TIDMLSL
RNS Number : 2223H
LSL Property Services
12 March 2015
For immediate release 12 March 2015
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 2014.
2014 2013 % change
---------------------------------------------------- ------ ------ ---------
Group revenue GBPm 287.5 258.6 11
Group Underlying Operating Profit(1) GBPm 42.0 37.1 13
Group Underlying Operating Margin % 14.6 14.3
---------------------------------------------------- ------ ------ ---------
Profit before tax GBPm 31.9 17.1 87
Underlying profit before tax(1) GBPm 39.8 33.9 17
Basic Earnings Per Share- pence 24.5 13.6 80
Adjusted Basic Earnings Per Share - pence(2) 30.5 25.3 21
Net Bank Debt at 31(st) December GBPm(3) 34.7 26.3
Final proposed ordinary dividend per share - pence 8.3 7.2
Full year ordinary dividend per share - pence 12.3 10.5 17
Special dividend per share - pence 16.5 - -
---------------------------------------------------- ------ ------ ---------
-- Underlying operating profit of GBP42.0m is a record result for the Group
-- Excellent progress in the Estate Agency Division
-- Strong market growth in the first half followed by slowing activity in the second half
-- Major contracts secured in the Surveying Division and
on-going investment in capacity management
-- Excellent value creation from investment in Zoopla - Total
value created of GBP42.2m (as at IPO), GBP19.8m exceptional profit,
special dividend of 16.5p per share and retention of 51% of
original shareholding valued at GBP21.3m as at 31(st) December
2014
-- Exceptional charge of GBP24.6m related to PI provisions
relating to the 2004 to 2008 high risk lending period. Balance
sheet provision of GBP38.7m (2013: GBP25.9m)
-- Strong operational cash flow, balance sheet and dividend growth
-- Acquisition of Hawes & Co and 10 lettings books during
2014 and the acquisition of Thomas Morris and six lettings books
since the start of 2015
1 Underlying Operating Profit and underlying profit before tax
is before exceptional gains and exceptional costs, contingent
consideration, amortisation of intangible assets and share-based
payments
2 Refer to Note 3 for the calculation
3 Refer to Note 7 for the calculation
Commenting on today's announcement, Simon Embley, Chairman,
said:
"I am very pleased to report that 2014 was a record year for the
Group with underlying Operating Profit higher than LSL achieved in
the property market peak of 2007. The year saw the orderly
transition of senior management with Ian Crabb's first full year as
Group CEO and Adrian Gill assuming responsibility for the Estate
Agency Division. The year also saw the achievement of our
profitability per branch target that we set in 2011 whilst Marsh
& Parsons expanded its branch footprint in a difficult market.
The Surveying division secured new contracts on improved
margins.
I was also delighted that our investment in Zoopla delivered an
exceptional return to shareholders.
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 capitalise on the
changing market conditions to increase shareholder value."
For further information, please contact:
Ian Crabb, Group Chief Executive Officer
Andrew Burchall, Interim Group Finance Director
LSL Property Services plc 0207 382 0360
Richard Darby, Sophie McNulty
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
I am pleased to report that against a rapidly changing market
backdrop the Group has continued to make good progress, reporting
Group Underlying Operating Profit of GBP42.0m (2013: GBP37.1m) for
the year. This Group Underlying Operating Profit is higher than LSL
achieved in the property market peak of 2007. Group Revenue
increased by 11% whilst Group Underlying Operating Profit increased
by 13% compared to 2013. On a statutory basis, operating profit was
GBP33.9m (2013: GBP19.6m), an increase of 73%. The first half of
the year saw Group Underlying Operating Profit growth of 31%
against the same period in 2013 with the second half showing a more
muted performance against strong comparatives.
The Estate Agency Division, in particular, has delivered a
strong performance. Residential Sales income increased by 15%,
Financial Services income grew by 22% and Lettings income increased
largely organically by 12%. In line with our stated strategy, we
saw profitability per owned branch increase by 44% to GBP46k
achieving our medium term target for profit per branch set in 2011.
We acquired Hawes & Co within LSLi and added a further ten
small lettings acquisitions across our Estate Agency businesses.
The Surveying Division delivered a solid performance during 2014
with a number of efficiency initiatives significantly improving
profitability in the second half of the year.
The UK residential property services market in 2014 was very
much a story of two halves. The year started very strongly
continuing the trend we saw in the second half of 2013 with house
purchase approvals, as measured by the Bank of England, up 35% year
on year in the first quarter of 2014 and by 19% in the first half
for the year. Year on year growth then moderated in the second
quarter before contracting by 16% in the final quarter of the year.
April also saw the implementation of changes to mortgage
application processing by lenders following the Mortgage Market
Review (MMR). These changes impacted the market from the second
quarter onwards. Changes to stamp duty introduced at the start of
December 2014 also had an impact, particularly in prime Central
London, but overall there was a general slowing of activity as
consumer sentiment weakened in the second half of the year.
The business remains 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 15% to 8.3
pence per share (2013: 7.2 pence). This will result in the total
dividend for the year, excluding the special dividend of 16.5 pence
relating to our disposal of Zoopla shares, increasing by 17% to
12.3 pence per share (2013: 10.5 pence), recognising our confidence
in the future earnings prospects of the business.
Financial Results
Group revenue increased by 11% to GBP287.5m (2013: GBP258.6m)
and Group Underlying Operating Profit increased by 13% to GBP42.0m
(2013: GBP37.1m) with the Group Underlying Operating Margin
improving to 14.6% (2013: 14.3%).
The Estate Agency Division increased operating profit by 16% to
GBP33.9m (2013: GBP29.1m). This performance was delivered in a
market where house purchase approvals for the whole year increased
by 5% to 769,000(1) (2013: 736,000). This moderate full year growth
masked a changing market during the year with volume growth of 19%
in first half of the year followed by a 7% contraction in the
second half of 2014 against the prior year. Sequentially, the
market in the first half of the year was 1% down on the second half
of 2013 whilst the second half in 2014 was 6% lower than the first
half. There was strong revenue growth in Residential Sales income,
Financial Services and Lettings income. Marsh & Parsons
continued its expansion strategy with four new branch openings and
made good progress in a prime Central London market where market
conditions were challenging in the second half of the year. In line
with previous trends, repossession volumes fell by a further 27% to
21,000(2) in the year (2013: 28,900) which impacted revenue and
profit in our asset management activities.
The Surveying Division faced a broadly flat market for mortgage
approval transactions. Total mortgage approvals were 1,280,000
(2013: 1,286,000), including a 2% decrease in remortgages to
385,000 (2013: 393,000). Although the number of jobs completed
reduced by 6% to 372,000, the revenue per job increased resulting
in a 3% increase in total revenue to GBP62.2m. During the year, we
were delighted to secure multi-year valuation services contracts
with Barclays Bank PLC and Lloyds Banking Group. Subsequent to the
year end, we secured a multi-year contract as lead valuer, this
time with the mortgage division of Santander UK. These
non-exclusive contracts are all on contract terms reflecting
improved conditions in the mortgage valuation market.
Towards the end of the year, the Surveying Division concluded a
project to improve operational performance and productivity whilst
improving working practices, which includes the consolidation of
all administrative functions at its Kettering location. The
associated one off costs of this exercise of GBP0.7m will be
recovered in savings during the first half of 2015. The one off
costs are included as an exceptional item in 2014. Operating profit
was marginally ahead at GBP13.3m (2013: GBP13.1m) with operating
margin of 21.4% (2013: 21.7%).
1 Source: Bank of England for "House Purchase Approvals"
2014
2 Source: Council of Mortgage Lenders arrears and repossessions
data relating to properties taken into possession by first-charge
mortgage lenders for 2014.
As previously announced in December 2014, we have needed to
further increase our PI provisions relating to the 2004 to 2008
high risk lending period. The announcement indicated a range of
between GBP20.0m and GBP25.0m and following further work, we have
provided an additional reserve of GBP24.6m which is included in
2014 as an exceptional item. Whilst the cause is a historic market
issue relating to historic periods, it remains disappointing. The
additional provision reflects a number of factors. Although we have
seen the reduction in the rate of notification that we had expected
during the year, and assumed in setting the previous level of
provision, a greater proportion of the notifications are
deteriorating into claims. Claims are also hardening with the more
difficult and complex claims now being progressed. This is
resulting in an increase in the average cost per claim,
particularly in respect of legal costs reflecting the complexity of
the arguments. 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
review was conducted with the overall aim of ensuring a high degree
of confidence that the total PI provision will be adequate to cover
the remaining risk relating to the 2004 to 2008 high lending
period. The provision required is highly sensitive to the run rates
of new claims and the costs per claim for both new and existing
claims. Claims experience since the high risk lending period has
significantly improved as a result of both structural changes in
the market place and the overhaul of internal procedures.
Profit before tax, amortisation, share based payments,
contingent consideration and exceptional costs increased by 17% to
GBP39.8m (2013: GBP33.9m). Net exceptional operating costs of
GBP6.2m (2013: GBP13.0m) included PI costs of GBP24.6m (2013:
GBP12.0m) noted above. Exceptional operating income includes a
GBP19.8m exceptional profit on the part disposal of the Group's
investment in Zoopla. There was also a non-cash credit of GBP0.4m
(2013: GBP2.8m charge) relating to employment related contingent
consideration in acquisitions and amortisation of intangible assets
during the year was GBP0.6m (2013: GBP0.4m). Profit before tax
increased to GBP31.9m (2013: GBP17.1m) and profit after tax was
GBP25.2m (2013: GBP14.0m). On an adjusted basis, earnings per share
increased by 21% to 30.5 pence (2013: 25.3 pence). Unadjusted
undiluted basic earnings per share were 24.5 pence (2013: 13.6
pence).
Cash generated from operations was GBP25.7m (2013: GBP26.9m).
Operating cash flow included PI cash settlements of GBP13.3m (2013:
GBP14.4m). Capital expenditure increased to GBP9.2m (2013: GBP7.9m)
including investment in 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 31(st) December 2014 was GBP34.7m compared to
GBP26.3m at 31(st) December 2013 after investing GBP9.7m in
acquisitions, financial assets, joint ventures and the settlement
of deferred consideration (2013: GBP5.4m) and the purchase of LSL
shares by LSL's Employee Benefit Trust. Net Bank Debt increased in
the year primarily because of the increase in PI cash settlement
costs. The Group has a GBP100m committed bank facility until August
2017.
Net assets decreased by GBP16.2m to GBP83.1m at 31(st) December
2014 (2013: GBP99.3m), as a result of the special dividend paid
following the realisation of the investment in Zoopla on its
initial public offering (IPO).
Dividend
As a result of the growth in underlying Group profitability and
the Board's positive view of future prospects for the business, an
increase in the final dividend of 15% to 8.3 pence per share (2013:
7.2 pence) will be proposed to Shareholders at the forthcoming AGM,
increasing the total dividend for 2014, excluding the one off
special dividend related to Zoopla of 16.5 pence, by 17% to 12.3
pence per share (2013: 10.5 pence per share). The proposed dividend
payment is at the upper end 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 26(th) March 2015
with a record date of 27(th) March 2015 and a payment date of 7(th)
May 2015. 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
2014 has been another year of excellent progress combined with
major investment in the Estate Agency Division. Profit per owned
branch, excluding Marsh & Parsons, increased by 44% to
GBP46,000 (2013: GBP32,000) compared to the medium term target of
GBP30,000 to GBP50,000 which the Board set in 2011 when profit per
owned branch was GBP5,000. The Board has accordingly reviewed the
target for branch profitability and has increased the target to
GBP80,000 to GBP100,000 per owned branch in the medium term on the
expectation of longer term stability in the UK residential property
sector. All key income streams in the Estate Agency Division other
than our countercyclical Asset Management business have grown
strongly and operating margin increased to 15.0% (2013: 14.7%).
Residential Sales exchange income, excluding Marsh &
Parsons, increased by 20% to GBP76.8m (2013: GBP64.1m) driven
mainly by improved mix and good progress increasing the average
Estate Agency fee. The rate of income growth varied during the year
in line with the fluctuations in the market. Our Lettings business
has continued to perform well with Lettings income, excluding Marsh
& Parsons, increasing by 10% to GBP43.3m (2013: GBP39.2m). We
continue to invest in our Financial Services, Lettings and
conveyancing activities as well as looking for ways to improve back
office efficiency.
Marsh & Parsons made good progress in the volatile prime
Central London market where stock levels remained challenging all
year driving increased price expectations in the first half of the
year which then ameliorated in the second half. Total revenue
increased by 9% to GBP32.5m (2013: GBP29.9m) with Residential Sales
broadly flat but with excellent Lettings growth of 18%. Operating
profit was GBP6.5m (2013: GBP6.7m), impacted by the investment in
opening four 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 22% during 2014 to GBP43.7m (2013: GBP35.8m). Activity
levels are growing ahead of the market reflecting the breadth and
depth of the Group's Financial Services offerings. The Group
arranged total mortgage lending completions of GBP11.6bn in 2014
(2013: GBP7.6bn).
Asset Management delivered another solid result in a
countercyclical market. Revenue declined by 18% to GBP11.7m (2013:
GBP14.3m) in a market where repossession volumes reduced by 27% to
21,000 (2013: 28,900). Repossessions have now fallen for five years
running by a total of 57%. The business is continuing to target new
property management contracts.
Surveying Division
The underlying profit performance was maintained during the year
as a result of contract wins and efficiency improvements offset by
a decline in volumes. After a strong first half of the year, our
Surveying Division's volumes declined in the second half of year
resulting in a 6% reduction in our volumes year on year. Total
mortgage approvals remained broadly flat year on year at 1.280m
(2013: 1.286m).
The operating profit margin in the second half year was 24.5%
(2013: 24.1%) and was achieved through improved efficiency and
tight cost control. The operating profit of GBP7.6m (2013: GBP7.7m)
in the second half of the year represented a 33% increase on the
first half of the year. As reported last year, the Surveying
Division reduced its focus on developing surveying services for
private buyers to focus on higher margin valuation services for
corporate clients. As a result the full year revenue from surveying
services for private buyers reduced by 18% to GBP4.0m (2013:
GBP4.9m).
Despite incurring the costs of recruiting graduates into the new
surveyor training scheme, operating profit levels were maintained.
Full year operating margin was maintained at 21.4% against a 2013
comparative of 21.7%.
Developments
During 2014, we have continued to invest in the business with
the acquisition in March 2014 of Hawes & Co which is a South
West London based agent with six branches offering Residential
Sales and Lettings services. We have also purchased a further 10
small lettings books during 2014 for a total consideration of
GBP1.8m. We will continue to look to acquire attractive businesses.
Subsequent to the year end, we acquired Thomas Morris a multi award
winning estate agency and lettings business with seven branches in
Cambridgeshire, Bedfordshire and Hertfordshire together with a
further six lettings books. In the Surveying business our graduate
surveyor recruitment and training programme continues to be a
success. In 2013 and 2014 we hired 43 and 60 new graduates
respectively with the expectation that the graduates would take 12
months to train. The 2013 intake became productive midway through
2014.
During the year, Marsh & Parsons opened four branches in
Shepherd's Bush, Camden, East Sheen and Richmond which are
performing in line with management's expectations. The business
remains committed to an opening programme of new branches which
will result in doubling the number of branches which were acquired
with the business in 2011 over the next four to five years.
We were extremely pleased to announce in our interim statement
that the IPO of Zoopla was successful and represented significant
value creation for the Group. The cost of the investment was
GBP1.9m and this had increased to a value of GBP44.1m on IPO. We
took the decision to sell 48.9% of our shareholding in Zoopla at
IPO. As a result, we have generated an GBP19.8m exceptional profit
on disposal while still retaining a 2.6% shareholding which has
been revalued in the balance sheet at GBP21.3m. In addition, we
received a total dividend of GBP1.1m from Zoopla during the year
(2013: GBP0.5m).
Board and Corporate Governance
In January 2014, we appointed Bill Shannon as an independent Non
Executive Director and Chairman of the Remuneration Committee, and
on 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. We would like to thank Mark for his significant
contribution to LSL. Bill was subsequently appointed Non Executive
Deputy Chairman and Senior Independent Director on 1(st) January
2015.
On 24(th) November 2014, as part of an orderly transition in the
management of our Estate Agency business, Adrian Gill was appointed
as Executive Director, Estate Agency and he took over from David
Newnes on 1(st) January 2015 following a transition period. Adrian
has considerable experience in the sector, having spent over 10
years as an Executive Director at Connells Limited, the national
estate agency business of the Skipton Building Society and two
years as an independent Non Executive Director of LSL. David Newnes
retired from the Board on 31(st) December 2014 and we would like to
thank David for his substantial contribution to the development of
LSL over a long and distinguished career with the Group. In
December 2014, David Newnes, in recognition of over 35 years'
service to the estate agency industry, received the 'Outstanding
Contribution to Estate Agency Award' at the prestigious Sunday
Times Estate Agency of the Year Awards.
After many years of excellent service to the Group, Roger
Matthews retired as Chairman on 31(st) December 2014. I would
personally like to add my thanks to those of the Board for the
guidance and support that Roger has provided since he joined the
Board as Chairman on the IPO of the Group in 2006.
During the latter part of 2014, Roger Mathews as Chairman,
consulted with a number of our major Shareholders regarding the
future composition of the Board, including my change of role and
Bill Shannon's new responsibilities. Whilst as Chairman, I am not
independent on appointment, Shareholders, the Nominations Committee
and the Board supported my change of role as it facilitates an
orderly succession and reflects the Board's desire to retain my
knowledge and expertise of the residential property market,
maintain contacts with key stakeholders and benefit from my record
of delivering shareholder value.
Steve Cooke, the Group Finance Director, left the Board on
19(th) December 2014. Andrew Burchall was appointed as Interim
Group Finance Director on 5(th) January 2015 and the search is
on-going for a permanent Group Finance Director.
The Board remains committed to high levels of corporate
governance. In respect of 2014, the Board has again 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.
In September 2014, the FRC updated the UK Corporate Governance
Code (the Code) and whilst this Report includes disclosures that
reflect the 2012 edition of the Code, we have looking forward,
ensured that for 2015 we are operating in accordance with the 2014
edition of the Code. This includes the implementation of our
Remuneration Policy, further details of which are set out in the
Directors' Remuneration Report.
The Board has during the year also reviewed its composition,
which at the date of this Report includes three independent Non
Executive Directors and two Executive Directors. We have also
commenced a process to appoint an additional independent Non
Executive director to the Board. Further, the Board continues to
recognise the benefits of diversity in the boardroom, including
gender and racial 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 and race.
LSL remains committed to promoting diversity throughout the
Group and in 2014 we continued to build on the diversity reviews
conducted during the previous 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 both lettings books and residential sales
businesses. During 2014, headcount reduced towards the end of the
year in light of the softening in the market. In total, the number
of Group employees decreased to 5,222 (2013: 5,299).
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 2014 and I would like to thank all of our
employees for their hard work and commitment which has contributed
to this result and wish them well in their careers with LSL.
Current trading and outlook
The forthcoming year is expected to see uncertain market
conditions in the first half with the potential for improved market
conditions during the second half of the year. Year on year market
comparatives in the first quarter are expected to be adverse in
part due to the lower opening pipeline of activity following the
weaker last quarter of 2014. Whilst we are seeing improvements in
February, the second quarter is expected to be impacted by the
upcoming general election.
Against this uncertain market backdrop, the Group remains
committed to driving profitable organic growth across the business.
In light of the changed market conditions, a review of headcount
and other costs by business has been completed and the necessary
actions are being taken. We will continue to evaluate selective
acquisitions and will capitalise fully on the investments made in
2014 to optimise profitability.
The Group has started the year in line with management's
expectations and through a series of internally generated
initiatives and an expectation of a stronger market in the second
half, the business is well placed to deliver a solid performance in
2015.
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 capitalise on the
changing market conditions to increase Shareholder value.
Simon Embley
Chairman
12(th) March 2015
Business Review - Estate Agency Division
The Estate Agency Division delivered excellent profit growth
2014 2013 %
Financial GBPm GBPm change
------------------------------------ ------- ------- -------
Residential Sales exchange income 92.1 80.0 15
Lettings income 58.5 52.2 12
Asset Management income 11.7 14.3 (18)
Financial Services income 43.7 35.8 22
Other income(1) 19.3 15.9 21
Total income 225.3 198.2 14
Operating expenditure (191.4) (169.1) 13
Operating profit(5) 33.9 29.1 16
------------------------------------ ------- ------- -------
KPIs
------------------------------------ ------- ------- -------
Exchange units 29,704 27,512 8
Exchange units(2) 29,111 27,352 6
Operating margin (%) 15.0% 14.7%
Fees per unit 3,101 2,908 7
Fee per unit(2) 2,968 2,877 3
------------------------------------ ------- ------- -------
House purchases (000s)(3) 769 736 5
Repossessions(4) 21,000 28,900 (27)
------------------------------------ ------- ------- -------
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" 2014
4 Source Council of Mortgage Lenders arrears and repossessions
data relating to properties taken into possession by first-charge
mortgage lenders for 2014.
5 Operating Profit is before exceptional items, contingent
consideration, amortisation of intangible assets and share-based
payments
Estate Agency Division Performance
The UK residential property services market in 2014 was very
much a story of two halves. The year started very strongly
continuing the trend seen in the second half of 2013 with house
purchase approvals up 35% year on year in the first quarter of 2014
and by 19% in the first half for the year. Year on year growth then
moderated in the second and third quarters before contracting by
16% in the final quarter of the year. April also saw the
implementation of changes to mortgage application processing by
lenders following the MMR. These changes impacted the market from
the second quarter onwards. Changes to stamp duty introduced at the
start of December 2014 also had an impact, particularly in prime
Central London, but there was a general slowing of activity as
consumer sentiment weakened in the second half of the year.
Allowing for this seasonal volatility, the total market, as
measured by mortgage approvals for house purchases, for the full
year increased by a modest 4.5% to 769,000 (2013: 736,000)(3) which
compares to historic normalised levels of 1.2m approvals per annum.
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 11% to 677,000 (2013: 609,000).
LSL has a balanced Estate Agency model and over the last seven
years has significantly built its exposure to non-cyclical income
and countercyclical streams such as Lettings and Asset Management
income. These income streams have grown at a compound annual rate
of 15% over the period, increasing from GBP40.4m in 2010 to
GBP70.2m in 2014. Given expectations for the housing transaction
volumes in the UK residential property market in 2015, the Group
expects to continue to target these income streams through an
active programme of organic growth and acquiring lettings books
across the UK portfolio. The Estate Agency Division delivered an
excellent performance in 2014 with total income growing by 14% to
GBP225.3m (2013: GBP198.2m). The benefit of operational gearing can
be seen as 18% of the increase in revenue fell through to operating
profit even after investment to support future growth. Operating
profit increased by 16% to GBP33.9m (2013: GBP29.1m). The business
therefore improved its operating profit margin to 15.0% (2013:
14.7%). As the market in 2015 tightens, particularly in the first
half, the Group will be looking at further ways to improve
efficiency.
3 Bank of England for "House Purchase Approvals", "Remortgage
approvals" and "Total Mortgage Approvals" 2014
Investment in the Estate Agency Division during 2014 included
the recruitment of additional employees into Lettings and Financial
Services which will allow the Estate Agency Division to capitalise
on market opportunities in 2015. In addition, Marsh & Parsons
opened four new branches which will allow it to grow in new
geographies within the prime Central London market place.
Estate Agency Division Branches
Your Move, Reeds Rains and the LSLi brands all continued to
perform well during the year. Residential Sales income increased by
15% to GBP92.1m (2013: GBP80.0m) due mainly to an improvement in
volume and the average fee which increased by 7% to GBP3,101 (2013:
GBP2,908) driven partly by improved mix. Excluding the impact of
Marsh & Parsons, the average fee increased by 10% to GBP2,654
(2013: GBP2,407).
Marsh & Parsons
Marsh & Parsons delivered a solid performance in a
challenging prime Central London market. Although there was
significant house price appreciation in prime Central London in the
first half of 2014, these conditions significantly ameliorated in
the second half of the year. There continues to be a scarcity of
stock for both residential sales exchanges and lettings in prime
Central London markets. This has created pressure on volume growth
although commission percentages have been maintained and the
average fee per exchange has increased by 11% in the year. Against
this backdrop, Marsh & Parsons revenue increased by 8.7% to
GBP32.5m (2013: GBP29.9m) with Lettings growth of 18% which is a
strong result. Operating profit was GBP6.5m (2013: GBP6.7m).
Operating profit reduced marginally year on year because of an
increase in the cost base driven by further investment in new
branch openings to give the business greater coverage of the prime
Central London market and the capacity to further expand going
forward. During 2014, four new branches were opened in Shepherd's
Bush, Camden, East Sheen and Richmond which are performing in line
with the Board's expectations. The Group is targeting further new
branch openings in 2015.
Financial Services
Total Financial Services income delivered through the
intermediary networks of First Complete and Pink Home Loans, the
Estate Agency Division's branches and Linear Financial Solutions
increased substantially by 22% during 2014 to GBP43.7m (2013:
GBP35.8m). Revenue has continued to grow consistently since 2010 as
a result of significant organic growth including the successful
roll out of Financial Services to all Estate Agency branches and
the acquisition of new intermediary networks. In total the Group
arranged mortgage lending completions of GBP11.6bn during 2014
(2013: GBP7.6bn) giving the Group an important position as a
mortgage distributor for lender clients as well as a growing
revenue and profit stream.
CounterCyclical Income
LSL continues to focus on growing Lettings income across all of
its businesses through organic growth and through selective
acquisitions of lettings books. LSL's on-going focus on growing
Lettings income reflects the recurring nature of the revenue stream
along with attractive economics. LSL is continuing to invest in
acquiring lettings businesses and has recruited additional Lettings
consultants during the year. Total Lettings income grew by 12% year
on year, an improvement on the growth rate of 9% in the prior year.
Growth was also consistent throughout the year with 12% growth
sustained in both the first half and the second half of the
year.
With the improvements in the economy and continued low interest
rates, repossession volumes again fell. The rate of market
contraction increased to 27% from 15% in 2013 with the total number
of repossessions now down to 21,000 in 2014 (2013: 28,900)(4) . The
market has now declined for each of the last five years and is now
well below half of the total of 48,900 in 2009. During this period
LSL's market share in Asset Management has increased. However, the
acceleration in the decline in the size of the market in 2014 as
well as continued fee pressure has resulted in an 18% reduction
(2013: 8% reduction) in revenue to GBP11.7m (2013: GBP14.3m).
Despite this contraction, the Asset Management business is well
positioned to capitalise on an increase in repossession volumes
which may occur if and when interest rates start to rise.
In order to offset the decline in repossession volumes, the
Asset Management business has further developed its corporate
property management offering.
The Group now benefits from total counter-cyclical income from
Lettings and Asset Management of GBP70.2m compared to GBP66.5m in
2013, which represents 31% of the Estate Agency Division's revenue
and 24% of Group revenue.
4 Source: Council of Mortgage Lenders arrears and repossessions
data relating to properties taken into possession by first-charge
mortgage lenders for 2014
Developments
After many years with LSL, most recently as an Executive
Director, David Newnes retired at the end of 2014. He was succeeded
by Adrian Gill, who was, until November, a Non Executive Director
of the Group. Adrian has considerable experience in the residential
property sector, having spent over 10 years as Executive Director
at Connells Limited, the national estate agency business of the
Skipton Building Society. Over the next few months, Adrian as
Executive Director, Estate Agency will be reviewing and updating
the Group's strategy for the Estate Agency Division.
As well as investing in headcount in 2014 to increase Lettings
and Financial Services capacity, LSL also continued a programme of
investment in new front end systems in Your Move, Reeds Rains and
the LSLi brands which was started in 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. This was
successfully rolled out during 2014 and further upgrades are
planned into 2015 to enhance the functionality and capabilities of
the applications.
In addition LSL is in the process of rolling out a new common IT
platform across our Financial Services intermediary networks,
trading as Pink Home Loans and First Complete, which will improve
customer service and support the ongoing provision of appropriate
financial outcomes to consumers and increase operational
efficiency.
The MMR was implemented on 26(th) April 2014. The FCA's aim for
the MMR was to deliver a 'sustainable market for all participants
that is flexible for consumers'. In 2014, LSL has made substantial
investment and took significant steps to prepare for the new
requirements including the selection of and investment in new
software and training of the employed and network employees as
required. The implementation has gone well and the market has
settled in to the new lending criteria regime.
At the start of 2015, the online property portal market saw the
launch of 'OnTheMarket.com', the portal of Agents Mutual. LSL has
not joined OnTheMarket.com and continues to use both Rightmove and
Zoopla and their associated portals as LSL believes that this
approach offers the best service to the Estate Agency
customers.
During 2014, the Group has continued to make selective
acquisitions and has added to the Estate Agency Division in the
South East through the acquisitions of Hawes & Co and ten
lettings books.
In 2015 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. Subsequent to the year end, LSL acquired Thomas
Morris a multi award winning estate agency and lettings business
with seven branches in Cambridgeshire, Bedfordshire and
Hertfordshire together with a further six lettings books.
Regulation - Financial Services
First Complete and Pink Home Loans (the trading name of Advance
Mortgage Funding) are both directly authorised by the FCA in
relation to the sale of mortgage, pure protection and general
insurance products. Your Move, Reeds Rains Financial Services,
Reeds Rains and Embrace Mortgage Services along with the LSLi
subsidiaries are all appointed representatives of First Complete,
while Linear Financial Solutions is an appointed representative of
Advance Mortgage Funding for mortgage and insurance business and
also an appointed representative of Openwork for investment
business.
As a result of Linear Financial Solutions' appointment by
Openwork, LSL has a small indirect shareholding of Openwork.
Regulation - Residential Sales and Lettings
The LSL Estate Agency Division's branches adhere to the Codes of
Practice issued by industry professional and regulatory bodies, The
Property Ombudsman (TPO) and/or the Association of Residential
Lettings Agents (ARLA). Further, in June 2014, Your Move's Lettings
Director became the President of ARLA.
This is in addition to observing compliance with relevant
legislation, such as the Consumer Protection Regulations, guidance
material published by relevant regulators, including the
Competition and Markets Authority (CMA) (and its predecessor the
Office of Fair Trading (OFT)), the National Trading Standards
Agency/Trading Standards Institute (TSI), HMRC and codes published
by other relevant bodies, including the Advertising Standards
Authority (ASA). LSL from time to time also enters into direct
dialogue with the regulators and consumer groups, such as Which.
During 2014, the CMA, TSI, HMRC and FCA took over responsibilities
from the OFT in relation to Residential Sales and Lettings
regulation (including Anti-Money Laundering) and Consumer
Credit.
Branch numbers
Breakdown of Estate Agency branches as at 31(st) December
2014.
Owned Franchised Totals
---------------- ----- ---------- ------
Your Move 218 72 290
Reeds Rains 124 45 169
LSLi 52 6 58
Marsh & Parsons 22 - 22
Total 416 123 539
---------------- ----- ---------- ------
The above branch numbers include four virtual branches
Surveying Division
Strong second half performance
2014 2013 %
Financial GBPm GBPm Change
------------------------------------------ ------ ------ -------
Revenue 62.2 60.4 3
Operating expenditure (48.9) (47.3) 3
Operating Profit(1) 13.3 13.1 2
------------------------------------------ ------ ------ -------
KPIs
------------------------------------------ ------ ------ -------
Profit margin (%) 21.4 21.7
Jobs Performed (000s) 372 396 (6)
Revenue from private surveys (GBPm) 4.0 4.9 (18)
Income per job (GBP) 167 153 9
PI provision (Balance Sheet) provision
at 31(st) December (GBPm) 36.7 25.9
Number of qualified surveyors at 31(st)
December 361 386 (6)
Mortgage approvals (000's)(5) 1,280 1,286 -
------------------------------------------ ------ ------ -------
1 Operating Profit is before exceptional items, amortisation of
intangible assets and share-based payments
Surveying Division Performance
Total mortgage approvals remained broadly flat year on year at
1.280m (2013: 1.286m) with growth in the first half followed by a
10% decrease in total mortgage approvals in the second half
compared to the same period last year. This slowdown in the second
half can be attributed to consumer sentiment and the impact of the
MMR.
Surveying turnover was GBP62.2m (2013: GBP60.4m) an increase of
3% on last year and the total number of jobs performed was 372,000
(2013: 396,000). The reduction in volumes was driven by the
slowdown of the mortgage market in the second half of the year,
with volumes down by nearly 10% year on year. Additionally the
decision of a major lender client to improve commercial terms but
transfer some of their valuations to another provider of valuation
services also impacted on the second half.
Despite a 1% reduction in the Surveying Division's turnover to
GBP31.0m (2013: GBP32.0m) in the second half versus the first half
of the year, the operating profit margin in the second half year
was 24.5% (2013: 24.1%) through improved efficiency and tight cost
control. The operating profit of GBP7.6m (2013: GBP7.7m) also
represented a 33% increase on the first half of the year. As
reported last year, the Surveying Division reduced the focus on
developing surveying services for private buyers to focus on higher
margin surveying for corporate clients. As a result the full year
revenue from surveying services for private buyers reduced by 18%
to GBP4.0m (2013: GBP4.9m).
As reported in 2013 in response to the surveying market's
capacity constraints, the Group launched a new graduate recruitment
and training programme. This represents a major investment for the
business. In 2014 a further 60 graduates were hired in addition to
43 hired during 2013. The benefits of this investment commenced in
the second half of the year and will be further realised in 2015.
The constrained capacity in the first half of 2014 resulted in an
improvement in the pricing environment and the benefits were
realised in the longer term contracts renewed in the year and the
major new contract won.
Operating profit was GBP13.3m (2013: GBP13.1m) and the operating
profit margin was 21.4% (2013: 21.7%). These figures are stated
after deducting the cost of investment in the graduate programme.
Adjusting for this cost, on a like-for-like basis, operating profit
increased to GBP15.4m (2013: GBP13.6m), an increase of 13.2% and
the operating margin was 24.8% (2013: 22.5%).
5 Bank of England for "Total Mortgage Approvals" 2014
Surveying Division Developments
The major initiative in the Surveying Division of investing in a
new graduate recruitment and training programme to increase
capacity has continued in 2014. Whilst the overall market
conditions worsened in the second half of 2014, some geographically
concentrated capacity constraints remain, particularly in London
and the South East. The graduate programme has enabled LSL to
respond to this challenge by moving surveyors around the
country.
In the final quarter of the year the Surveying Division
concluded a project to optimise operational performance and
productivity whilst improving its working practices; this included
the consolidation of all administrative functions at its Kettering
support services location. The associated one off costs of GBP0.7m
associated with this exercise will be recovered in savings during
the first half of 2015.
The Surveying Division serves key lender clients through both
exclusive contracts and through panel management arrangements. LSL
is continuing to invest in the business in order to maintain high
service levels for all clients.
The Surveying Division had a number of contracts up for renewal
in 2014 and all of the major contracts were successfully renewed
with improved pricing. There will be fewer renewals and new
opportunities in 2015 but the Surveying Division will vigorously
pursue those available. The uncertain economic conditions,
including any impact of the general election, may impact the
overall housing market and consequently surveying volumes,
nevertheless the renewal of existing major contracts in 2014
secures a significant proportion of expected revenues.
PI Costs
As previously announced on 19(th) December 2014, LSL has needed
to further increase the PI provisions relating to the 2004 to 2008
high risk lending period. The announcement indicated a range of
between GBP20.0m and GBP25.0m and following further work, including
a case by case independent review by specialist external legal
counsel, LSL has provided an additional reserve of GBP24.6m which
is included in 2014 as an exceptional item. Whilst the cause is an
historic market issue relating to historic periods, it remains
disappointing. The additional provision reflects a number of
factors. Although LSL has seen the reduction in the rate of
notifications that had been expected during the year, and assumed
in setting the previous level of provision, a greater proportion of
the notifications are deteriorating into claims. Claims are also
hardening with the more difficult and complex claims now being
progressed. This is resulting in an increase in the average cost
per claim, particularly in respect of legal costs reflecting the
complexity of the arguments. 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 review was conducted with the overall aim of ensuring
a high degree of confidence that the total PI provision will be
adequate to cover the remaining risk relating to the 2004 to 2008
high lending period. The provision required is highly sensitive to
the run rates of new claims and the costs per claim for both new
and existing claims. Claims experience since the high risk lending
period is substantially improved as a result of both structural
changes in the market place and the overhaul of internal
procedures.
Financial Review
The key drivers of the financial performance of LSL in 2014 are
summarised below:
Income statement
Revenue
Revenue increased by 11.2% to GBP287.5m in the year ended 31(st)
December 2014 (2013: GBP258.6m).
Operating Expenses Excluding Exceptional Costs, Amortisation and
Share Based Payment
Operating expenses increased by 10.5% to GBP249.3m (2013:
GBP225.6m). This was mainly in the Estate Agency Division and
included investment to support revenue growth in 2014 on the back
of ten months of market growth seen in 2013. The average number of
full time equivalent employees during the year was 4,760 (2013:
4,327).
Underlying Operating Profit
Group Underlying Operating Profit (before exceptional gains and
exceptional costs, contingent consideration, amortisation of
intangible assets and share-based payments) increased by 13.2% to
GBP42.0m (2013: GBP37.1m) with the Underlying Operating Profit
Margin of 14.6% (2013: 14.3%). On a statutory basis, the Group
operating profit increased by 72.7% to GBP33.9m (2013: GBP19.6m)
with the Operating Profit Margin of 11.8% (2013: 7.6%).
Exceptional Items
Total net exceptional costs in 2014 were GBP6.2m (2013:
GBP13.0m). The main exceptional costs in 2014 were comprised of PI
Costs of GBP24.6m (for further details see Provision for PI claims
and notifications below). The total exceptional cost also includes
acquisition related costs (GBP0.4m) and restructuring, redundancy
and other associated branch closure costs including onerous lease
provisions (GBP1.1m). These exceptional costs were partly offset by
a small gain on the disposal of freehold properties and on the sale
of part of LSL's investment in Zoopla on its IPO totalling
GBP19.8m. In 2013 exceptional costs comprised of PI Costs of
GBP12.0m, acquisitions related costs of GBP0.2m 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.
Provision for PI claims and notifications
Since early in 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. Following a further deterioration in claims
experience in 2014, the provision for PI Costs was increased by
GBP24.6 million in 2014.
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. These amounts are shown separately on
the face of the Income Statement.
Contingent consideration relating to the 2011 acquisition of
Marsh & Parsons has been treated as an expense of GBP2.3m
(2013: GBP0.4m) in 2014. Further, LSLi has acquired a number of
subsidiaries whereby the contingent consideration is also
considered to be remuneration under IFRS 3. A credit of GBP2.7m
(2013: GBP2.4m expense) was recorded in 2014 reflecting revisions
to future earn out assumptions.
Net Financial Costs
Net financial costs (excluding exceptional finance costs)
amounted to GBP2.2m (2013: GBP3.1m). The finance costs related
principally to interest and fees on the revolving credit facility,
however, GBP0.1m (2013: GBP0.7m) of the costs relates to the
unwinding of discounts on provisions.
Taxation
The UK standard corporation tax rate has reduced from 28% as at
1(st) January 2011 to 21% from 1(st) April 2014 with a further
reduction to 20% occurring on 1(st) April 2015. The effective rate
of corporation tax for the year was 21.1% (2013: 21.4%) excluding
prior year adjustments. The effective tax rate for 2014 and 2013
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 22.0% (2013: 24.0%). Income tax charged
directly to other comprehensive income was GBP2.7m (2013: GBP4.4m);
this is comprised of a credit of GBP4.1m and a charge of GBP1.4m
and relates to the revaluation of financial assets. Income tax
credited directly to the share based payment reserve is GBPnil
(2013: GBPnil).
Adjusted Basic Earnings Per Share
The Basic Earnings Per Share was 24.5 pence (2013: 13.6 pence).
The Adjusted Basic Earnings Per Share (as calculated in Note 10 to
the Financial Statements) is 30.5 pence (2013: 25.3 pence). 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 GBP8.5m (2013:
GBP7.1m) and an additional GBP0.7m (2013: GBP0.7m) has been spent
internally on developing new software which has been treated as an
intangible asset.
Bank Facilities
LSL refinanced its bank facility in 2013 with a GBP100.0m
revolving credit facility in place until August 2017 (2013:
GBP100.0m). During the period under review, the Group complied with
all of the financial covenants contained within the facility.
Net Bank Debt
As at 31(st) December 2014 Net Bank Debt was GBP34.7m (2013:
GBP26.3m) and Shareholders' funds amounted to GBP83.1m (2013:
GBP99.3m) giving balance sheet gearing of 41.8% (2013: 26.5%). The
increase in Net Bank Debt arose as a result of the acquisitions and
further investment in joint ventures and financial assets for
various new acquisitions by the Estate Agency Divisions and payment
of PI claims of GBP13.3m (2013: GBP14.4m). Net Bank Debt
represented 11.2% of the Group's market capitalisation at 31(st)
December 2014, and 74.0% of the Group's adjusted EBITDA for the
year (2013: 5.8% and 64.0% respectively).
Cash Flow
The Group generated GBP42.0m (2013: GBP42.4m) of operating cash
flow which is before capital expenditure including software of
GBP9.2m (2013: GBP7.9m) and before PI claims paid out of GBP13.3m
(2013: GBP14.4m) and exceptional costs of GBP1.5m (2013: GBP1.1m).
The marginal decrease was due to improved Group Underlying
Operating Profit offset by investment in working capital. During
the year the Group sold a number of freehold properties receiving
net proceeds of GBP0.1m (2013: GBP1.4m) and generating an
exceptional profit of GBPnil (2013: GBP0.1m).
Zoopla IPO
On 18(th) June 2014, Zoopla underwent an IPO and as part of
this, LSL sold 48.9% of its stake in Zoopla for GBP20.8m, net of
associated costs and GBP16.8m net of tax. The total gain on the
sale of the shares was GBP19.8m net of associated costs.
Zoopla's share price at 31(st) December 2014 was GBP1.965 per
share. The fair value of the Group's remaining 2.60% stake in
Zoopla is calculated to be GBP21.3m at 31(st) December 2014.
Net Assets
The Group's net assets as at 31(st) December 2014 were GBP83.1m
(2013: GBP99.3m). The Group's investment in Zoopla had largely been
revalued ahead of its realisation on IPO. Accordingly, the
exceptional gain in the year had already been largely reflected in
group net assets and the GBP16.8m special dividend paid during the
year therefore reduces net assets compared with December 2013.
Treasury and Risk Management
LSL has an active debt management policy. During the first half
of 2014, the Group had interest rate swaps in place which fixes the
interest on borrowings up to GBP25.0m at an average LIBOR rate of
2.93%, which provided a degree of predictability on finance costs.
The interest rate swaps expired and were not renewed. LSL continues
to review debt management policy and will consider additional
hedging in due course. LSL does not hold or issue derivatives or
other financial instruments for trading purposes.
Post Balance Sheet Events
Subsequent to the year end, LSL acquired Thomas Morris a multi
award winning estate agency and lettings business with seven
branches in Cambridgeshire, Bedfordshire and Hertfordshire for an
initial consideration of GBP4.0m, and six small lettings book
acquisitions for a total initial consideration of GBP1.8m. In
addition, via LSLi, LSL acquired the remaining shares in JNP for a
consideration of GBP54k and following the transaction, LSL holds
100% of the shares in JNP.
Management is in the process of allocating the purchase price in
accordance with IFRS 3. As a result the initial accounting for the
acquisition is currently incomplete, so a fair value table of the
identifiable assets and liabilities has not been presented.
International Financial Reporting Standards (IFRS)
The Financial Statements have been prepared under IFRS as
adopted by the European Union.
Principal Risks and Uncertainties
During 2014, in line with FRC guidance, LSL's risk management
and internal controls framework included:
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 Group Finance;
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 identifies, reviews and evaluates the
principal risks which may impact the Group as part of the planning
and reporting cycle to ensure that such risks 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.
In line with 2014 edition of the Code and the FRC's 'Guidance on
Risk Management, Internal Control and Related Financial and
Business Report', which integrates and replaces the FRC's previous
guidance ('Internal Control: Revised Guidance for Directors on the
Combined Code' and 'Going Concern and Liquidity Risk Guidance for
Directors of UK Companies') which was published in September 2014,
LSL has adopted a Group-wide risk appetite statement and framework.
The new framework will be applied during 2015, and LSL will report
on its progress in the 2015 Report.
Listed below are the risks which the Board has identified at the
date of this Report as being therefore the principal risks and
uncertainties faced by LSL at the date of this Report, together
with details of key management and 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 are not
currently known to the Group or that LSL currently deems as
immaterial, or were included in previous Annual Report and Accounts
and through changes in external factors and careful management, are
no longer deemed to be material to the Group as a whole.
However, these risks may individually or cumulatively also have
a material adverse effect together with other risk factors which
are beyond the direct control of LSL, and may have a material
adverse impact on LSL's business, results of operations and/or
financial condition. The risk management framework and procedures
in place can only provide reasonable but not absolute assurance
that the principal risks and uncertainties are managed to an
acceptable level.
Further information relating to how LSL managed these risks and
uncertainties during 2014 is set out in the Audit Committee Report
(Internal Controls) of the Annual Report & Accounts 2014.
Principal Risk and Uncertainty
Description and Impact: Management and Mitigation
--------------------------------------------------------------- ------------------------------------------
Housing Market - UK:
* The UK residential housing market in 2014 was a story The Board regularly reviews trends
in two halves, with some market improvement in the in market volumes and monitors
first quarter, followed by a weakening from the the Group's operational gearing
second quarter which continued for the remainder of to decide on the appropriate
the year. level of resourcing. In addition,
the Board regularly focuses on
non-cyclical and counter cyclical
* Market trends in 2014 were linked in the first half income streams, in particular
of the year to the implementation of MMR, and in the Lettings, to offset any impact
second half of the year to the tightening of lending on residential transaction numbers.
criteria together with some cooling of sentiment in
the housing market generally. In addition, looking Further, regular reviews of trends
forward there is some short term political risk in market volumes are undertaken
around the 2015 general election. Any impact on and decisions made on any cost
transaction volumes (both house purchase and base reductions measures.
remortgage) and house prices may adversely affect the
profitability and cash flow of all key brands and
businesses.
--------------------------------------------------------------- ------------------------------------------
Housing Market - Central London:
* LSL has an exposure to the prime Central London Marsh & Parsons has an incentivised
property market via Marsh & Parsons. While and established management team
historically the London market has been more robust with a growth strategy. It operates
compared to the rest of the UK, there is a risk that in all segments of the prime
the London market fails to grow or that LSL fails to Central London market and has
maximise the potential growth. opened four new branches in 2014
with further new openings planned
for 2015 to improve geographical
coverage. The Board closely monitors
the company's performance.
--------------------------------------------------------------- ------------------------------------------
Client Contracts:
* A failure to secure or renew, key Valuation Services There continues to be investment
or Asset Management contracts, or any significant in customer services to retain
reduction in volumes combined with a pressure on fees, existing clients and to attract
either as a result of adverse market conditions, new ones. In addition, LSL continues
market consolidation, competition or inadequate to provide private survey services
service delivery. to provide a supplemental income
stream to the core B2B arrangements.
Group-wide relationship management
arrangements are in place to
ensure that LSL uses its networks
to strengthen relationships with
key lender clients.
--------------------------------------------------------------- ------------------------------------------
Professional Services:
Monitoring arrangements include
* Liabilities arising from the provision of inaccurate oversight by the Board (including
professional services advice to clients (e.g. regular review of the PI provision
valuation services) arising from employee errors relating to Surveying and Valuation
and/or a failure by LSL businesses to put in place Services) and appropriate quality
and to maintain appropriate internal controls. controls and Risk and Internal
Audit reviews of services provided
on a sample basis. There are
* The period from 2004 to 2008 is identified as the also specific operational controls
high risk lending period and notifications relating implemented within the Surveying
to this period are still being received. Accordingly, Division which includes a risk
the PI provisions disclosed in the Report is the based criteria for the identification
Group's best estimate of likely claim costs, and this of transactions to be subject
remains sensitive to the rate of new notifications to enhanced review measures.
and the average cost of current and future claims. During 2014 LSL completed a detailed
review of its PI claims and the
associated PI provision and further
* The costs and management resources applied in initiatives to improve internal
responding to claims and notifications diverts controls and related reporting
resources away from value adding activities. are continuing into 2015.
The Board regularly review the
PI provision to ensure that the
* Costs and losses arising from a failure to manage any cost per claim, number of notifications
actual or threatened legal claims. and the rate of deterioration
from notifications to claims
are in line with the parameters
used to calculate the provision.
--------------------------------------------------------------- ------------------------------------------
Regulatory and Government:
* Failure to comply with existing LSL business units are supported
legislation/regulation or changes to by the Compliance and Legal Services
legislation/regulation and/or Government/EU policy teams who closely monitor existing
which may impact on business results or the UK business practices and any reform
housing market in general. proposals. Where appropriate
Government departments and/or
trade bodies are engaged in a
* Changes in macro Government economic policy or dialogue.
specific initiatives in respect of the UK Residential The Board also monitors the impacts
Housing sector following the forthcoming election may of changes and assess changes
impact upon the business. to business practices which may
be required to respond to Government
policy changes and to ensure
compliance with any new legislation.
Where necessary external specialists
are engaged to provide advice
to ensure that all laws and regulations
are adhered to and that a culture
of ensuring appropriate customer
outcomes is embedded across the
Group.
--------------------------------------------------------------- ------------------------------------------
Financial Services Regulation
(including FCA requirements): The Group has improved its Financial
* Failure to comply with relevant legislation including Services compliance framework
FCA requirements or changes to Financial Services through the enhancement of technology
legislation which would result in a fine, adverse solutions and the inception of
publicity, reputational damage and could result in new Compliance roles operating
loss of authorisations which would impact on business across the breadth of Financial
results. Services operations.
LSL has a proactive engagement
strategy with the FCA and the
* The continued growth of LSL's Financial Services Board closely monitors the Financial
business in 2014 has resulted in increased Services business and receives
interaction with the FCA. regular updates on its communications
with the FCA.
--------------------------------------------------------------- ------------------------------------------
Acquisitions:
* Failure to identify and secure appropriate targets Each Division has plans in place
for acquisition and once acquired, the businesses are to identify acquisition opportunities
not successfully integrated into the Group. and wherever necessary additional
external consultants are hired
to assist with this process.
* Liabilities arising from a failure to carry out Further, the Group has in place
appropriate due diligence prior to an acquisition. dedicated teams to deliver, monitor
and integrate acquisitions. Where
opportunities arise, thorough
due diligence is carried out
and all significant acquisitions
are approved by the Board, to
ensure acquisitive growth is
delivered within strategic financial
parameters. Detailed 100 day
integration plans are prepared
by management and implemented
once the business has been acquired.
A post acquisition review is
presented to the Board on the
financial and operational success
of each significant acquisition,
the integration of the business
within the Group and any learnings
and improvements arising from
the process.
--------------------------------------------------------------- ------------------------------------------
IT Systems, Infrastructure and
Security: Dedicated in house IT departments
* Failures, interruptions or security breaches of any with specialist staffing. Maintenance
Group IT services on which any business is reliant of Group policies, including
for operational performance and financial a formalised business continuity
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.
--------------------------------------------------------------- ------------------------------------------
Retention and Recruitment:
* Failure to retain/recruit qualified or experienced The executive team focuses on
individuals with the necessary skills and experience the retention of all senior management
into the senior management team which is key to and ensures that adequate remuneration
delivering the future growth strategy of the Group. policies, management development
and succession plans are in place.
This is supported by annual reviews
by the Remuneration and Nominations
Committees.
The Group HR Department includes
a dedicated Talent Acquisition
Team focusing on the recruitment
of high quality employees. The
Group also has in place a range
of graduate recruitment and training
schemes.
--------------------------------------------------------------- ------------------------------------------
Group Income Statement
for the year ended 31(st) December 2014
2014 2013
Note GBP'000 GBP'000
---------- ----------
Revenue 2 287,498 258,603
Operating expenses:
Employee and subcontractor costs (167,581) (150,158)
Establishment costs (18,852) (19,386)
Depreciation on property, plant
and equipment (4,918) (3,977)
Other (57,938) (52,125)
---------- ----------
(249,289) (225,646)
Other operating income 2,404 2,376
Gain on sale of property, plant
and equipment 13 38
Group's share of profit after
tax in joint ventures 1,383 1,731
Group operating profit before
contingent consideration, exceptional
items, amortisation and share-based
payments 42,009 37,102
Share-based payments (1,775) (1,323)
Amortisation of intangible assets (565) (375)
Exceptional gains 4 19,841 134
Exceptional cost 4 (26,035) (13,124)
Contingent consideration 4 405 (2,793)
Group operating profit 2 33,880 19,621
---------- ----------
Finance income 14 7
Finance costs (2,181) (3,154)
Exceptional finance credits 4 230 606
Net financial costs (1,937) (2,541)
Profit before tax 31,943 17,080
Taxation 6
- related to exceptional items
and contingent consideration 1,146 2,879
- others (7,931) (5,945)
(6,785) (3,066)
---------- ----------
Profit for the year 25,158 14,014
---------- ----------
Attributable to
- Owners of the parent 25,103 14,001
- Non-controlling interest 55 13
Earnings per share expressed
in pence per share:
Basic 3 24.5 13.6
Diluted 3 24.3 13.5
Adjusted - basic 3 30.5 25.3
Adjusted - diluted 3 30.2 25.2
Group Statement of Comprehensive Income
for the year ended 31(st) December 2014
2014 2013
GBP'000 GBP'000
----------- ----------
Profit for the year 25,158 14,014
----------- ----------
Items to be reclassified to profit
and loss in subsequent periods:
Reclassification adjustments for disposal (20,568) -
of financial assets
Income tax effect 4,114 -
Revaluation of financial assets 6,903 23,806
Income tax effect (1,381) (4,380)
----------- ----------
Net other comprehensive income to
be reclassified to profit and loss
in subsequent periods: (10,932) 19,426
Total other comprehensive income for
the year, net of tax (10,932) 19,426
----------- ----------
Total comprehensive income for the
year, net of tax 14,226 33,440
----------- ----------
Attributable to
- Owners of the parent 14,171 33,427
- Non-controlling interest 55 13
Group Balance Sheet Company No. 05114014
as at 31(st) December 2014
2014 2013
GBP'000 GBP'000
---------- ----------
Non-current assets
Goodwill 131,560 125,642
Other intangible assets 20,110 19,080
Property, plant and equipment 20,272 16,230
Financial assets 23,033 36,574
Investments in joint ventures 9,121 3,239
Total non-current assets 204,096 200,765
----------
Current assets
Trade and other receivables 36,165 35,340
Current tax receivables - 771
Cash and cash equivalents - 469
---------- ----------
Total current assets 36,165 36,580
Non-current assets held for sale - 276
---------- ----------
Total assets 240,261 237,621
---------- ----------
Current liabilities
Financial liabilities (4,659) (5,113)
Trade and other payables (50,336) (54,090)
Current tax liabilities (373) -
Provisions for liabilities (16,539) (8,458)
---------- ----------
Total current liabilities (71,907) (67,661)
---------- ----------
Non-current liabilities
Financial liabilities (56,420) (43,749)
Deferred tax liability (6,462) (9,014)
Provisions for liabilities (22,372) (17,881)
---------- ----------
Total non-current liabilities (85,254) (70,644)
---------- ----------
Total liabilities (157,161) (138,305)
Net assets 83,100 99,316
---------- ----------
Equity
Share capital 208 208
Share premium account 5,629 5,629
Share-based payment reserve 3,498 2,475
Treasury shares (7,922) (4,292)
Fair value reserve 16,715 27,647
Retained earnings 64,835 67,567
---------- ----------
Equity attributable to owners
of parent 82,963 99,234
Non-controlling interests 137 82
Total equity 83,100 99,316
---------- ----------
Group Statement of Cash Flows
for the year ended 31(st) December 2014
2014 2013
--------- --------- ---------
GBP'000 GBP'000 GBP'000 GBP'000
Cash generated from operating
activities
Profit before tax 31,943 17,080
Adjustments to reconcile
profit before tax to net
cash from operating activities
Exceptional operating items
and
contingent consideration
(non-cash) 4,324 15,491
Amortisation of intangible
assets 565 375
Finance income (14) (7)
Finance costs 2,181 3,580
Exceptional finance (credit) (230) (606)
Share-based payments 1,775 1,323
--------- ---------
Total adjustments 8,601 20,156
--------- ---------
Group operating profit before
amortisation and share-based
payments 40,544 37,236
Depreciation 4,918 3,977
Dividend income (1,579) (1,141)
Share of results of joint
ventures (1,383) (1,731)
Gain on sale of property,
plant and equipment (48) (172)
--------- ---------
1,908 933
Increase in trade and other
receivables (449) (4,656)
(Decrease)/increase in trade
and other payables (4,263) 4,881
Decrease in provisions (12,075) (11,544)
--------- ---------
(16,787) (11,319)
--------- ---------
Cash generated from operations 25,665 26,850
Interest paid (1,764) (2,142)
Payment of contingent consideration (1,426) -
relating to
remuneration
Loan refinance costs paid (1,128)
Tax paid (1,339) (2,537)
---------
(4,529) (5,807)
--------- ---------
Net cash generated from operating
activities 21,136 21,043
Cash flows from investing
activities
Cash acquired on purchase
of subsidiary
undertaking 250 24
Acquisitions of subsidiaries
and other businesses (4,963) (3,515)
Payment of contingent consideration - (520)
Investment in joint venture (2,422) -
Investment in financial
assets (1,155) (847)
Cash received on sale of 20,838 -
financial assets
Tax on Sale of Zoopla (4,015)
Dividends received from
joint venture 1,302 805
Dividends received from
financial assets 1,579 1,141
Interest received 14 7
Purchase of property, plant
and equipment and intangible
assets (9,244) (7,859)
Proceeds from sale of property,
plant and
equipment 195 1,475
--------- ---------
Net cash generated/(expended)
on investing activities 2,379 (9,289)
Cash flows from financing
activities
Drawdown of loans 8,233 510
Payment of deferred consideration - (494)
Purchase of LSL shares by
the employee benefit trust
(EBT) (Treasury Shares) (5,621) (2,625)
Proceeds from exercise of
share options 1,690 1,084
Dividends paid (28,286) (9,985)
--------- ---------
Net cash used in financing
activities (23,984) (11,510)
Net (decrease)/increase in
cash and cash equivalents (469) 244
Cash and cash equivalents
at the beginning of the year 469 225
--------- ---------
Cash and cash equivalents
at the end of the year - 469
--------- ---------
Group Statement of Changes in Equity
Year ended 31(st) December 2014
Share Share Share- Treasury Fair Retained Total Non-controlling
capital premium based shares value earnings equity interests
account payment Reserve
reserve
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) - - - - (16,454) - (16,454) - (16,454)
Revaluation
of financial
assets (net
of tax) - - - - 5,522 - 5,522 - 5,522
-------- -------- -------- --------- --------- --------- --------- ---------------- ---------
Other
comprehensive
income for
the
year - - - - (10,932) - (10,932) - (10,932)
Profit for the
year - - - - - 25,103 25,103 55 25,158
Total
comprehensive
income for
the
year - - - - (10,932) 25,103 14,171 55 14,226
Investment in
Treasury
Shares - - - (5,621) - - (5,621) - (5,621)
Exercise of
options - - (752) 1,991 - 451 1,690 - 1,690
Share-based
payments - - 1,775 - - - 1,775 - 1,775
Tax on share - - - - - - - - -
based payments
Dividend
payment - - - - - (28,286) (28,286) - (28,286)
At 31(st)
December
2014 208 5,629 3,498 (7,922) 16,715 64,835 82,963 137 83,100
-------- -------- -------- --------- --------- --------- --------- ---------------- ---------
Year ended 31(st) December 2013
Share Share Share- Treasury Fair Retained Total Non-controlling
capital premium based shares value earnings equity interests
account payment Reserve
reserve
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
-------- --------- --------- --------- --------- --------- -------- ---------------- --------
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 2014 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 2014 which are applicable
to the Group. During the year ended 31(st) December 2014, the Group
has adopted a number of new IFRS, IAS or amendments issued by the
IASB or interpretations 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. 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 2014.
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.
Operating segments
The following table presents revenue and profit information
regarding the Group's operating segments for the financial year
ended 31(st) December 2014 and financial year ended 31(st) December
2013 respectively.
Year ended 31(st) December 2014
Estate Agency Surveying
and Related and
Services Valuation
Services Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
----------
Income statement information
Segmental revenue 225,274 62,224 - 287,498
---------------- ----------- ------------ ----------
Segmental result:
- before exceptional costs,
contingent consideration,
amortisation and share-based
payments 33,892 13,331 (5,214) 42,009
- after exceptional costs,
contingent 52,310 (12,611) (5,819) 33,880
consideration, amortisation
and share-based payments
---------------- ----------- ------------ ----------
Finance income 14
Finance costs (2,181)
Exceptional finance credits 230
----------
31,943
Profit before tax
Taxation (6,785)
Profit for the year 25,158
----------
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
---------
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 2014 Weighted 2013
after average Per share Profit average Per share
tax number amount after number amount
of shares Pence tax of shares Pence
GBP'000 GBP'000
Basic EPS 25,103 102,479,989 24.5 14,001 102,955,662 13.6
Effect of dilutive
share options - 925,536 - - 410,999 -
Diluted EPS 25,103 103,405,525 24.3 14,001 103,366,661 13.5
--------- ------------ ----------- ---------- ------------ -----------
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.
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
2014 2013
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): 41,954 37,089
Net finance costs (excluding exceptional
costs) (2,167) (3,147)
Normalised taxation (8,554) (7,892)
Adjusted profit after tax(1) before exceptional
costs, share-based payments and amortisation 31,233 26,050
--------- ---------
Adjusted basic and diluted EPS
Adjusted Weighted 2014 Adjusted Weighted 2013
profit average Per share profit average Per share
after number amount after number amount
tax(1) of shares tax(1) of shares
GBP'000 GBP'000
Pence Pence
Adjusted Basic EPS 31,233 102,479,989 30.5 26,050 102,955,662 25.3
Effect of dilutive
share options - 925,536 - - 410,999 -
Adjusted Diluted
EPS 31,233 103,405,525 30.2 26,050 103,366,661 25.2
--------- ------------ ----------- --------- ------------ -----------
1 This represents adjusted profit after tax attributable to
equity holders of the parent. Effective tax rate considered to
calculate normalised taxation in 2014 is 21.5% (2013: 23.25%).
4. Exceptional items and contingent consideration
2014 2013
GBP'000 GBP'000
----------- -----------
Exceptional costs:
Branch closure and restructuring costs including
redundancy costs 1,092 924
Acquisition related costs 373 200
Provision for professional indemnity claims/notifications 24,570 12,000
----------- -----------
26,035 13,124
----------- -----------
Contingent consideration on acquisitions (405) 2,793
----------- -----------
Exceptional gains:
Gain on disposal of freehold properties (35) (134)
Gain on disposal of Zoopla shares (19,806) -
----------- -----------
(19,841) (134)
----------- -----------
Exceptional finance credits:
Movement in fair value of interest rate swap (230) (606)
----------- -----------
5,559 15,177
----------- -----------
5. Dividends paid and proposed
2014 2013
GBP'000 GBP'000
----------- -------------
Declared and paid during the year:
Equity dividends on ordinary shares:
2012 Final: 6.4p - 6,584
2013 Interim: 3.3p - 3,401
2013 Final: 7.2p 7,406 -
2014 Interim: 4.0p 4,074 -
2014 Special dividend: 16.5p 16,806
----------- -------------
28,286 9,985
----------- -------------
Dividends on Ordinary Shares proposed (not
recognised as a liability as at 31(st)
December):
Equity dividends on Ordinary Shares:
Dividend: 8.3p per share (2013: 7.2p) 8,453 7,395
----------- -----------
6. Taxation
(a) Tax on profit on ordinary activities
The major components of income tax charge in the Group income
statements are:
2014 2013
GBP'000 GBP'000
---------- ----------
UK corporation tax - current year 6,460 4,474
- adjustment in respect of prior years 144 (574)
----------
6,604 3,900
Deferred tax:
Origination and reversal of temporary differences 98 (814)
Adjustment in respect of prior year 83 (20)
---------- ----------
Total deferred tax credit/ charge 181 (834)
---------- ----------
Total tax charge/(benefit) in the income statement 6,785 3,066
---------- ----------
Income tax credited directly to other comprehensive income is
GBP2.7m (2013: charge of GBP4.4m); this is comprised of a credit of
GBP4.1m and a charge of GBP1.4m and relates to the disposal and
revaluation of financial assets. Income tax credited directly to
the share based payment reserve is GBPnil (2013: GBP nil).
In March 2013, the UK government announced proposals to reduce
the main rate of corporation tax to 20% from 1(st) April 2015. As
of 31(st) December 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.
(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is lower (2013:
lower) than the standard UK corporation tax rate, because of the
following factors:
2014 2013
GBP'000 GBP'000
---------- --------
Profit on ordinary activities before tax 31,943 17,080
---------- --------
Tax calculated at UK standard rate of corporation
tax rate of 21.5% (2013 - 23.25%) 6,868 3,971
Non taxable goodwill - (127)
Non taxable income from joint ventures and dividends (641) (667)
Benefit of deferred tax asset and brought forward
losses not previously recognised (249) (62)
Disallowable expenses 394 248
Impact of movement in contingent consideration
charge to Income Statement (87) 650
Share-based payment relief 281 62
Temporary differences on non-qualifying properties
no longer recognised - (94)
Impact of rate change on deferred tax (8) (321)
---------- --------
6,558 3,660
Prior period adjustments - current tax 144 (574)
Prior period adjustment - deferred tax 83 (20)
---------- --------
Total taxation charge 6,785 3,066
---------- --------
7. Analysis of net bank debt (excluding loan notes)
2014 2013
GBP'000 GBP'000
--------- ---------
Interest bearing loans and borrowings
* Current 4,659 5,113
* Non-current 56,420 43,749
--------- ---------
61,079 48,862
Less: Unsecured loan notes (9,744) (9,339)
Add: cash and short-term deposits - (469)
Less: deferred and contingent consideration (16,617) (12,745)
--------- ---------
Net Bank Debt at the end of the year 34,718 26,309
--------- ---------
During the year, the Group has drawn down GBP10m (2013: repaid
GBP0.5m) 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 (2013: GBP100.0m).
8. Acquisitions during the year
The Group acquired the following businesses during the year:
a. Lettings books
During the period the Group acquired ten lettings businesses for
a total consideration of GBP1,828,000. The entire purchase price
for the acquisitions has been assumed to be goodwill except
GBP182,000 assigned to fixed assets.
The combined fair values of the identifiable assets and
liabilities at the date of above acquisition have been determined
as below:
Fair value
recognised
on acquisition
GBP'000
----------------
Property, plant and equipment 182
Total identifiable net liabilities acquired 182
Purchase consideration 1,828
Goodwill 1,646
================
Purchase consideration discharged by:
Cash 1,773
Deferred consideration 55
------
1,828
------
Analysis of cash flow on acquisition GBP'000
--------
Transaction costs (included in cash flows
from operating activities) 18
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) 1,773
Net cash outflow on acquisition 1,791
========
b. Hawes
In March 2014, the Group acquired 65% of Hawes & Co, a 6
branch estate agency chain based in South West London 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 liabilities acquired 1,168
Purchase consideration 5,440
Goodwill 4,272
================
Purchase consideration discharged by:
Cash 3,190
Contingent consideration 2,250
------
5,440
------
Analysis of cash flow on acquisition GBP'000
--------
Transaction costs (included in cash flows
from operating activities) 81
Net cash acquired with the subsidiary (included
in cash flows from investing activities) (250)
Purchase consideration discharged in cash
(included in cash flows from investing activities) 3,190
Net cash outflow on acquisition 3,021
========
9. Annual General Meeting (AGM)
The AGM will be held at the London offices of LSL, 1-3 Sun
Street, London EC2A 2EP on 30(th) April 2015 starting at
2.30pm.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFSTVSILLIE
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