 net of tax. As part of the IPO,
LSL was invited to acquire an additional 619,318 shares for
GBP1,090,000, which was at a 20% discount to the IPO price due to
its existing customer relationship with Zoopla. A gain of
GBP273,000 was recorded through other comprehensive income to
revalue these shares back to the IPO price.
Following the above transactions, the Group continues to own
2.82% of Zoopla. Under the terms of the IPO, the Group is unable to
sell any additional shares in Zoopla until 18(th) December 2014 (6
months from the IPO date).
Zoopla's share price at 30(th) June 2014 was GBP2.305 per share.
The Directors consider this to be the best estimate of the fair
value of LSL's investment in Zoopla to be the current share price
which values the Group's stake in Zoopla at GBP27,176,000. An
additional valuation uplift of GBP1,237,000 has been recorded
through other comprehensive income to reflect the change in share
price since the IPO.
The total revaluation amount of GBP10,597,000 comprises of:
GBP'000
-------
Revaluation of Zoopla shares up to IPO
price of GBP2.20 per share 8,933
Revaluation of Zoopla shares bought at a discount on IPO
up to IPO price of GBP2.20 273
Revaluation of Zoopla shares from GBP2.20 to GBP2.305
per share post IPO 1,237
Revaluation movements of other investments 154
Closing balance 10,597
-------
On 3(rd) July 2014, the Group sold a further 926,813 shares as
part of the IPO over allotment and received proceeds of
GBP1,978,000, GBP1,589,000 net of tax. To date the Group has
received proceeds net of associated tax costs of GBP16,814,000. The
Directors have decided that a special distribution of 16.5 pence
per share be declared to return this exceptional gain to
Shareholders.
Other investments
The Group acquired additional shares in Vibrant Energy Matters
Limited (VEM) during the period, increasing its stake to 16.5%. The
price paid for the VEM shares has been deemed by the Directors to
be a good approximation of fair value as at 30(th) June 2014 and
the Group's entire stake has been revalued upwards to GBP824,000
with the movement recorded through other comprehensive income.
Due to the issue of additional shares to management, the Group's
stake in GPEA Limited (GPEA) was reduced to 16.8% during the
period. This resulted in a small decrease in the fair value of the
investment which has been recorded through other comprehensive
income. The carrying value of the investment at 30(th) June 2014
has been assessed as GBP862,000.
10. Assets held for sale
During the period the Group classified GBPnil (31(st) December
2013: GBP276,000 and 30(th) June 2013: GBP654,000) as assets held
for sale. These assets were part of the Estate Agency and Related
Services segment.
11. Financial liabilities
Six Months Ended Year Ended
30(th) June 30(th) June 31(st) December
2014 2013 2013
GBP'000 GBP'000 GBP'000
----------- ----------- ---------------
Current
Overdraft 261 882 2,548
Contingent consideration 3,957 559 2,335
Derivatives carried at fair value - 528 230
----------- ----------- ---------------
4,218 1,969 5,113
----------- ----------- ---------------
Non-current
Bank loans - revolving credit facility(RCF) 19,500 30,500 24,000
12% unsecured loan notes 9,507 9,172 9,339
Deferred consideration 446 401 446
Contingent consideration 8,429 9,469 9,964
37,882 49,542 43,749
----------- ----------- ---------------
Bank loans - RCF and overdraft
A GBP100m loan facility which expires in August 2017 was
arranged in June 2013. Loan refinance costs of GBP1,128,000 were
incurred in June 2013 which have been capitalised and are being
amortised over the life of the loan facility.
The bank loan totalling GBP19.5m (31(st) December 2012: GBP24.0m
and 30(th) June 2013: GBP30.5m) and overdraft totalling GBP0.3m
(31(st) December 2013: GBP2.5m and 30(th) June 2013: GBP0.9m) are
secured via cross guarantees issued from all of the Group's
subsidiaries excluding the following subsidiaries, Lending
Solutions, Homefast Property Services, Linear Mortgage Network,
Linear Financial Services, Templeton LPA, property-careers.com,
Chancellors Associates and LSLi and the LSLi subsidiaries.
The utilisation of the revolving credit facility may vary each
month as long as this does not exceed the maximum
GBP100m facility (31(st) December and 30(th) June 2013:
GBP100m). The Group's overdraft is also secured on the same
facility but cannot exceed GBP5m and the combined overdraft and
revolving credit facility cannot exceed GBP100m (Dec and June 2013:
GBP100m). The banking facility is repayable when funds permit on or
by August 2017.
Interest and fees payable on the RCF facility amounted to
GBP1.0m (31(st) December 2013: GBP2.1m and 30(th) 30(th) June 2013:
GBP0.8m). The interest rate applicable to the facility is LIBOR
plus a margin rate of 1.50% (31(st) December and 30(th) June 2013:
LIBOR plus 1.50%). The margin rate is linked to the leverage ratio
of the Group and the margin rate is reviewed at six monthly
intervals. An additional fee is charged if the facility is more
than 33% drawn with a further fee due if the facility is more than
67% drawn.
12% unsecured loan notes
12% unsecured loan notes with a face value of GBP6,146,000 and a
fair value of GBP8,660,000 were issued as part satisfaction of the
consideration for acquisition of Marsh & Parsons in November
2011. These loan notes carry a coupon of 12% which is compounded
every year on 1st January and rolled up to redemption. The loan
notes are redeemable at par value plus rolled up interest at any
time after 31(st) March 2016 at the option of the loan note holder.
However, if that option is not exercised by the loan note holder
they are redeemable on 31(st) March 2020. The amounts shown in the
table above include accrued interest of GBP847,000 (31(st) December
2013: GBP679,000 and 30(th) June 2013: GBP512,000).
11. Financial liabilities (continued)
Contingent consideration
Six Months Ended Year Ended
30(th) June 30(th) June 31(st) December
2014 2013 2013
GBP'000 GBP'000 GBP'000
----------- ----------- ---------------
Marsh & Parsons Growth Shares 2,951 2,478 2,220
LSLi contingent consideration 8,599 6,575 9,206
Other 836 975 873
----------- ----------- ---------------
12,386 10,028 12,299
----------- ----------- ---------------
Opening balance 12,299 8,088 8,088
Cash paid (1,248) (12) (520)
Acquisition 2,250 987 1,997
Fair value adjustment recorded against
goodwill - (71) (58)
Amounts recorded though income statement (915) 1,036 2,792
----------- ----------- ---------------
Closing balance 12,386 10,028 12,299
----------- ----------- ---------------
GBP2,951,000 (31(st) December 2013: GBP2,220,000 and 30(th) June
2013: GBP2,478,000) of contingent consideration relates to the
Growth Shares acquired by to the management of Marsh & Parsons
subsequent to acquisition as an incentive to grow the Marsh &
Parsons business. Holders of Growth Shares will have the option to
require LSL to buy their Growth Shares at any time between 31(st)
March 2016 and 1(st) April 2020, at their discretion, at a price
determined by a multiple of EBITDA in the previous financial year.
The payment of the consideration is contingent on the holder of the
Growth Shares being continuously employed by the relevant company
and consequently the expected value of the Growth Shares is charged
to the income statement over the earn-out period.
GBP8,599,000 (31(st) December 2013: GBP9,206,000 and 30(th) June
2013: GBP6,575,000) of contingent consideration relates to payments
to third parties in relation to the acquisition of LSLi and certain
of its subsidiaries between 2007 and 2014. This is payable between
three and five years after the acquisition dates depending on the
profitability of those subsidiaries in the relevant years. In 2014,
the contingent consideration has been recalculated based on the
Directors' latest expectation using a discount rate of 6.5% (31(st)
December 2013 and 30(th) June 2013: 6.5%).
The table below shows the allocation of the contingent
consideration balance and income charge between the various
categories:
Six Months Ended Year Ended
Contingent consideration balances relating 30(th) June 30(th) June 31(st) December
to amounts accounted for as: 2014 2013 2013
GBP'000 GBP'000 GBP'000
----------- ----------- ---------------
Remuneration 4,806 4,754 5,624
Put options over non-controlling interests 3,062 3,524 4,371
Arrangement under IFRS 3 4,518 1,750 2,304
----------- ----------- ---------------
Closing balance 12,386 10,028 12,299
----------- ----------- ---------------
Contingent consideration profit and
loss impact in the period relating to
amounts accounted for as:
Remuneration 343 636 1,506
Put options over non-controlling interests (1,310) 375 1,223
Arrangement under IFRS 3 52 25 63
----------- ----------- ---------------
(Credit)/charge (915) 1,036 2,792
----------- ----------- ---------------
Deferred consideration
During the prior period the Group paid GBP438,000 with regard to
deferred consideration. Deferred consideration totalling GBP446,000
is payable at any time between 31(st) March 2016 and 31(st) March
2020 at the option of the management shareholders.
Derivatives carried at fair value -interest rate swap
See note 14 below.
12. Provisions for liabilities
Six months ended 30(th) June:
2014 2013
Professional Professional
indemnity Onerous indemnity Onerous
claim provision leases Total claim provision leases Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ------------- ----------- ----------------- ----------- -----------
Balance at 1(st)
January 25,864 475 26,339 24,163 1,037 25,200
Amount utilised (6,469) (65) (6,534) (4,990) (236) (5,226)
Unwinding of discount 75 - 75 342 - 342
Provided in the
period (including
exceptional costs) 1,292 (97) 1,195 1,309 - 1,309
Balance at 30(th)
June 20,762 313 21,075 20,824 801 21,625
-------------------- ------------- ----------- ----------------- ----------- -----------
Current 8,032 313 8,345 2,528 482 3,010
Non-current 12,730 - 12,730 18,296 319 18,615
20,762 313 21,075 20,824 801 21,625
-------------------- ------------- ----------- ----------------- ----------- -----------
Year ended 31(st) December 2013
Professional
indemnity Onerous
claim provision leases Total
GBP'000 GBP'000 GBP'000
-------------------- ------------- -----------
Balance at 1(st) January 24,163 1,037 25,200
Amount utilised (14,445) (506) (14,951)
Amount released - (90) (90)
Unwinding of discount 683 - 683
Provided in the period (including exceptional
costs) 15,463 34 15,497
Balance at 31(st) December 25,864 475 26,339
-------------------- ------------- -----------
Current 8,378 80 8,458
Non-current 17,486 395 17,881
25,864 475 26,339
-------------------- ------------- -----------
The PI Cost provision is to cover the costs of claims relating
to valuation services for clients which are not covered by PI
insurance. The PI Cost provision includes amounts for claims
already received from clients, claims yet to be received and any
other amounts which may be payable as a result of legal disputes
associated with provision of valuation services.
The provision is the Directors' best estimate of the likely
outcome of such claims, taking account of the incidence of claims
and the size of the loss that may be borne by the claimant, after
taking account of actions that can be taken to mitigate losses. The
provision will be utilised as individual claims are settled and the
settlement amount may vary from the amount provided depending on
the outcome of each claim. It is not possible to estimate the
timing of payment of all claims and therefore a significant portion
of the provision has been classified as non-current.
An additional exceptional charge of GBP12.0m (cGBP9.2m after
tax) was made in the year ending 31(st) December 2013 in order to
increase the PI Cost provision. Since December 2013, the rate of
new claims and cost per claim has overall been consistent with the
assumptions behind the 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 Directors' estimates, which could result
in a further provision being required.
12. Provisions for liabilities (continued)
At 30(th) June 2014 the total provision for PI Costs was
GBP20.8m. The Directors have considered sensitivity analysis on the
key risks and uncertainties discussed above. If the rate of new
claims relating to the 2004 to 2008 high risk lending period
experienced during the second quarter of 2014 were to continue
through to June 2015 (rather than reduce during the second half of
2014 and then fall to zero in 2015) an additional provision of
GBP2.4m would be required. If the average cost per case for both
existing open claims and for claims yet to be received was 10%
higher or lower than assumed in the year end provision of GBP20.8m,
an additional or lower provision of GBP3.2m would be required.
The provision for lease obligations relates to obligations under
leases on vacant properties. The provision is expected to be fully
utilised by June 2020. The final outcome depends upon the ability
of the Group to sublet or assign the lease over the related
properties.
13. Analysis of Net Bank Debt
Six Months Ended Year Ended
30(th) June 30(th) June 31(st) December
2014 2013 2013
GBP'000 GBP'000 GBP'000
----------- ----------- ---------------
Interest bearing loans and borrowings
* Current 4,218 1,969 5,113
* Non-current 37,882 49,542 43,749
----------- ----------- ---------------
42,100 51,511 48,862
Less: 12% unsecured loan notes (9,507) (9,172) (9,339)
Add: cash and short-term deposits (1,025) (218) (469)
Less: deferred and contingent consideration (12,832) (10,429) (12,745)
----------- ----------- ---------------
Net Bank Debt at the end of the year 18,736 31,692 26,309
----------- ----------- ---------------
Net Bank Debt excluding the net sale proceeds from the sale of
Zoopla shares and reinvestment into Zoopla totalling of GBP17.8m
was GBP36.5m.
14. Financial instruments - risk management
The financial risks the Group faces and the methods used to
manage these risks have not changed since 31(st) December 2013.
Further details of the risk management policies of the Group are
disclosed in Note 29 of the Group's Financial Statements for the
year ended 31(st) December 2013.
In 2009 the Group entered into interest rate swap agreements to
fix interest rates on GBP25m of the Group's bank borrowings. The
interest rate swap agreements fix LIBOR to approximately 2.9% until
April / May 2014 and so have expired at 30(th) June 2014. At 30(th)
June 2014, after taking into account the effect of interest rate
swaps, none of the Group's RCF is at a fixed rate of interest (
31(st) December 2013: 94% and 30(th) June 2013: 80%).
The Group has a current ratio of Net Bank Debt (excluding loan
notes) to EBITDA of 0.41 (31(st) December 2013: 0.63 and 30(th)
June 2013: 0.87). The business is cash generative with a low
capital expenditure requirement. The Group remains committed to its
stated dividend policy of 30% to 40% of Underlying Operating Profit
after interest and tax. In addition, the Group's other main
priority is to generate cash to support its operations and to fund
any strategic acquisitions.
15. Fair values of financial assets and financial liabilities
Set out below is a comparison by category of carrying amounts
and fair values of all of the Group's financial instruments that
are carried in these financial statements:
June 2014 June 2013 Dec 2013
Book and Book and Book and
Fair value Fair value Fair value
GBP'000 GBP'000 GBP'000
------------ ------------ ------------
Financial assets
Cash and cash equivalents 1,025 218 469
Available-for-sale financial assets 28,863 13,096 36,574
Financial liabilities
Interest-bearing loans and borrowings:
Floating rate borrowings (19,761) (31,382) (26,548)
Fixed rate borrowings - - -
Derivative financial liabilities -
interest rate swaps - (528) (230)
Contingent consideration (12,386) (10,028) (12,299)
Deferred consideration (446) (401) (446)
12% unsecured loan notes (9,507) (9,172) (9,339)
The fair value of the Zoopla investment is made with reference
to the latest share price as this is a listed investment (listed on
the London Stock Exchange). The fair value of the remaining
available for sale financial assets have been calculated with
reference to the last trades in these assets. The fair values of
the interest rate swaps were determined by reference to market
values for similar instruments. The fair values for the remaining
financial instruments have been calculated by discounting the
expected future cash flows at interest rates prevailing for a
comparable maturity period for each instrument
Fair value hierarchy
As at 30(th) June 2014, the Group held the following financial
instruments measured at fair value. The Group uses the following
hierarchy for determining and disclosing the fair value of the
financial instruments by valuation technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
-- June 2014 Level Level Level
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
---------- -------- --------- --------
Assets measured at fair value
Financial assets 28,863 27,176 - 1,687
Liabilities measured at fair
value
Contingent consideration 12,386 - - 12,386
Liabilities for which fair values
are disclosed
Interest-bearing loans and borrowings:
Floating rate borrowings 19,761 - 19,761 -
12% unsecured loan notes 9,507 - 9,507 -
-- June 2013 Level Level Level
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
---------- -------- --------- --------
Assets measured at fair value
Financial assets 13,096 - - 13,096
Liabilities measured at fair
value
Interest rate swaps 528 - 528 -
Contingent consideration 10,028 - - 10,028
Liabilities for which fair values
are disclosed
Interest-bearing loans and borrowings:
Floating rate borrowings 31,382 - 31,382 -
12% unsecured loan notes 9,172 - 9,172 -
15. Fair values of financial assets and financial liabilities (continued)
-- Dec 2013 Level Level Level
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
--------- -------- --------- --------
Assets measured at fair value
Financial assets 36,574 - - 36,574
Liabilities measured at fair
value
Interest rate swaps 230 - 230 -
Contingent consideration 12,299 - - 12,299
Liabilities for which fair values
are disclosed
Interest-bearing loans and borrowings:
Floating rate borrowings 26,548 - 26,548 -
12% unsecured loan notes 9,339 - 9,339 -
As disclosed in note 9, Zoopla completed an IPO on 18(th) June
2014. Immediately prior to IPO, the fair value of the investment in
Zoopla was revalued to GBP44,039,000. These financial assets are
now valued based on a price in an active market, representing a
transfer from a Level 3 to a Level 1 valuation technique. At 30(th)
June 2014, the remaining stake in Zoopla was revalued to
GBP27,176,000 based on the Zoopla share price at that date of
GBP2.305 per share.
The other investments totalling GBP1,687,000 are still valued
using Level 3 valuation techniques. The Directors reviewed the fair
value of the financial assets at 30(th) June 2014. The methods used
to determine the fair value are disclosed in more detail in note 9.
The underlying value of the business will be driven by the
profitability of these businesses. If this was to drop by 10%, the
implied valuation is likely to also drop by around 10%, GBP0.2
million.
The contingent consideration relates to amounts payable in the
future on acquisitions. The amounts payable are based on the
amounts agreed in the contracts and based on the future
profitability of each entity acquired. In valuing each provision,
estimates have been made as to when the options are likely to be
exercised and the future profitability of the entity at this date.
Further details of these provisions are shown in note 11. If the
future profitability of the entities was to decline by 10%, the
size of the contingent consideration would decrease by
approximately GBP1.2 million.
Fair values of the Group's interest-bearing borrowings and loans
are determined by using DCF methodology using a discount rate that
reflects the issuer's borrowing rate as at the end of the reporting
period. The own non-performance risk as at 30(th) June 2014 was
assessed to be insignificant.
16. Acquisitions
During the period the Group acquired three lettings businesses
for a total consideration of GBP695,000. The entire purchase price
for the acquisitions has been assumed to be goodwill except
GBP180,000 assigned to fixed assets.
In March 2014, the Group acquired 65% of Hawes & Co, a 6
branch estate agency chain based in Wimbledon for an initial
consideration of GBP3.2m. The remaining 35% is subject to put and
call options which are exercisable between 2016 and 2019 dependent
on profit performance. Due to the nature of the payment terms, the
contingent 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 Hawes & Co as at the date
of acquisition have been determined as below:
Fair value
recognised
on acquisition
GBP'000
Intangible assets 942
Property, plant and equipment 58
Trade and other receivables 384
Cash and cash equivalents 250
Trade and other payables (466)
Current tax liabilities -
Total identifiable net assets acquired 1,168
Purchase consideration 5,442
-------------------
Goodwill 4,274
-------------------
Purchase consideration discharged by:
Cash 3,192
Contingent consideration 2,250
------
5,442
------
The acquisition accounting above is considered provisional as
LSL is still reviewing our estimates of the likely payments under
the contract, but the calculation above represents our best
estimate at 30(th) June 2014.
The goodwill of Hawes & Co 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.
From the date of acquisition to 30(th) June 2014, the
acquisitions in aggregate have contributed to GBP1.3m of revenue
and GBP0.2m 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 GBP1.2m and the consolidated profit before tax would have
been higher by GBP0.2m.
Transaction costs have been expensed and are included under
exceptional costs (see note 6)
INDEPENDENT REVIEW REPORT LSL PROPERTY SERVICES PLC
(Company)
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30(th) June 2014 which comprises the Interim Group
Income Statement, the Interim Group Statement of Comprehensive
Income, the Interim Group Balance Sheet, the Interim Group Cash
Flow Statement, the Interim Group Statement of Changes in Equity
and the related notes 1 to 16. We have read the other information
contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30(th)
June 2014 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Leeds
4(th) August 2014
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAEPSEENLEFF
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