TIDMLSL
RNS Number : 9469U
LSL Property Services
04 August 2015
For immediate release 4th August 2015
LSL Property Services plc
Interim Results For the six months ended 30(TH) june 2015
LSL Property Services plc (LSL or the Group), a leading provider
of residential property services incorporating estate agency and
surveying businesses, announces its interim results for the six
months ended 30(th) June 2015.
2015 2014 Change
----------------------------------- ---------- ---------- -------
Group revenue GBP140.2m GBP139.8m -%
Group operating profit(1) GBP10.3m GBP15.1m (32)%
Operating profit margin(1) 7.4% 10.8%
----------------------------------- ---------- ---------- -------
Profit before tax GBP6.2m GBP31.4m (80)%
Basic earnings per share 4.7p 24.2p (80)%
Adjusted basic earnings per share 7.2p 10.6p (32)%
Net Bank Debt(2) at 30(th) June GBP53.0m GBP18.7m
Half year dividend 4.0p 4.0p -%
Special dividend - 16.5p n/a
----------------------------------- ---------- ---------- -------
(1) Operating Profit is before exceptional gains and costs,
contingent consideration, amortisation of intangible assets and
share based payments
(2) See Note 12 for calculation. 2014 includes proceeds of
GBP18.9m received from Zoopla share sale proceeds
Resilient Group financial performance in an evolving market
-- Board remains confident in delivering year on year operating
profit growth in the second half of 2015 and a full year result in
line with expectations
-- Double digit organic revenue growth delivered by the lettings
and financial services businesses. Residential sales exchange
revenue impacted by weak first half market conditions
-- Estate agency profitability impacted by additional investment
ahead of anticipated market improvement in the second half
-- Excellent performance from the Surveying Division with
operating profit (1) up by a third
Positive market outlook for H2
-- Improving UK residential housing market expected in the
second half of 2015 following a slow start to the year
-- Indicators positive for an improving second half of the year
across the estate agency business with robust pipelines, positive
market sentiment and increasing activity levels seen over recent
months
-- Stronger current trading in Estate Agency and Surveying
Division seen in June and July
-- Acquisition of Thomas Morris in February and increased pace
of lettings book acquisitions with GBP3.9m invested to acquire 13
businesses in the first six months of the year
-- Interim dividend of 4.0 pence (2014: 4.0 pence) reflecting
the Board's confidence in the outlook for the second half of the
year
-- Confident in delivering a full year result in line with
expectations
Estate Agency Division Performance
-- Revenue broadly flat at GBP109.1m (2014: GBP108.6m)
-- Selective investment in headcount and branch infrastructure
providing excellent base to support the achievement of medium term
profit per branch targets
-- Operating profit(1) of GBP6.3m (2014: GBP12.2m).
-- Estate Agency Division operating margin(1) at 5.8% (2014:
11.3%)
-- Residential sales exchange volumes down 6% against a market
contraction of 3% with average fees maintained across the
businesses
-- Lettings revenue up 11% to GBP30.6m and financial services
revenue up 14% to GBP22.8m
-- Marsh & Parsons profitability adversely impacted by stamp
duty changes in December 2014, a weaker pipeline going into 2015,
short-term uncertainty caused by the General Election in core Prime
Central London markets and continued investment in branch
openings
Surveying Division Performance
-- Revenues steady at GBP31.1m (2014: GBP31.3m)
-- Back office restructure announced in 2014 completed and
savings achieved as expected
-- Operating profit(1) up 34% to GBP7.6m (2014: GBP5.7m) as a
result of improved contract terms in the 2014 contract renewals and
wins, a favourable demand mix and efficiency optimisation
-- Surveying Division operating margin(1) at 24.4% (2014:
18.2%)
-- Professional indemnity (PI) provisions in line with
anticipated future liabilities
Commenting on today's announcement, Simon Embley, Chairman,
said:
"The Group has delivered a resilient first half performance in
an evolving market. Key economic growth indicators, the political
landscape and consumer confidence all remain positive although the
market is seeing lower levels of estate agency instructions and
availability of stock outside of London and the South East. With
increasing levels of activity seen in recent months, robust
pipelines and a broad coverage of the whole UK residential property
sector, LSL is well placed to capitalise on the underlying market
fundamentals.
The outlook from lenders remains positive with historically low
mortgage rates and increased distribution of products through
intermediary channels. As a result, we expect the market to return
to year on year growth in the second half of the year and the Board
remains confident in delivering year on year operating profit
growth in the second half of 2015 and a full year result in line
with expectations."
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, Sophie Cowles
Buchanan 0207 466 5000
Notes to Editors:
LSL is a leading provider of residential property services to
its key customer groups. Services to consumers include: residential
sales, lettings, surveying, and advice on mortgages and
non-investment insurance products. Services to mortgage lenders
include: valuations and panel management services, asset management
and property management services. For further information, and for
a copy of the half yearly report for the period to 30(th) June
2015, please visit LSL's website: www.lslps.co.uk
Chairman's Statement
Introduction
Against a backdrop of an evolving UK residential housing market
place in the first half, I am pleased to report Group revenues
stable at GBP140.2m (2014: GBP139.8m) and Group operating profit(1)
of GBP10.3m (2014: GBP15.1m). This was a resilient performance in a
market where sentiment and activity had slowed significantly in the
second half of 2014 which impacted pipelines coming into 2015 and
where the comparative period last year was characterised by strong
growth, particularly in the first quarter, ahead of the
implementation of the Mortgage Market Review in April 2014.
Underlying housing transaction(2) volumes were off 12% in the
first quarter of the year, but showed an improved position in the
second quarter being 4% ahead of the comparative period in 2014.
The Estate Agency Division performed broadly in line with these
market statistics with residential exchange volumes down 6% year on
year in the first half with average fees broadly flat across the
businesses. The resilience of the division was again evident in
both lettings and financial services where revenues increased by
11% and 14% respectively, predominantly through organic growth.
With the prospect of recovering markets in the second half and in
line with the Group's strategy, we invested in the business by
continuing to refurbish branches, selectively adding head count in
the growth areas of financial services and lettings and maintaining
teams across core estate agency activities. As a consequence, the
cost base has risen and profitability during the first half of 2015
was adversely impacted.
The Surveying Division delivered an excellent result in the
first half with operating profits(1) increasing by a third from
GBP5.7m in the first half of 2014 to GBP7.6m in the first half of
2015. This performance was driven by a number of factors. Contract
renewals and wins secured in 2014 combined with favourable lender
and work mix are delivering benefits in terms of increased revenue
per job. In addition, the benefits from the graduate recruitment
scheme combined with the operational cost efficiencies arising from
the 2014 restructuring of the back office have resulted in a
reduced cost base which is 8% lower than 2014. We have continued to
focus on capacity utilisation and are in a strong position to
provide a high level of service to all of the Group's clients as
demand increases.
Net Bank Debt at 30(th) June 2015 was GBP53.0m. This compares on
a like for like basis (including the GBP17.8m net cash benefit from
the sale of Zoopla shares) to GBP36.5m at 30(th) June 2014. The
balance of the increase in Net Bank Debt relates to both
Professional Indemnity cash outflows in line with expectations and
capital investment in the Group including GBP7.3m net to acquire
subsidiaries and other businesses.
Financial Results
Group revenue was broadly flat at GBP140.2m (2014: GBP139.8m).
Group operating profit(1) was GBP10.3m (2014: GBP15.1m) and Group
operating margin(1) decreased to 7.4% from 10.8%.
The Estate Agency Division held revenues broadly flat at
GBP109.1m (2014: GBP108.6m) with operating profits(1) of GBP6.3m
(2014: GBP12.2m) in a market where house purchase approvals(2)
decreased by 3% in the six months to 30(th) June 2015 compared to
2014. The Surveying Division revenues were steady at GBP31.1m
(2014: GBP31.3m) compared to a 1% year on year decrease in total
mortgage approvals(2) for the six months to 30(th) June 2015.
Operating profits(1) in the Surveying Divisions increased by 34% to
GBP7.6m (2014: GBP5.7m).
Net interest payable was GBP1.3m (2014: GBP1.2m) and Group
profit before tax, amortisation and exceptional items was GBP9.0m
(2014: GBP13.9m). Group profit before tax was GBP6.2m (2014:
GBP31.4m). The prior year included an exceptional profit of
GBP18.0m which related to the sale of Zoopla shares. The effective
tax rate for the period was 22.3%. Group profit after tax was
GBP4.8m (2014: GBP24.9m). Earnings per share were 4.7p (2014:
24.2p) and adjusted earnings per share were 7.2p (2014: 10.6p).
(1) Operating Profit is before exceptional gains and costs,
contingent consideration, amortisation of intangible assets and
share based payments
(2) Source: Bank of England for "House Purchase Approvals" and "Total Mortgage Approvals"
Cash used by operations was GBP0.3m (2014: cash generated
GBP4.2m). Operating cash flow included PI cash settlements of
GBP7.6m (2014: GBP6.5m). Capital expenditure, including
intangibles, decreased to GBP3.1m (2014: GBP4.6m) reflecting the
completion of investments in a number of new IT systems, including
a common platform for our Financial Services businesses and the
development of enhanced lettings systems in Your Move and Reeds
Rains. There were two new branch openings in Marsh & Parsons
and the selective refurbishment of a number of Your Move and Reeds
Rains branches continued.
Net assets at 30(th) June 2015 were GBP88.1m (2014: GBP113.3m)
which was driven by the payment of a GBP16.8m special dividend in
the second half of 2014. Net Bank Debt at 30(th) June 2015 was
GBP53.0m compared to GBP18.7m at 30(th) June 2014. Compared to
31(st) December 2014, Net Bank Debt has increased by GBP18.3m
driven by investments in acquisitions and the normal seasonality of
the Estate Agency Division cash flows, continuing high levels of PI
cash outflows, and the payment of dividend, tax and bonuses.
Interim Dividend
The Board has declared an interim dividend payment amounting to
4.0 pence per share (2014: 4.0 pence). The interim dividend
reflects the Board's confidence in future prospects and the
strength of LSL's cash generation and balance sheet. The
ex-dividend date for the interim dividend is 12(th) August 2015,
with a record date of 14(th) August 2015 and a payment date of
8(th) September 2015. Shareholders have the opportunity to elect to
reinvest their cash dividend and purchase existing shares in LSL
through a dividend reinvestment plan.
Estate Agency Division
The Estate Agency Division delivered a resilient performance in
an evolving market. Lower levels of market activity in the second
half of 2014 resulted in weaker sales pipelines and more subdued
trading activity coming into the first few months of the current
year. General Election uncertainty also held back transaction
volumes. However, sentiment has improved in June and July with
improved trading performances across the division. The division
enters the second half of the year with robust sales pipelines and
higher levels of activity across all income streams. Although
instruction volumes are weaker than expected, the broad UK wide
coverage of the business is a significant attribute.
Residential Sales income decreased by 5% to GBP42.0m (2014:
GBP44.4m) with average fees broadly flat across the businesses.
Exchange volumes were down 6% year on year. Financial Services
revenue increased by 14% to GBP22.8m (2014: GBP19.9m) and in total
the Group arranged mortgage lending of GBP6.0bn during the first
half (2014: GBP5.1bn). We were particularly pleased that our
Lettings income again increased by a further 11% (2014: 12%) to
GBP30.6m (2014: GBP27.7m) primarily driven by organic growth. The
lettings books acquired in the first half of the year will
contribute to further growth in the second half.
Whilst the surprise changes to stamp duty announced by the
Chancellor in late 2014 have benefitted the majority of LSL's
businesses, they have adversely impacted the Prime Central London
market served by Marsh & Parsons. General Election uncertainty
also weighed more heavily on the Prime Central London market during
the first five months of 2015. As a consequence, total revenue at
Marsh & Parsons decreased by 5% to GBP15.4m (2014: GBP16.1m).
Residential Sales were down by 13% offset in part by good lettings
income growth of 6%. Lettings revenue now represents 50% of total
Marsh & Parsons income. Further growth in activity was held
back by the availability of stock. Operating profit of GBP1.5m
(2014: GBP3.2m) was impacted by the residential sales performance
and the impact of the on-going costs of the new branch opening
programme. Two new branches were opened during the period in
Shoreditch and Queens Park and both are trading in line with
expectations. Marsh & Parsons plan to open further new branches
during the second half of the year if suitable sites can be
identified and a number of initiatives are being investigated to
improve profitability in this changed market.
With sentiment improving and good economic fundamentals
supporting the UK residential housing sector, we expect to see a
return to year on year market growth during the second half of the
year.
Asset Management revenue declined by a third in the period to
GBP4.3m (2014: GBP6.4m). This performance is in line with an
estimated 30% decline in the repossession market from 23,000
properties in 2014 to 16,000 in 2015. The business is making good
progress in developing new property management contracts but
lengthy tender processes mean that financial benefit will be geared
to the medium term.
Our national network of brands and branches represents a key
strength for the division as the Group seeks to leverage the more
positive outlook for the residential housing sector in the second
half and beyond. The Group has continued with our strategy of
targeting selective acquisitions and purchased Thomas Morris, a
multi-award winning estate agency and lettings business with seven
branches in Cambridgeshire, Bedfordshire and Hertfordshire in
February 2015.
In line with our strategy, LSL businesses have also increased
the rate of lettings book acquisitions and invested GBP3.9m in 13
businesses in the first six months of 2015. The pipeline of other
opportunities has also grown. We have maintained consistent
investment criteria and continue to target accretive
opportunities.
Surveying Division
The Surveying Division has traded strongly in the first half.
Revenue was broadly flat year on year in a market that shrunk by
1%. In the period, we completed 165,000 jobs, a 19% reduction on
the comparable period last year. However, the revenue per job
increased by 16% to GBP188 (2014: GBP159) reflecting the benefits
from contract renewals and wins in 2014, a favourable mix across
lenders and the types of jobs performed. Surveyor headcount was
optimised to meet business requirements and was maintained at 367
(2014: 371).
As noted in the comments on the Estate Agency Division, there
has been an improvement in the market during the second quarter
with year on year volumes growing. Total mortgage approvals
increased by 9% in the second quarter compared to 2014 and compared
to an 11% reduction in the first quarter.
Following the important contract renewals and wins in 2014, the
core customer base has been secured for the medium term. The
contract terms reflect current improved conditions in the mortgage
market which is being reflected in the trading performance of the
business.
Since announcing the further increase in Professional Indemnity
(PI) provisions in December 2014 for work performed in the 2004 to
2008 high risk lending period, the cost of claims settlement has
been in line with assumptions made at that time. The total paid in
the first six months of the year of GBP7.6m is in line with
expectations. Similarly, the cost per new claim through to 30(th)
June 2015 has been consistent overall with the assumptions
supporting the PI provision. The basis of the provisions remains
unchanged at the half year and represents the Group's best estimate
of likely claim costs. However the provision remains highly
sensitive to the rate of new notifications and the average cost of
current and future claims.
Outlook
Key economic growth indicators and consumer confidence remain
positive and the outcome from the General Election has removed
political uncertainty from the market. The recent announcements by
the Governor of the Bank of England regarding longer term trends
for interest rates could impact mortgage rates and consequently
sentiment in the housing market. However, the outlook from lenders
remains positive and as a result we expect the market to show year
on year growth in the second half of the year. Given the robust
sales pipelines and the current higher levels of activity across
both the Estate Agency and Surveying income streams, the Board
remains confident of delivering year on year growth in the second
half of 2015 and full year result in line with expectations.
LSL's strategy is to continue to deliver organic growth and
evaluate selective acquisitions. Both the Estate Agency Division
and the Surveying Division will continue to selectively invest in
order to drive future returns.
The business remains cash generative at the operational level
over the year and has a strong balance sheet. By focusing the
strategy on driving benefit from operational gearing in an improved
market, the Group is extremely well positioned to deliver increased
shareholder value.
Simon Embley
Chairman
4(th) August 2015
Principal risks and uncertainties
During 2015, and in line with Financial Reporting Council (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 a risk appetite statement and 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 and uncertainties which may impact the Group as
part of the planning and reporting cycle to ensure that such risks
and uncertainties 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 the 2014 edition of the Corporate Governance Code
and the FRC's 'Guidance on Risk Management, Internal Control and
Related Financial and Business Report', LSL has adopted a
Group-wide risk appetite statement and framework. The new framework
is being applied during 2015, and LSL will report on its progress
in the 2015 Annual Report and Accounts.
Listed below are the risks which the Board has identified as
being the principal risks and uncertainties faced by the Group at
the date of this Statement, 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 2014 Annual Report and Accounts.
Principal Risk and Uncertainty
Description and Impact: Management and Mitigation
--------------------------------------------------------------- ----------------------------------
Housing Market - UK:
* The UK residential housing market in 2015 was The Board regularly reviews
somewhat subdued in the first quarter with signs of trends in market volumes
improvement in quarter two. The General Election and monitors the Group's
result in May has removed electoral uncertainty, but operational gearing to
the possibility of interest rate rises could decide on the appropriate
adversely impact the market should they materialise. level of resourcing.
In addition, the Board
regularly focuses on
* The UK residential housing market is also impacted by non-cyclical and counter
sentiment driven by statements from the Bank of cyclical income streams,
England and Government. Any impact on transaction in particular Lettings,
volumes (both house purchase and remortgage) and to offset any impact
house prices may adversely affect the profitability on residential transaction
and cash flow of all key brands and businesses. numbers.
Further, regular reviews
of trends in market volumes
are undertaken and decisions
made on any cost base
reductions measures.
--------------------------------------------------------------- ----------------------------------
Housing Market - Central
London: Marsh & Parsons has an
* LSL has an exposure to the Prime Central London incentivised and established
property market via Marsh & Parsons. While management team with
historically the Prime Central London market has been a growth strategy. It
more robust compared to the rest of the UK, recent operates in all segments
changes to stamp duty are impacting the volume of of the prime Central
transactions, particularly in the Prime Central London market and has
London market where average house prices are in opened two new branches
excess of GBP1.0m. There remains a risk that the in 2015 with further
London market fails to grow or that LSL fails to new openings planned
maximise the potential growth. to improve geographical
coverage, particularly
outside the prime central
London market. The Board
closely monitors the
company's performance.
--------------------------------------------------------------- ----------------------------------
Client Contracts:
* A failure to secure or renew, key Valuation Services There continues to be
or Asset Management contracts, or any significant investment in customer
reduction in volumes combined with a pressure on fees, services to retain existing
either as a result of adverse market conditions, clients and to attract
market consolidation, competition or inadequate new ones. In addition,
service delivery. LSL continues to provide
private survey services
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
* Liabilities arising from the provision of inaccurate include oversight by
professional services advice to clients (e.g. the Board (including
valuation services) arising from employee errors regular review of the
and/or a failure by LSL businesses to put in place PI provision relating
and to maintain appropriate internal controls. to Surveying and Valuation
Services) and appropriate
quality controls and
* The period from 2004 to 2008 is identified as the Risk and Internal Audit
high risk lending period and notifications relating reviews of services provided
to this period are still being received. Accordingly, on a sample basis. There
the PI provisions disclosed in the Report is the are also specific operational
Group's best estimate of likely claim costs, and this controls implemented
remains sensitive to the rate of new notifications within the Surveying
and the average cost of current and future claims. Division which includes
a risk based criteria
for the identification
* The costs and management resources applied in of transactions to be
responding to claims and notifications can divert subject to enhanced review
resources away from value adding activities. measures.
During 2014 LSL completed
a detailed review, with
* Costs and losses arising from a failure to manage any the assistance of external
actual or threatened legal claims. consultants, of its PI
claims and the associated
PI provision and further
initiatives to improve
internal controls and
related reporting have
continued into 2015.
The Board regularly review
the PI provision to ensure
that the cost per claim,
number of notifications
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
legislation/regulation or changes to supported by the Compliance
legislation/regulation and/or Government/EU policy and Legal Services teams
which may impact on business results or the UK who monitor existing
housing market in general. business practices and
any reform proposals.
Where appropriate Government
* Changes in macro Government economic policy or departments and/or trade
specific initiatives in respect of the UK Residential bodies are engaged in
Housing sector or policy changes by the Bank of a dialogue.
England regarding interest rates and the availability The Board also monitors
of mortgages may adversely impact the business. the impacts of changes
and assesses changes
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 Financial Conduct The Group has improved
Authority (FCA) requirements): its Financial Services
* Failure to comply with relevant legislation including compliance framework
FCA requirements or changes to Financial Services through the enhancement
legislation which would result in a fine, adverse of technology solutions
publicity, reputational damage and could result in and the inception of
loss of authorisations which would impact on business new Compliance roles
results. operating across the
breadth of Financial
Services operations.
LSL has a proactive engagement
strategy with the FCA
and the Board closely
monitors the Financial
Services business and
receives regular updates
on its communications
with the FCA.
--------------------------------------------------------------- ----------------------------------
Acquisitions:
* Failure to identify and secure appropriate targets Each Division has plans
for acquisition and once acquired, the businesses are in place to identify
not successfully integrated into the Group. acquisition opportunities
and wherever necessary
additional external consultants
* Liabilities arising from a failure to carry out are hired to assist with
appropriate due diligence prior to an acquisition. this process.
Further, the Group has
in place 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 lessons learned
and improvements arising
from the process.
--------------------------------------------------------------- ----------------------------------
IT Systems, Infrastructure
and Security: Dedicated in-house IT
* Failures, interruptions or security breaches of any departments with specialist
Group IT services on which any business is reliant staffing. Maintenance
for operational performance and financial of Group policies, including
information. a formalised business
continuity 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
individuals with the necessary skills and experience on the retention of all
into the senior management team which is key to senior management and
delivering the future growth strategy of the Group. ensures that adequate
remuneration policies,
management development
and succession plans
are in place. This is
supported by annual reviews
by the Remuneration and
Nominations Committees.
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.
--------------------------------------------------------------- ----------------------------------
Forward-Looking Statements
This statement may contain forward-looking statements with
respect to certain plans, goals and expectations relating to the
future financial condition, business performance and results of
LSL. By their nature, all forward-looking statements involve risk
and uncertainty because they relate to future events and
circumstances that are beyond the control of LSL, and they may
cause the actual results or performance of LSL to be materially
different from the results or performance implied by such
statements. Any forward-looking statements will be by reference to
the date of this statement only and must not be regarded as
guarantees of future performance. Further, nothing in this
statement should be construed as a profit forecast. Some of the
factors which may affect LSL's actual future financial conditions,
business performance and results are contained within the Business
Review in the 'principal risks and uncertainties section' on pages
30 and 31 of LSL's Annual Report and Accounts 2014 and in this
Statement, together with information on the management of the
principal risks and uncertainties faced by LSL.
Definitions
Definitions for words and expressions referred to and included
in this statement which are not expressly defined within, can be
found at page 149 to 152 of LSL's Annual Report and Accounts 2014
(a copy of which is available on LSL's website at:
www.lslps.co.uk). All references to 'note(s)' in this Statement,
are unless expressly stated otherwise, references to the 'Notes to
the Interim Condensed Group Financial Statements'
included in this Statement.
Responsibility statement of the Directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- The interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board
Ian Crabb
Director
Interim Group Income Statement
for the six months ended 30(th) June 2015
Unaudited Audited
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2015 2014 2014
Note GBP'000 GBP'000 GBP'000
--------- --------- -----------
Revenue 3,4 140,159 139,838 287,498
Operating expenses:
Employee and subcontractor
costs (86,522) (84,528) (167,581)
Establishment costs (10,826) (10,211) (18,852)
Depreciation on property,
plant and equipment (2,666) (2,346) (4,918)
Other (30,367) (29,686) (57,938)
--------- --------- -----------
(130,381) (126,771) (249,289)
Other operating income 3 600 1,613 2,404
Gain on sale of property,
plant and equipment 19 13 13
Group's share in post-tax
profits of joint ventures (84) 405 1,383
Group operating profit
before contingent consideration,
exceptional costs, amortisation
and share-based payments 4 10,313 15,098 42,009
Share-based payments (397) (1,119) (1,775)
Amortisation of intangible
assets (186) (310) (565)
Contingent consideration 6 (2,142) 915 405
Exceptional gains 6 - 18,111 19,841
Exceptional costs 6 (83) (298) (26,035)
Group operating profit 4 7,505 32,397 33,880
Finance income 3 112 - 14
Finance costs (1,403) (1,217) (2,181)
Exceptional finance credit 6 - 230 230
---------
Net finance costs (1,291) (987) (1,937)
Profit before tax 4 6,214 31,410 31,943
Taxation (charge)/credit
- related to exceptional
costs 17 (3,638) 1,146
- other (1,404) (2,865) (7,931)
--------- --------- -----------
8 (1,387) (6,503) (6,785)
Profit for the period/year 4,827 24,907 25,158
--------- --------- -----------
Attributable to:
- Owners of the parent 4,804 24,887 25,103
- Non-controlling interest 23 20 55
Earnings per share expressed
in pence per share:
Basic 5 4.7 24.2 24.5
Diluted 5 4.7 23.9 24.3
Adjusted - basic 5 7.2 10.6 30.5
Adjusted - diluted 5 7.2 10.5 30.2
Interim Group Statement of Comprehensive Income
for the six months ended 30(th) June 2015
Unaudited Audited
Six Months Year
Ended Ended
30(th) 30(th) 31(st)
June June December
2015 2014 2014
GBP'000 GBP'000 GBP'000
-------- ---------- ----------
Profit for the period 4,827 24,907 25,158
Items to be reclassified
to profit and loss in subsequent
periods:
Reclassification adjustments
for disposal of financial
assets - (18,602) (20,568)
Income tax effect - 3,721 4,114
Revaluation of financial
assets 8,855 10,597 6,903
Income tax effect (1,771) (2,120) (1,381)
-------- ---------- ----------
Net other comprehensive
income to be reclassified
to profit and loss in subsequent
periods: 7,084 (6,404) (10,932)
-------- ---------- ----------
Total other comprehensive
income, net of tax 7,084 (6,404) (10,932)
-------- ---------- ----------
Total comprehensive income,
net of tax 11,911 18,503 14,226
-------- ---------- ----------
Attributable to
- Owners of the parent 11,888 18,483 14,171
- Non-controlling interest 23 20 55
-------- ---------- ----------
Interim Group Balance Sheet
as at 30(th) June 2015
Unaudited Audited
Six Months Year
Ended Ended
30(th) 30(th) 31(st)
June June December
2015 2014 2014
Note GBP'000 GBP'000 GBP'000
---------- -------------- ----------
Non-current assets
Goodwill 135,954 130,431 131,560
Other intangible assets 23,734 20,058 20,110
Property, plant and equipment 20,863 18,584 20,272
Financial assets 9 31,976 28,863 23,033
Investments in joint ventures 9,036 2,342 9,121
----------
Total non-current assets 221,563 200,278 204,096
----------
Current assets
Trade and other receivables 39,070 40,812 36,165
Cash and cash equivalents 998 1,025 -
---------- -------------- ----------
Total current assets 40,068 41,837 36,165
---------- -------------- ----------
Total assets 261,631 242,115 240,261
---------- -------------- ----------
Current liabilities
Financial liabilities 10 (8,990) (4,218) (4,659)
Trade and other payables (47,659) (53,833) (50,336)
Current tax liabilities (1,612) (4,570) (373)
Provisions for liabilities 11 (15,086) (8,345) (16,539)
---------- -------------- ----------
Total current liabilities (73,347) (70,966) (71,907)
---------- -------------- ----------
Non-current liabilities
Financial liabilities 10 (75,032) (37,882) (56,420)
Deferred tax liability (8,191) (7,284) (6,462)
Provisions for liabilities 11 (16,995) (12,730) (22,372)
---------- -------------- ----------
Total non-current liabilities (100,218) (57,896) (85,254)
---------- -------------- ----------
Total Liabilities (173,565) (128,862) (157,161)
----------
Net assets 88,066 113,253 83,100
---------- -------------- ----------
Equity
Share capital 208 208 208
Share premium account 5,629 5,629 5,629
Share-based payment reserve 3,275 3,066 3,498
Treasury shares (6,341) (2,452) (7,922)
Fair value reserve 23,799 21,243 16,715
Retained earnings 61,336 85,457 64,835
---------- -------------- ----------
Equity attributable to
owners of parent 87,906 113,151 82,963
Non-controlling interests 160 102 137
Total equity 88,066 113,253 83,100
---------- -------------- ----------
Interim Group Cash Flow Statement
for the six months ended 30(th) June 2015
Unaudited Unaudited Audited
30(th) June 30(th) June 31(st) December
2015 2014 2014
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash generated from
operating activities
Profit before tax 6,214 31,410 31,943
Adjustments to reconcile
profit before tax
to net cash from operating
activities
Exceptional operating
income and costs and
contingent consideration
(non-cash) 2,142 (18,693) 4,324
Amortisation of intangible
assets 186 310 565
Finance income (112) - (14)
Finance costs 1,403 1,217 2,181
Exceptional finance
credit - (230) (230)
Share-based payments 397 1,119 1,775
------------- ------------- ---------
4,016 (16,277) 8,601
--------- --------- ---------
Group operating profit
before amortisation
and share-based payments 10,230 15,133 40,544
Depreciation 2,666 2,346 4,918
Dividend income (309) (1,160) (1,579)
Share of results of
joint ventures 84 (405) (1,383)
Loss/(gain) on sale
of property, plant
and equipment 83 (48) (48)
------------- ------------- ---------
2,524 733 1,908
Increase in trade
and other receivables (2,727) (5,358) (449)
Decrease in trade
and other payables (3,413) (934) (4,263)
Decrease in provisions (6,909) (5,339) (12,075)
------------- ------------- ---------
(13,049) (11,631) (16,787)
--------- --------- ---------
Cash (utilised by)/generated
from operations (295) 4,235 25,665
Interest paid (890) (809) (1,764)
Payment of contingent
consideration relating
to remuneration - (1,160) (1,426)
Loan refinance costs
paid - - -
Tax paid (415) (1,022) (1,339)
------------- -------------
(1,305) (2,991) (4,529)
--------- --------- ---------
Net cash (utilised
by)/generated from
operating activities (1,600) 1,244 21,136
Unaudited Unaudited Audited
30(th) June 30(th) June 31(st) December
2015 2014 2014
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from investing
activities
Cash acquired on purchase
of subsidiary undertaking 773 250 250
Acquisition of subsidiaries
and other businesses (8,058) (3,887) (4,963)
Payment of contingent
consideration (162) (88) -
Investment in joint
venture - - (2,422)
Investment in financial
assets (88) (1,155) (1,155)
Cash received on sale
of financial assets - 18,850 20,838
Tax on Sale of Zoopla - - (4,015)
Dividends received
from joint ventures - 1,302 1,302
Dividends received
from financial assets 309 1,160 1,579
Interest received 112 - 14
Purchase of property,
plant and
equipment and intangible
assets (3,109) (4,576) (9,244)
Proceeds from sale
of property,
plant and equipment 163 92 195
-------- ---------- ----------
Net cash (used in)/
from investing activities (10,060) 11,948 2,379
Cash flows from financing
activities
Drawdown/(repayment)
of loans 20,000 (6,787) 8,233
Purchase of LSL shares
by the employee benefit
trust (EBT) (Treasury
Shares) - - (5,621)
Proceeds from exercise
of share options 1,116 1,557 1,690
Dividends paid (8,458) (7,406) (28,286)
-------- ---------- ----------
Net cash from/(used
in) financing activities 12,658 (12,636) (23,984)
Net increase/(decrease)
in cash and cash equivalents 998 556 (469)
Cash and cash equivalents
at the beginning of
the year - 469 469
--------- --------- ---------
Cash and cash equivalents
at the end of the
year 998 1,025 -
--------- --------- ---------
Interim Group Statement of changes in equity
for the six months ended 30(th) June 2015
Unaudited six months ended 30(th) June 2015
Share-
Share based Fair
Share premium payment Treasury value Retained Total Non-controlling
capital account reserve shares Reserve earnings equity interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st)
January 2015 208 5,629 3,498 (7,922) 16,715 64,835 82,963 137 83,100
Disposal of
financial
assets (net of
tax) - - - - - - - - -
Revaluation of
financial
assets (net
of tax) - - - - 7,084 - 7,084 - 7,084
Other
comprehensive
income for
the period - - - - 7,084 - 7,084 - 7,084
Profit for the
period - - - - - 4,804 4,804 23 4,827
Total
comprehensive
income for
the period - - - - 7,084 4,804 11,888 23 11,911
Exercise of
options - - (620) 1,581 - 155 1,116 - 1,116
Share-based
payments - - 397 - - - 397 - 397
Tax on
share-based
payments - - - - - - - - -
Dividend
payment - - - - - (8,458) (8,458) - (8,458)
At 30(th) June
2015 208 5,629 3,275 (6,341) 23,799 61,336 87,906 160 88,066
--------- --------- -------- ---------- --------- ---------- -------- ----------------- --------
During the six month period to 30(th) June 2015 a total of
450,928 share options were exercised relating to LSL's various
share option schemes resulting in the shares being sold by the
Trust. LSL received GBP1,116,000 on exercise of these options.
Unaudited six months ended 30(th) June 2014
Share-
Share based Fair
Share premium payment Treasury value Retained Total Non-controlling
capital account reserve shares Reserve earnings equity interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st)
January 2014 208 5,629 2,475 (4,292) 27,647 67,567 99,234 82 99,316
Disposal of
financial
assets (net
of tax) - - - - (14,881) - (14,881) - (14,881)
Revaluation of
financial
assets (net
of tax) - - - - 8,477 - 8,477 - 8,477
Other
comprehensive
income for
the period - - - - (6,404) - (6,404) - (6,404)
Profit for the
period - - - - - 24,887 24,887 20 24,907
Total
comprehensive
income for
the period - - - - (6,404) 24,887 18,483 20 18,503
Exercise of
options - - (692) 1,840 - 409 1,557 - 1,557
Share-based
payments - - 1,119 - - - 1,119 - 1,119
Tax on
share-based
payments - - 164 - - - 164 - 164
Dividend
payment - - - - - (7,406) (7,406) - (7,406)
At 30(th) June
2014 208 5,629 3,066 (2,452) 21,243 85,457 113,151 102 113,253
--------- --------- -------- ---------- --------- ---------- --------- ----------------- ---------
During the six month period ended 30(th) June 2014, the Trust
acquired 1,485,000 shares in the Group for GBP5,621,000. During the
period 616,043 share options were exercised relating to LSL's
various share option schemes resulting in the shares being sold by
the Trust. LSL received GBP1,557,000 on exercise of these
options.
Audited year ended 31(st) December 2014
Share-
Share based Fair
Share premium payment Treasury value Retained Total Non-controlling
capital account reserve Shares Reserve earnings equity interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st)
January 2014 208 5,629 2,475 (4,292) 27,647 67,567 99,234 82 99,316
Disposal of
financial
assets (net
of tax) - - - - (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
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
--------- --------- -------- ---------- --------- ---------- --------- ----------------- ---------
During the year ended 31(st) December 2014, the Trust acquired
1,485,000 LSL shares in the Group for GBP5,621,000. In addition,
during the period 669,077 share options were exercised relating to
LSL's various share option schemes resulting in the Shares being
sold by the Trust. LSL received GBP1,690,000 on exercise of these
options.
Notes to the Interim Condensed Group Financial Statements
The interim condensed group financial statements for the period
ended 30(th) June 2015 were approved by the LSL Board on 3(rd)
August 2015. The interim financial statements are not the statutory
accounts. The financial information for the year ended 31(st)
December 2014 is extracted from the audited statutory accounts for
the year ended 31(st) December 2014, which have been filed with the
Registrar of Companies. The auditor's report was unqualified and
did not contain an emphasis of matter paragraph, and did not make a
statement under section 498 (2) or (3) of the Companies Act
2006.
1 Basis of preparation
The interim condensed group financial statements for the period
ended 30(th) June 2015 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and IAS 34 Interim Financial Reporting (as adopted by the
EU). The interim condensed group financial statements have been
prepared on a going concern basis.
The interim condensed group financial statements do not include
all the information and disclosures required in the annual
financial statements, and should be read in conjunction with the
Group's annual financial statements as at 31(st) December 2014.
There have been no significant related party transactions in the
period to 30(th) June 2015.
Significant accounting policies
The accounting policies adopted in the preparation of the
interim condensed group financial statements are consistent with
those followed in the preparation of the Group's annual financial
statements for the year ended 31(st) December 2014.
Judgements and estimates
The preparation of financial information in conformity with IFRS
as adopted by European Union requires management to make
judgements, estimates and assumptions that affect the application
of policies and reporting amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making the judgements about carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next six months are
largely the same as those as at 31(st) December 2014. These
assumptions are discussed in detail on pages 92 and 93 and in notes
7, 14, 16, 21 and 22 of the Group's annual financial statements for
the year ended 31(st) December 2014. The assumptions discussed are
as follows:
-- Valuation in acquisitions
-- Impairment of intangible assets
-- Assessment of the useful life of an intangible asset
-- Professional indemnity claims
-- Contingent consideration
-- Valuation of financial assets
1. Basis of preparation (continued)
Significant accounting policies (continued)
New standards and interpretations
There are no accounting standards or interpretations that have
become effective in the current reporting period which have had a
material effect on the net assets, results and disclosures of the
Group. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
Going concern
The Group has a GBP100m banking facility which expires in August
2017. These facilities are subject to financial performance
covenants. The Board has prepared a working capital forecast based
upon assumptions as to trading and has concluded that the Group has
adequate working capital, will meet the financial performance
covenants and that therefore it is appropriate to use the going
concern basis of preparation for this financial information.
2. Seasonality of operations
Due to the seasonal nature of the residential property market,
turnover and operating profits are normally higher in the second
half of the year.
3. Revenue
Six months ended Year Ended
30(th) 30(th) 31(st)
June June December
2015 2014 2014
GBP'000 GBP'000 GBP'000
Revenue from services 140,159 139,838 287,498
--------- --------- ----------
Operating revenue 140,159 139,838 287,498
--------- --------- ----------
Rental income 291 453 825
Dividend income 309 1,160 1,579
--------- --------- ----------
Other operating income 600 1,613 2,404
--------- --------- ----------
Finance income 112 - 14
Total revenue 140,871 141,451 289,916
--------- --------- ----------
4. Segment analysis of revenue and operating profit
For management purposes, the Group is organised into business
units based on their products and services and has two reportable
operating segments as follows:
-- The Estate Agency and Related Services segment provides
services related to the sale and letting of residential properties.
It operates a network of high street branches. As part of this
process, the Estate Agency Division also provides marketing and
arranges conveyancing services. In addition, it provides
repossession asset management services to a range of lenders. It
also arranges mortgages for a number of lenders and arranges pure
protection and general insurance policies for a panel of insurance
companies via the estate agency branches, Pink Homes Loans, First
Complete and Linear Mortgage Network. The financial services
segment included within the Estate Agency division includes two
mortgage and insurance distribution networks providing products and
services for sale via financial intermediaries. The results of this
financial services segment, does not meet the quantitative criteria
for separate reporting under IFRS and has therefore been aggregated
with those of Estate Agency and Related Services.
-- The Surveying and Valuation Services segment provides a
valuations and professional survey service of residential
properties to various lenders and individual customers.
Each segment has various products and services and the revenue
from these products and services are disclosed in the LSL's Annual
Report and Accounts 2014 within the Business Review section of the
Strategic Report.
The Management Team monitors the operating results of its
business units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance
is evaluated based on operating profit or loss which in certain
respects, as explained in the table below, is measured differently
from operating profit or loss in the Group Financial Statements.
Head office costs, Group financing (including finance costs and
finance incomes) and income taxes are managed on a Group basis and
are not allocated to operating segments.
4. Segment analysis of revenue and operating profit (continued)
Operating segments
The following tables presents revenue and profit information
regarding the Group's operating segments for the six months ended
30(th) June 2015, for the six months ended 30(th) June 2014 and for
the year ended 31(st) December 2014.
Six months ended 30(th) June 2015
Estate Surveying
agency and valuation
and related services
services GBP'000 Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000
------------- -------------- ------------- ---------
Segmental revenue 109,067 31,092 - 140,159
------------- -------------- ------------- ---------
Segmental result:
- before exceptional
costs, contingent
consideration, amortisation
and
share-based payments 6,343 7,598 (3,628) 10,313
- after exceptional
costs, contingent 3,537 7,595 (3,627) 7,505
consideration, amortisation
and
share-based payments
------------- -------------- ------------- ---------
Finance income 112
Finance costs (1,403)
Profit before tax 6,214
Taxation (1,387)
Profit for the period 4,827
---------
In the period ended 30(th) June 2015, there is no revenue from
one customer that accounts for 10% or more of the Group's total
revenue (2014 - none).
Balance sheet information
Segment assets - intangible 148,860 10,828 - 159,688
Segment assets - other 89,354 10,615 1,974 101,943
-------- -------- -------- ---------
Total Segment assets 238,214 21,443 1,974 261,631
Total Segment liabilities (63,598) (44,290) (65,677) (173,565)
-------- -------- -------- ---------
Net assets/(liabilities) 174,616 (22,847) (63,703) 88,066
-------- -------- -------- ---------
All of the joint venture interests of the Group are recorded in
the Estate Agency and Related Services segment. Unallocated net
liabilities comprise certain property, plant and equipment
(GBP14,000), cash and bank balances (GBP998,000), other assets
(GBP962,000), accruals (GBP1,874,000), financial liabilities
(GBP54,000,000) and deferred and current tax liabilities
(GBP9,803,000).
4. Segment analysis of revenue and operating profit (continued)
Operating segments
Six months ended 30(th) June 2014
Estate Surveying
agency and valuation
and related services
services GBP'000 Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000
------------- -------------- ------------- ---------
Segmental revenue 108,568 31,270 - 139,838
------------- -------------- ------------- ---------
Segmental result:
- before exceptional
costs, contingent
consideration, amortisation
and
share-based payments 12,235 5,685 (2,822) 15,098
- after exceptional
costs, contingent
consideration, amortisation
and
share-based payments 30,976 5,365 (3,944) 32,397
------------- -------------- ------------- ---------
Finance income -
Finance costs (1,217)
Exceptional finance
credit 230
---------
Profit before tax 31,410
Taxation (6,503)
Profit for the period 24,907
---------
The Estate Agency and Related Services segment result includes a
gain of GBP17,989,000 relating to sale of Zoopla shares (see note
9)
Balance sheet information
Segment assets - intangible 139,602 10,887 - 150,489
Segment assets - other 79,097 10,569 1,960 91,626
-------- -------- -------- ---------
Total Segment assets 218,699 21,456 1,960 242,115
Total Segment liabilities (61,681) (34,229) (32,952) (128,862)
-------- -------- -------- ---------
Net assets/(liabilities) 157,018 (12,773) (30,992) 113,253
-------- -------- -------- ---------
All of the joint venture interests of the Group are recorded in
the Estate Agency and Related Services segment. Unallocated net
liabilities comprise certain property, plant and equipment
(GBP29,000), cash and bank balances (GBP1,025,000), other assets
(GBP906,000), other taxes and liabilities (GBP217,000), accruals
(GBP1,120,000), financial liabilities (GBP19,761,000) and deferred
and current tax liabilities (GBP11,854,000).
4. Segment analysis of revenue and operating profit (continued)
Operating segments
Year ended 31(st) December 2014
Estate Surveying
agency and valuation
and related services
services GBP'000 Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000
------------- -------------- ------------- ---------
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
consideration, amortisation
and
share-based payments 52,310 (12,611) (5,819) 33,880
------------- -------------- ------------- ---------
Finance income 14
Finance costs (2,181)
Exceptional finance
credit 230
---------
Profit before tax 31,943
Taxation (6,785)
Profit for the year 25,158
---------
The Estate Agency and Related Services segment result includes a
gain of GBP19,806,000 relating to sale of Zoopla shares (see note
9)
Estate Surveying
agency and valuation
and services
related GBP'000 Unallocated Total
activities GBP'000 GBP'000
GBP'000
------------------ -------------- ------------- ---------
Balance sheet information
Segment assets - intangible 140,786 10,884 - 151,670
Segment assets - other 77,317 10,319 955 88,591
------------------ -------------- ------------- ---------
Total Segment assets 218,103 21,203 955 240,261
Total Segment liabilities (47,507) (52,711) (56,943) (157,161)
------------------ -------------- ------------- ---------
Net assets/(liabilities) 170,596 (31,508) (55,988) 83,100
------------------ -------------- ------------- ---------
All of the joint venture interests of the Group are recorded in
the Estate Agency and Related Services segment. Unallocated net
liabilities comprise certain property, plant and equipment
(GBP31,000), other assets (GBP924,000), accruals (GBP2,329,000),
financial liabilities (GBP13,060,000), deferred and current tax
liabilities (GBP6,836,000), overdraft of (GBP718,000), Revolving
Credit Facility (GBP34,000,000).
5. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the
period attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
period.
Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
Six months ended 30(th) June
Weighted 2015 Weighted 2014
Profit average Per Profit average Per
after number share after number share
tax of shares amount tax of shares amount
GBP'000 Pence GBP'000 Pence
Basic EPS 4,804 102,337,501 4.69 24,887 102,993,275 24.2
Effect of dilutive
share options - 436,809 - - 1,031,362 -
Diluted EPS 4,804 102,774,310 4.67 24,887 104,024,637 23.9
---------- ------------ -------- ---------- ------------ --------
Year ended 31(st) 2014
December 2014 Profit Weighted Per
after average share
tax number amount
GBP'000 of shares Pence
--------- ----------- -------
Basic EPS 25,103 102,955,662 24.5
Effect of dilutive
share options - 925,536 -
Diluted EPS 25,103 103,405,525 24.3
--------- ----------- -------
Adjusted basic and diluted EPS
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
Year
Six months ended Ended
30(th) 31(st)
30(th) June June December
2015 2014 2014
GBP'000 GBP'000 GBP'000
Group operating profit before
contingent consideration
in acquisitions linked to
employment, exceptional costs,
share-based payments and
amortisation (excluding non-controlling
interest) 10,290 15,078 41,954
Net finance costs (excluding
exceptional costs and unwinding
of discount on contingent
consideration) (1,032) (1,217) (2,167)
Normalised taxation (1,874) (2,980) (8,554)
Adjusted profit after tax(1)
before exceptional costs,
share-based payments and
amortisation 7,384 10,881 31,233
------------ --------- ----------
5. EPS (continued)
Six months ended 30(th) June
Adjusted 2015 Adjusted 2014
profit Weighted Per profit Weighted Per
after average share after average share
tax(1) number amount tax(1) number amount
GBP'000 of shares Pence GBP'000 of shares Pence
Adjusted basic
EPS 7,384 102,337,501 7.21 10,881 102,993,275 10.6
Effect of dilutive
share options - 436,809 - - 1,031,362 -
Adjusted diluted
EPS 7,384 102,774,310 7.18 10,881 104,024,637 10.5
--------- ------------ -------- --------- ------------ --------
Year ended 31(st) December 2014
Adjusted 2014
profit Weighted Per
after average share
tax(1) number amount
GBP'000 of shares Pence
Adjusted basic
EPS 31,233 102,479,989 30.5
Effect of dilutive - 925,536 -
share options
Adjusted diluted
EPS 31,233 103,405,525 30.2
----------- ------------ --------
(1) This represents adjusted profit after tax attributable to
equity holders of the parent. Tax has been adjusted to exclude the
prior year tax adjustments, and the tax impact of exceptional
items, amortisation and share-based payments. The effective tax
rate used is 20.25% (30(th) June 2014: 21.5%; 31(st) December 2014:
21.5%).
6. Exceptional items
Six Months Year Ended
Ended
30(th) 30(th) 31(st)
June 2015 June December
2014 2014
Exceptional costs: GBP'000 GBP'000 GBP'000
-------------------- ---------- -------------
Loss on disposal of freehold
properties (83) - -
Provision for professional
indemnity claims/notifications - - (24,570)
Branch closure costs including
redundancy costs - (170) (1,092)
Acquisition related costs - (128) (373)
-------------------- ---------- -------------
Total operating exceptional
costs (83) (298) (26,035)
Contingent consideration
on acquisitions (2,142) 915 405
-------------------- ---------- -------------
(2,142) 915 405
-------------------- ---------- -------------
Exceptional gains
Gain on disposal of freehold
properties - 35 35
Settlement of legal dispute - 87 -
Sale of Zoopla shares - 17,989 19,806
-------------------- ---------- -------------
- 18,111 19,841
-------------------- ---------- -------------
Finance costs
Movement in fair value of
interest rate swap - 230 230
-------------------- ---------- -------------
- 230 230
-------------------- ---------- -------------
Net exceptional gain/(cost) (2,225) 18,958 (5,559)
-------------------- ---------- -------------
6. Exceptional items (continued)
Provision for professional indemnity (PI)
claims/notifications
Since early 2012 the Group has experienced a high level of
claims and notifications 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 and finally by GBP24.6m in
December 2014.
The PI Costs provision at 30(th) June 2015 was made up of a
'Specific Provision' and 'Incurred But Not Reported' (IBNR). The
Specific Provision was based on the Group's review of any
notifications or claims which had been made against the Group as at
30(th) June 2015. The main factors considered in quantifying the
Specific Provision were the likelihood that a claim would be
successful, an assessment of the likely cost for each claim,
including any associated legal costs, and whether any reduction in
the claim is considered likely due to contributory negligence of
the lender.
The IBNR provision was based on the Directors estimates of the
number of claims which would be received in the future with regard
to work completed before 30(th) June 2015. The Directors have then
applied an average cost per case, based on historical averages, to
estimate the IBNR provision.
This provision represents our current best estimate of likely
claims costs but the process of resolving open claims and
estimating future claims is on-going.
A number of risks and uncertainties remain, in particular the
actual monthly run rate of new claims, the date at which the high
rate of claims will significantly reduce, and the average cost per
case both for existing open claims and for claims yet to be
received. The cost of these factors could differ materially from
the Directors' estimates, which could result in a further provision
being required.
At 30(th) June 2015 the total provision for PI Costs was
GBP31.9m. The Directors have considered sensitivity analysis on the
key risks and uncertainties discussed which is set out in note 11.
The Group has continued to build a provision for estimated PI Costs
relating to valuations completed since 2009, and an income
statement charge has been made in these results, which has been
considered as an operating expense rather than as an exceptional
cost.
Sale of Zoopla shares
On 18(th) June 2014, Zoopla underwent an IPO and successfully
completed a listing on the London Stock Exchange. Prior to the IPO,
LSL owned 4.91% of Zoopla. Valued at the IPO price of GBP2.20 per
share, LSL's investment was GBP44,039,000.
As part of the IPO, LSL sold 8,889,317 Zoopla shares at an
average price of GBP2.19 per share. The total gain on sale of the
shares was GBP17,989,000 net of associated costs. On 3(rd) July
2014, the Group sold a further 926,813 shares as part of the IPO
over allotment and received proceeds of GBP1,978,000, GBP1,589,000
net of tax. In total, the Group received proceeds net of associated
tax costs of GBP16,814,000. A special distribution of 16.5 pence
per share was declared to return this exceptional gain to
Shareholders in 2014.
Freehold properties
During the period, a single freehold property with a book value
totalling GBP246,000 (31(st) December 2014: GBP30,000 and 30(th)
June 2014: GBP29,000) was sold for net proceeds of GBP163,000
(31(st) December 2014: GBP65,000 and 30(th) June 2014: GBP64,000)
resulting in a loss on disposal of GBP83,000 (31(st) December 2014:
gain of GBP35,000 and 30(th) June 2014: gain of GBP35,000).
Contingent consideration on acquisitions
The expense for contingent consideration on the acquisition of
Marsh & Parsons (in 2011) amounted to GBP602,000 (31(st)
December 2014: GBP2,281,000 and 30(th) June 2014: GBP731,000). The
exceptional contingent consideration charge recognised in the
period relating to other acquisitions is GBP1,540,000 (31(st)
December 2014: credit of GBP2,686,000 and 30(th) June 2014: credit
of GBP1,646,000).
7. Dividends paid and proposed
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2015 2014 2014
GBP'000 GBP'000 GBP'000
---------- --------- ----------
Declared and paid during the
period
Equity dividends on ordinary
shares:
2013 Final: 7.2 pence - 7,406 7,406
2014 Interim: 4.0 pence - - 4,074
2014 Special dividend: 16.5
pence - - 16,806
2014 Final: 8.3 pence 8,458 - -
Dividends on ordinary shares
proposed (not recognised as
a liability as at 30(th) June):
2015 Interim: 4.0 pence (2014
Interim: 4.0 pence) 4,093 4,074 -
2014 Special dividend: 16.5
pence - 16,806 -
Dividends on ordinary shares
proposed (not recognised as
a liability as at 31(st) December):
2014 Final: 8.3 pence - - 8,458
8. Taxation
The major components of income tax charge in the interim Group
income statements are:
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2015 2014 2014
GBP'000 GBP'000 GBP'000
-------- -------- ----------
UK corporation tax:
- current year 1,429 6,305 6,460
- adjustment in respect of
prior years - (10) 144
-------- ----------
1,429 6,295 6,604
Deferred tax:
Origination and reversal of
temporary differences (42) 74 98
Adjustment in respect of prior
year - 134 83
-------- -------- ----------
(42) 208 181
-------- -------- ----------
Total tax charge in the income
statement 1,387 6,503 6,785
-------- -------- ----------
Income tax charged directly to other comprehensive income is
GBP1,771,000 (30(th) June 2014: credit of GBP1,601,000 and 31(st)
December 2014: credit of GBP2,733,000) and relates to the
revaluation of financial assets. Income tax credited directly to
the share based payment reserve is GBP nil (30(th) June 2014:
GBP164,000 and 31(st) December 2014: GBP nil).
In March 2013, the UK government announced additional proposals
to reduce the main rate of corporation tax to 20% from 1(st) April
2015. As of 30(th) June 2015 reductions to the main rate of
corporation tax to 20% had been enacted. Accordingly this is the
rate at which deferred tax has been provided.
9. Financial assets
Six Months Ended Year Ended
Available-for-sale financial 30(th) 30(th) 31(st)
assets June June December
2015 2014 2014
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Unquoted shares at fair value 1,774 1,687 1,686
Quoted shares at fair value 30,202 27,176 21,347
-------- -------- ----------
31,976 28,863 23,033
-------- -------- ----------
Opening balance 23,033 36,574 36,574
Acquisitions 88 1,155 1,155
Disposals - (19,463) (21,599)
Fair value adjustment recorded
through other comprehensive
income 8,855 10,597 6,903
Closing balance 31,976 28,863 23,033
-------- -------- ----------
9. Financial assets (continued)
The financial assets include unlisted equity instruments which
are carried at fair value. Fair value is judgemental given the
assumptions required and have been valued using a level 3 valuation
techniques (see note 14). Financial assets also include shares
Zoopla which are listed on the London Stock Exchange and again are
carried at fair value. These shares are valued using a level 1
valuation technique.
Zoopla
Zoopla's share price at 30th June 2015 was GBP2.78 per share.
The Directors consider the best estimate of the fair value of LSL's
investment in Zoopla to be the current share price which values the
Group's stake in Zoopla at GBP30,201,000. Subsequent to 30(th) June
2015, LSL was invited to participate in the Zoopla Anniversary
offer. As a consequence, a further 619,318 shares were purchased at
GBP1.76 per share, a 20% discount to the IPO price. Further,
169,350 Zoopla shares were sold for net proceeds of GBP296,565.
Other investments
The carrying value of the Group's investment in Vibrant Energy
Matter (VEM) at 30th June 2015 has been assessed as GBP912,000
(31st December 2014: GBP824,000).
The carrying value of the Group's investment in GPEA Limited
(GPEA) at 30th June 2015 has been assessed as GBP862,000 (31st
December 2014: GBP862,000).
10. Financial liabilities
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2015 2014 2014
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Current
Overdraft - 261 718
2% unsecured loan notes - - 63
Deferred consideration 2,422 - -
Contingent consideration 6,568 3,957 3,878
8,990 4,218 4,659
-------- -------- ----------
Non-current
Bank loans - revolving credit
facility (RCF) 54,000 19,500 34,000
12% unsecured loan notes 9,918 9,507 9,681
Deferred consideration 465 446 2,887
Contingent consideration 10,649 8,429 9,852
75,032 37,882 56,420
-------- -------- ----------
Contingent consideration -
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2015 2014 2014
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Marsh & Parsons Growth Shares 5,103 2,951 4,501
LSLi contingent consideration 8,963 8,599 7,496
LMS 2,388 - 957
Other 763 836 776
-------- -------- ----------
17,217 12,386 13,730
-------- -------- ----------
Opening balance 13,730 12,299 12,299
Cash paid (162) (1,248) (1,426)
Acquisition 1,248 2,250 3,262
Amounts recorded though income
statement 2,401 (915) (405)
-------- -------- ----------
Closing balance 17,217 12,386 13,730
-------- -------- ----------
10. Financial liabilities (continued)
GBP5,103,000 (31(st) December 2014: GBP4,501,000 and 30(th) June
2014: GBP2,951,000) of contingent consideration relates to the
Growth Shares acquired by the management of Marsh & Parsons
subsequent to acquisition as an incentive to grow the Marsh &
Parsons business. Holders of Growth Shares will have the option to
require LSL to buy their Growth Shares at any time between 31(st)
March 2016 and 1(st) April 2020, at their discretion, at a price
determined by a multiple of EBITDA in the previous financial year.
The payment of the consideration is contingent on the holder of the
Growth Shares being continuously employed by the relevant company
and consequently the expected value of the Growth Shares is charged
to the income statement over the earn-out period.
GBP8,963,000 (31(st) December 2014: GBP7,496,000 and 30(th) June
2014: GBP8,599,000) of contingent consideration relates to payments
to third parties in relation to the acquisition of LSLi and certain
of its subsidiaries between 2007 and 2015. This is typically
payable between three and five years after the acquisition dates
depending on the profitability of those subsidiaries in the
relevant years. In 2015, the contingent consideration has been
recalculated based on the Directors' latest expectation using a
discount rate of 6.5% (31(st) December 2014 and 30(th) June 2014:
6.5%).
The table below shows the allocation of the contingent
consideration balance and income charge between the various
categories:
Six Months Ended Year Ended
Contingent consideration balances 30(th) 30(th) 31(st)
relating to amounts accounted June June December
for as: 2015 2014 2014
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Remuneration 6,718 4,806 7,463
Put options over non-controlling
interests 5,662 3,062 4,217
Arrangement under IFRS 3 4,837 4,518 2,050
-------- -------- ----------
Closing balance 17,217 12,386 13,730
-------- -------- ----------
Contingent consideration profit
and loss impact in the period
relating to amounts accounted
for as:
Remuneration 607 343 756
Put options over non-controlling
interests 1,341 (1,310) (1,110)
Arrangement under IFRS 3 194 52 (51)
-------- -------- ----------
(Credit)/charge 2,142 (915) (405)
-------- -------- ----------
11. Provisions for liabilities
Six months ended 30(th) June:
2015 2014
Professional Professional
indemnity indemnity
claim Onerous claim Onerous
provision leases Total provision leases Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------------- ----------- ------------- ----------- -----------
Balance at 1(st)
January 38,719 192 38,911 25,864 475 26,339
Amount utilised (7,901) - (7,901) (6,469) (65) (6,534)
Amount released - (55) (55)
Unwinding of
discount 79 - 79 75 - 75
Provided in
the period (including
exceptional
costs) 1,047 - 1,047 1,292 (97) 1,195
Balance at 30(th)
June 31,944 137 32,081 20,762 313 21,075
---------------- ------------- ----------- ------------- ----------- -----------
Current 15,031 55 15,086 8,032 313 8,345
Non-current 16,913 82 16,995 12,730 - 12,730
31,944 137 32,081 20,762 313 21,075
---------------- ------------- ----------- ------------- ----------- -----------
11. Provisions for liabilities (continued)
Year ended 31(st) December 2014
Professional
indemnity Onerous
claim leases Total
provision
GBP'000 GBP'000 GBP'000
---------------- ---------------- -----------
Balance at 1(st) January 25,864 475 26,339
Amount utilised (13,271) (66) (13,337)
Amount released - (217) (271)
Unwinding of discount 75 - 75
Provided in the period (including
exceptional costs) 26,051 - 26,051
Balance at 31(st) December 38,719 192 38,911
---------------- ---------------- -----------
Current 16,388 151 16,539
Non-current 22,331 41 22,372
38,719 192 38,911
---------------- ---------------- -----------
The PI Cost provision is to cover the costs of claims relating
to valuation services for clients which are not covered by PI
insurance. The PI Cost provision includes amounts for claims
already received from clients, claims yet to be received and any
other amounts which may be payable as a result of legal disputes
associated with provision of valuation services.
The provision is the Directors' best estimate of the likely
outcome of such claims, taking account of the incidence of claims
and the size of the loss that may be borne by the claimant, after
taking account of actions that can be taken to mitigate losses. The
provision will be utilised as individual claims are settled and the
settlement amount may vary from the amount provided depending on
the outcome of each claim. It is not possible to estimate the
timing of payment of all claims and therefore a significant portion
of the provision has been classified as non-current.
An additional exceptional charge of GBP24.6m (cGBP19.3m after
tax) was made in the year ending 31(st) December 2014 in order to
increase the PI Cost provision. Since December 2014, although the
rate of new claims received has been marginally ahead of the
assumptions behind the provision, the cost per new claim and cost
per settled claim has been favourable. Accordingly, this provision
represents the Directors' current best estimate of likely claims
costs but the process of resolving open claims and estimating
future claims is on-going. A number of risks and uncertainties
remain, in particular the actual monthly run rate of new claims and
the average cost per case both for existing open claims and for
claims yet to be received. The cost of these factors could differ
materially from the Directors' estimates, which could result in a
further provision being required.
At 30(th) June 2015 the total provision for PI Costs was
GBP31.9m. The Directors have considered sensitivity analysis on the
key risks and uncertainties discussed above.
Cost per claim
A substantial element of the provision relates to specific
claims where disputes are on-going. These specific cases have been
separately assessed and specific provisions have been made. The
average cost per claim has been used to calculate the required
IBNR. Should the costs to settle and resolve these claims and
future claims increase by 10%, an additional provision of GBP2.8m
would be required.
Rate of claim
The IBNR assumes that that the rate of claim for the high risk
lending period in particular reduces over time with the expiry of
the primary limitation period as well as the expectation that fewer
claims will arise through the passing of time. Should the rate of
reduction be lower than anticipated and the duration extend,
further costs may arise. An increase of 30% in notifications in
excess of that assumed in the IBNR calculations would increase the
required provision by GBP1.0m.
Notifications
The company has received a number of notifications which have
not deteriorated into claims or loss. Should the rate of
deterioration increase by 50%, an additional provision of GBP1.1m
would be required.
11. Provisions for liabilities (continued)
Onerous leases
The provision for lease obligations relates to obligations under
leases on vacant properties. The provision is expected to be fully
utilised by June 2020. The final outcome depends upon the ability
of the Group to sublet or assign the lease over the related
properties.
12. Analysis of Net Bank Debt
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2015 2014 2014
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Interest bearing loans and
borrowings
* Current 8,990 4,218 4,659
* Non-current 75,032 37,882 56,420
-------- -------- ----------
84,022 42,100 61,079
Less: 12% unsecured loan notes (9,918) (9,507) (9,744)
Add: cash and short-term deposits (998) (1,025) -
Less: deferred and contingent
consideration (20,104) (12,832) (16,617)
-------- -------- ----------
Net Bank Debt at the end of
the year 53,002 18,736 34,718
-------- -------- ----------
Net Bank Debt at 30(th) June 2014 excluding the net sale
proceeds from the sale of Zoopla shares and reinvestment into
Zoopla totalling GBP17.8m, was GBP36.5m.
13. Financial instruments - risk management
The financial risks the Group faces and the methods used to
manage these risks have not changed since 31(st) December 2014.
Further details of the risk management policies of the Group are
disclosed in Note 29 of the Group's Financial Statements for the
year ended 31(st) December 2014.
The Group has a current ratio of Net Bank Debt (excluding loan
notes) to EBITDA of 1.25 (31(st) December 2014: 0.74 and 30(th)
June 2014: 0.41). The business is cash generative with a low level
of maintenance capital expenditure requirement. The Group remains
committed to its stated dividend policy of 30% to 40% of adjusted
operating profit after interest and tax. In addition, the Group's
other main priority is to generate cash to support its operations
and to fund any strategic acquisitions.
14. Fair values of financial assets and financial liabilities
Set out below is a comparison by category of carrying amounts
and fair values of all of the Group's financial instruments that
are carried in these financial statements:
June June Dec 2014
2015 2014
Book Book Book
and Fair and Fair and Fair
value value value
GBP'000 GBP'000 GBP'000
---------- ---------- ----------
Financial assets
Cash and cash equivalents 998 1,025 -
Available-for-sale financial
assets 31,976 28,863 23,033
Financial liabilities
Interest-bearing loans and
borrowings:
Floating rate borrowings (54,000) (19,761) (34,718)
Contingent consideration (17,217) (12,386) (13,730)
Deferred consideration (2,887) (446) (2,887)
12% unsecured loan notes (9,918) (9,507) (9,744)
14. Fair values of financial assets and financial liabilities (continued)
The fair value of the Zoopla investment is made with reference
to the latest share price as this is a listed investment (listed on
the London Stock Exchange). The fair value of the remaining
available for sale financial assets have been calculated with
reference to the last trades in these assets. The fair values of
the interest rate swaps were determined by reference to market
values for similar instruments. The fair values for the remaining
financial instruments have been calculated by discounting the
expected future cash flows at interest rates prevailing for a
comparable maturity period for each instrument.
Fair value hierarchy
As at 30(th) June 2015, the Group held the following financial
instruments measured at fair value. The Group uses the following
hierarchy for determining and disclosing the fair value of the
financial instruments by valuation technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
-- June Level Level Level
2015 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
------------ -------- --------- ------------
Assets measured at fair
value
Financial assets 31,976 30,201 1,775
Liabilities measured at
fair value
Contingent consideration 17,217 17,217
Deferred consideration 2,887 2,887
Liabilities for which
fair values are disclosed
Interest-bearing loans
and borrowings:
Floating rate borrowings 54,000 - 54,000 -
12% unsecured loan notes 9,918 - 9,918 -
-- June Level Level Level
2014 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
------------- -------- --------- -------------
Assets measured at fair
value
Financial assets 28,863 27,176 - 1,687
Liabilities measured at
fair value
Contingent consideration 12,386 - - 12,386
Deferred consideration 446 446
Liabilities for which
fair values are disclosed
Interest-bearing loans
and borrowings:
Floating rate borrowings 19,761 - 19,761 -
12% unsecured loan notes 9,507 - 9,507 -
-- Dec Level Level Level
2014 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
------------ -------- -------- ------------
Assets measured at fair
value
Financial assets 23,033 21,347 - 1,686
Liabilities measured at
fair value
Contingent consideration 13,730 - - 13,730
Deferred consideration 2,887 - - 2,887
Liabilities for which
fair values are disclosed
Interest-bearing loans
and borrowings:
Floating rate borrowings 34,718 - 34718 -
12% unsecured loan notes 9,744 - 9,744 -
The other investments totalling GBP1,775,000 are still valued
using Level 3 valuation techniques. The Directors reviewed the fair
value of the financial assets at 30(th) June 2015. The methods used
to determine the fair value are disclosed in more detail in note 9.
The underlying value of the investments will be driven by the
profitability of these businesses. If this was to drop by 10%, the
implied valuation is likely to also drop by around 10%, GBP1.7
million.
14. Fair values of financial assets and financial liabilities (continued)
The contingent consideration relates to amounts payable in the
future on acquisitions. The amounts payable are based on the
amounts agreed in the contracts and based on the future
profitability of each entity acquired. In valuing each provision,
estimates have been made as to when the options are likely to be
exercised and the future profitability of the entity at this date.
Further details of these provisions are shown in note 10.
Fair values of the Group's interest-bearing borrowings and loans
are determined by using DCF methodology using a discount rate that
reflects the issuer's borrowing rate as at the end of the reporting
period. The own non-performance risk as at 30(th) June 2015 was
assessed to be insignificant.
15. Acquisitions
During the period the Group acquired thirteen lettings
businesses for a total consideration of GBP3.9m. The fair value of
the identifiable assets and liabilities of these businesses as at
the date of acquisition have been determined as below:
Fair value
recognised
on acquisition
GBP'000
Intangible assets 2,418
Property, plant and equipment 250
Cash and cash equivalents 425
Trade and other payables (6)
Total identifiable net assets acquired 3,087
Purchase consideration 3,910
-------------------
Goodwill 823
-------------------
In February 2015, the Group acquired 80% of Thomas Morris
(Property Management Ltd), a 7 branch estate agency chain in
Cambridgeshire, Bedfordshire and Hertfordshire for an initial
consideration of GBP4.1m. The remaining 20% is subject to put and
call options which are exercisable between 2018 and 2020 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 and
liabilities of Thomas Morris as at the date of acquisition have
been determined as below:
Fair value
recognised
on acquisition
GBP'000
Intangible assets 1,209
Property, plant and equipment 28
Trade and other receivables (No impairment
identified) 177
Cash and cash equivalents 348
Trade and other payables (202)
Current tax liabilities (224)
Total identifiable net assets acquired 1,336
Purchase consideration 5,301
-------------------
Goodwill 3,965
-------------------
Purchase consideration discharged by:
Cash 4,148
Contingent consideration 1,153
------
5,301
------
The acquisition accounting above is considered provisional as
LSL is still reviewing our estimates of the likely payments under
the contract, but the calculation above represents our best
estimate at 30th June 2015.
The goodwill of Thomas Morris comprises certain intangible
assets that cannot be individually separated and reliably measured
from the acquiree due to their nature. These items include an
experienced management team with a good record of delivering a
quality service to customers, the expected value of synergies and
the potential to significantly grow the business. No determination
has been made yet as to what proportion, if any, of the goodwill
will be tax deductible. Thomas Morris has contributed GBP228,000
profit before tax and GBP1,564,000 in the period since acquisition.
If it has been acquired at the beginning of the year then the
consolidated revenue would have been GBP782,000 higher and the
consolidated profit before tax would have been GBP114,000 higher.
An analysis of cashflow on acquisition is given in the table
below.
GBP'000
Net cash acquired with the subsidiaries
and other businesses (773)
Purchase consideration discharged 8,058
--------
Net Cash outflow on acquisition 7,285
--------
From the date of acquisition to 30th June 2015, the acquisitions
in aggregate, including Thomas Morris, have contributed
GBP2,057,000 of revenue and GBP448,000 profit before tax to the
Group, excluding the impact of movements in the contingent
consideration recorded through the profit and loss. If all of these
combinations had taken place at the beginning of the year, the
consolidated revenue would have been higher by GBP1,390,000 and the
consolidated profit before tax would have been higher by
GBP358,000.
Transaction costs have been expensed.
INDEPENDENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30(th) June 2015 which comprises the Interim Group
Income Statement, the Interim Group Statement of Comprehensive
Income, the Interim Group Balance Sheet, the Interim Group Cash
Flow Statement, the Interim Group Statement of Changes in Equity
and the related notes 1 to 15. We have read the other information
contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2015 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Leeds
3(rd) August 2015
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EXLFBEVFEBBQ
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