TIDMLSL
RNS Number : 8719Q
LSL Property Services
03 March 2016
For immediate release 3(rd) March 2016
LSL Property Services plc (LSL or Group)
PRELIMINARY ANNOUNCEMENT
LSL Property Services plc, a leading provider of residential
property services incorporating both estate agency and surveying
businesses, announces preliminary results for the year ended 31(st)
December 2015.
2015 2014 % change
--------------------------------------------------------------------------------- ------ ------ ---------
Group revenue GBPm 300.6 287.5 5%
Group Underlying Operating Profit(1) GBPm 42.9 42.0 2%
Group Underlying Operating Margin % 14.3 14.6
--------------------------------------------------------------------------------- ------ ------ ---------
Profit before tax GBPm 38.6 31.9 21%
Basic Earnings Per Share- pence 29.7 24.5 21%
Adjusted Basic Earnings Per Share - pence(2) 31.5 30.5 3%
Net Bank Debt(3) at 31(st) December GBPm 39.9 34.7
Final proposed ordinary dividend per share (excluding special dividend) - pence 8.6 8.3
Full year ordinary dividend per share - pence 12.6 12.3 2%
Special dividend per share - pence - 16.5 -
--------------------------------------------------------------------------------- ------ ------ ---------
1 Underlying Operating Profit is before exceptional gains and
exceptional costs, contingent consideration, amortisation of
intangible assets and share-based payments
2 Refer to Note 4 for the calculation
3 Refer to Note 8 for the calculation
-- A strong second half performance delivered full year
Underlying Operating Profit of GBP42.9m; a record result for the
Group
-- Continued momentum in the Estate Agency Division with 5% overall revenue growth
-- Lettings income growth of 12%, delivered through organic growth and selective acquisitions
-- Growth in Financial Services income of 16%
-- Marsh & Parsons delivered revenue growth of 9% and profit
growth of 6% despite a challenging prime Central London market in
2015
-- The Surveying Division delivered strong profit growth as a
result of the full year benefit of both the 2014 mid-year contract
renewals/wins and the Q4 2014 operational performance and
productivity project
-- Unwinding of PI Costs provision in line with expectations
-- Strong operational cash flow, low level of gearing and dividend growth
-- Acquisition of Thomas Morris estate agency and 30 lettings books during the year
Commenting on today's announcement, Simon Embley, Chairman,
said:
"In my first year as Chairman, I am pleased to report the
continued progress of the Group with record financial results
posted in 2015. Group Underlying Operating Profit of GBP42.9m
(2014: GBP42.0m) was higher than LSL achieved in the property
market peak of 2007.
After a slower first half in the Estate Agency Division,
reflecting the overall market, we remained committed to our
strategy and delivered a strong second half. The Surveying Division
delivered a strong performance with 3% revenue growth and double
digit profit growth.
The Group has a robust balance sheet with relatively low levels
of gearing and is very cash generative at an operational level. The
business is well positioned to capitalise on the changing market
conditions to increase Shareholder value."
For further information, please contact:
Ian Crabb, Group Chief Executive
Officer
Adam Castleton, Group Chief Financial
Officer
LSL Property Services plc 0207 382 0360
Richard Darby, Sophie McNulty
Buchanan 0207 466 5000
Notes on LSL:
LSL is a leading provider of residential property services to
its key customer groups. Services to consumers include: residential
sales, lettings, surveying, conveyancing and advice on mortgages
and non-investment insurance products. Services to mortgage lenders
include: valuations and panel management services, asset management
and property management services. For further information, please
visit LSL's website: www.lslps.co.uk
Chairman's Statement
Introduction
In my first year as Chairman, I am pleased to report the
continued progress of the Group with record financial results
posted in 2015. Group Underlying Operating Profit(1) of GBP42.9m
(2014: GBP42.0m) was higher than LSL achieved in the property
market peak of 2007. Group revenue grew by 4.6% to GBP300.6m (2014:
GBP287.5m) and profit before tax grew by 20.8% to GBP38.6m (2014:
GBP31.9m).
Performance
After a slower first half in the Estate Agency Division,
reflecting the overall market, we continued to execute on our
strategy, delivering a strong second half. As a result, in 2015 we
delivered full year growth of 12% in the counter-cyclical Lettings
business, Financial Services revenue growth of 16% and revenue
growth in Marsh & Parsons of 9% against a challenging prime
Central London market.
The Surveying Division delivered an excellent performance with
3% revenue growth and double digit profit growth, as we saw a full
year impact of 2014 mid-year contract renewals and wins as well as
the Q4 2014 operational performance and productivity project.
Dividend
As a result of the growth in underlying Group profitability and
the Board's positive view of future prospects for the business, an
increase in the final dividend of 3.6% to 8.6 pence per share
(2014: 8.3 pence per share) will be proposed to Shareholders at the
forthcoming AGM, increasing the total dividend for 2015 by 2.4% to
12.6 pence per share (2014: 12.3 pence per share). The proposed
dividend payment is at the upper end of our previously stated
policy of applying a dividend payout ratio of between 30% to 40% of
Group Underlying Operating Profit after interest and tax and
reflects our confidence in the future.
The ex dividend date for the final dividend is 24(th) March 2016
with a record date of 29(th) March 2016 and a payment date of 6(th)
May 2016. Shareholders have the opportunity to elect to reinvest
their cash dividend and purchase existing shares in LSL through a
dividend reinvestment plan.
Board Update
On 1(st) January 2015, I was appointed as Chairman and Bill
Shannon was appointed Deputy Chairman in addition to his role as
Senior Independent Director. Further, during the year we appointed
David Stewart and Kumsal Bayazit Besson to the Board as Non
Executive Directors and members of the Nominations, Remuneration
and Audit Committees in May and September respectively and Adam
Castleton as Group Chief Financial Officer in November.
David Stewart has significant experience in strategy,
operations, sales and marketing, finance and governance,
particularly in the financial services sector. This includes his
current appointments as a Non Executive Director on the boards of
M&S Bank and Unum Limited.
Kumsal Bayazit Besson has significant experience in strategy,
technology, operations and sales and marketing, particularly in the
professional information solutions sector. This includes her
current appointment as Regional President, Europe at Reed
Exhibitions which is part of RELX Group plc.
Adam Castleton joined LSL from French Connection Group PLC. He
previously held leadership roles at a number of market leading
companies, including O2 UK, eBay and The Walt Disney Company. Adam
has over 24 years' experience in finance, having started his career
with Price Waterhouse where he qualified as a Chartered Accountant
in 1989.
In December 2015, we announced that Mark Morris, who has been a
Non Executive Director and member of the Nominations, Remuneration
and Audit Committees since November 2006, will retire from the
Board and its Committees and that David Stewart, will, subject to
his election at the 2016 AGM, take on the role of Chairman of the
Audit Committee with effect from the AGM, in addition to his
existing appointments as a member of the Remuneration and
Nominations Committees.
Corporate Governance
The Board remains committed to high levels of corporate
governance and during 2015, LSL has complied in all respects with
the UK Corporate Governance Code (September 2014 edition) save that
due to my previous roles on the Board, I did not satisfy the
independence requirement prior to my appointment as Chairman.
Further details relating to my appointment are contained in the
Corporate Governance Report of the Annual Report and Accounts
2015.
In respect of 2015, the Board has again conducted an annual
review of its effectiveness and that of its Committees, taking into
account the balance of skills, experience, independence and
knowledge of our businesses. Following this exercise, we concluded
that the Board and its Committees are effective and are able to
discharge their respective duties and responsibilities
appropriately.
The Board has during the year also reviewed its composition,
which at the date of this Report includes five independent Non
Executive Directors (due to reduce to four independent Non
Executive Directors at the 2016 AGM) and three Executive Directors
and myself as Chairman. Further, the Board continues to recognise
the benefits of diversity in the boardroom, including gender and
racial diversity. The current Board composition includes two female
Directors, Helen Buck and Kumsal Bayazit Besson, who are both
independent Non Executive Directors.
(MORE TO FOLLOW) Dow Jones Newswires
March 03, 2016 02:02 ET (07:02 GMT)
Whilst we remain of the view that the setting of targets for the
number of female directors on the Board is not necessary and that
we will continue to appoint on merit, I will continue to ensure
that our searches for new directors take into account diversity,
including gender and race.
LSL remains committed to promoting diversity throughout the
Group and in 2015 we continued to build on the diversity reviews
conducted during the previous years. During 2015, we have commenced
a range of employee training initiatives, including courses
relating to gender bias training and assertiveness training.
Further details of LSL's studies and its conclusions are set out in
our Corporate Social Responsibility Report.
As Chairman, with the responsibility for leadership of the
Board, I review its effectiveness on all aspects of its role and
encourage feedback.
Our market position
LSL holds a market leading position in its core Estate Agency
business comprising 12 Estate Agency brands, including Your Move,
which is the largest UK single brand estate agent with 282 branches
nationwide and has the UK's most visited estate agency website(2) .
The businesses are organised to deliver integrated Residential
Sales, Lettings and Financial Services from a single operating
structure.
We continue to invest in our brands and in January 2016 we
launched a national media campaign to further invest in our Your
Move Estate Agency brand. This demonstrates our commitment to
supporting and protecting our valuable brands and has started well.
We also invested in 2015 to drive future growth by increasing
branch headcount to support our successful Lettings and Financial
Services businesses and also in our growing Land and New Homes
businesses.
We operate in a highly competitive residential property market,
which is characterised by on-going new entrants. We continue to
develop and evolve our offering to ensure our competitiveness in
this marketplace.
Ultimately the success of our business model has always been
underpinned by our strong brands and excellence in delivery by our
knowledgeable local colleagues. In 2016 we will continue to invest
in technology to widen the digital offering to our customers whilst
improving our internal efficiency at the same time.
We continue to selectively acquire businesses. To drive growth
in the counter cyclical Lettings business, we acquired 30 lettings
books in 2015 (2014: 10), with internal disciplines in place to
ensure successful integration into the Group. It is also pleasing
to note the strong performance of Thomas Morris, a multi award
winning seven branch estate agency which we acquired during the
first quarter of 2015.
Post our 2015 year-end, we acquired a 65.0% interest in Group
First Limited (GFL) in February 2016 which provides mortgage and
protection brokerage services to the purchasers of new homes. This
is a value enhancing opportunity which further strengthens LSL's
relationships with its key housebuilder clients.
In Financial Services, the Group arranged total mortgage lending
of GBP14.5bn (2014: GBP11.6bn), representing 6.6% of the overall
market(3) . Measured by the number of appointed representatives,
LSL's overall network is the second largest in the UK(4) . We
continue to hold a leadership position in Surveying, maintaining
strong relationships with many of the major lenders.
Our people
The number of Group employees at 31(st) December 2015 was 5,181
(2014: 5,222) and our success is ultimately dependent on the
customer service provided by our staff in all parts of our business
across the entire UK. I would like to thank all of our staff for
their continued hard work and commitment which they have
demonstrated throughout 2015.
Current trading and outlook
We have started the year positively across the Group.
In the Estate Agency Division, trading is in line with
expectations and there are good activity levels with quality buyers
and good availability of mortgages. Whilst there remains a shortage
of stock, our sales conversion remains strong and we are
maintaining our market share. The January 2016 launch of the Your
Move national media campaign has started well.
In our Surveying Division, trading is in-line with expectations
and the technology refresh is progressing well.
The forthcoming year is expected to see a flat housing market in
terms of transactions, with continuing house price inflation
outside prime Central London.
Underpinned by a series of strategic initiatives, the business
is well placed to deliver a solid performance in 2016. We are
positive regarding the outlook for 2016, committed to driving
profitable organic growth across the business, and will continue to
evaluate selective acquisitions.
The Group has a robust balance sheet with relatively low levels
of gearing and is very cash generative at an operational level. The
business is therefore well placed to capitalise on the market
conditions to increase Shareholder value.
Simon Embley
Chairman
3(rd) March 2016
Note 1 Underlying Operating Profit is before exceptional gains
and exceptional costs, contingent consideration, amortisation of
intangible assets and share-based payments
Note 2 Source: Hitwise December 2015
Note 3 Source: Council of Mortgage Lenders, Press Release 21(st)
January 2016
Note 4 Source: Which Network? "Network Performance Figures For
The Whole of 2015"
Group Chief Executive's Review
2015 Overview
I am pleased to report that after the slower first half we
continued to execute our strategy and worked tirelessly across the
whole business to deliver a strong second half performance and what
was ultimately a full year operating profit result higher than the
property market peak of 2007.
We delivered on our financial commitments made at the time of
the 2015 interim results announced in August 2015 and I would like
to take this opportunity to thank all my colleagues across our
business for delivering a record breaking result.
Group revenue increased by 4.6% to GBP300.6m (2014: GBP287.5m)
with strong second half growth of 8.7%. Group Underlying Operating
Profit increased by 2.0% to a record GBP42.9m (2014: GBP42.0m),
with double digit profit growth in the second half in both the
Estate Agency and Surveying Divisions.
The Market in 2015
The UK residential property services market in 2015 was a story
of two halves.
As we reported at the 2015 interim results, the first quarter of
2015 faced very strong comparatives relative to the first quarter
of 2014, which was a period characterised by strong growth ahead of
the implementation of the Mortgage Market Review. The second
quarter of 2015 was impacted by uncertainty around the General
Election. As a result, in the first half of 2015 house purchase
approvals were down by 3.3% year on year(1) .
In the second half of 2015, there was a modest recovery in the
market following the General Election and the comparatives were
against a slowing market in 2014. Over the full year therefore
house purchase approvals increased by 4.7%.
Total Mortgage Approvals(1) increased by 8.4% in 2015. This
reflected a flat first half with accelerating market sentiment and
volume growth in the second half in both approvals for house
purchases which are typically three months before completion and
also in remortgage approvals.
The prime Central London market in 2015 was impacted by a range
of factors including the December 2014 Stamp Duty changes. There
was little market recovery in prime Central London post the General
Election.
Average house prices(2) in England and Wales grew 6.6% to
GBP292,000 annually as stock shortages continued to have an impact.
Excluding London and the South East, the average increase was
4.7%.
Residential property values in Greater London increased by 5.6%.
Prime Central London (5 prime boroughs) fell by 8.7% impacted by a
range of factors including the impact of the December 2014 Stamp
Duty changes. Outside the top five prime Central London boroughs,
London experienced an 11% increase in year-on-year house
prices.
The proportion of mortgage lending in the market placed through
intermediaries continued to increase during the year(4) .
Following market declines in the repossessions market in the
past few years, market volumes again declined in 2015, reducing by
51% to 10,200(3) total repossessions as interest rates remained
low.
Strategy
We remain committed to the strategy we communicated in March
2015. The key components of our strategy are:
Estate Agency
-- Drive operating profit per branch to between GBP80,000 and GBP100,000 in the medium term
-- Expand the number of Marsh & Parsons branches to a total
of 36 by 2019, particularly outside prime Central London
-- Grow recurring and counter-cyclical income streams
-- Selective acquisitions of both Estate Agency businesses and Lettings books
Surveying
-- Optimise contract performance and revenue generation from B2B customers
-- Achieve further improvement in efficiency and capacity utilisation
-- Use technology to drive further improvements in profitability
LSL performance in 2015
Estate Agency Division
Total Estate Agency income of GBP236.5m (2014: GBP225.3m)
increased by 5%. This increase resulted from the consistent
execution of our strategy in 2015.
We continue to adapt our approach to maintain competitiveness.
We launched the Your Move national media campaign in January 2016,
moving the focus of our advertising spend away from more
traditional local media. The campaign "it pays to be with Your
Move", underlines the customer value from using an estate agent
with Your Move's reach and size.
In 2016, we will continue to focus on further improving the
digital communication with our customers and to improve the
customer experience.
Residential Sales exchange income
(MORE TO FOLLOW) Dow Jones Newswires
March 03, 2016 02:02 ET (07:02 GMT)
Residential Sales exchange income grew 1% during the year.
Whilst in the first half income fell by 5% reflecting the market
conditions, the second half performance was strong with 7% growth,
reflecting market stabilisation post the General Election and the
investments we made in Estate Agency in the first half. Total
exchange units were broadly flat in 2015 with an increase in fees
per unit largely on the back of house price inflation.
Recurring Lettings income
We remain committed to our strategy of increasing recurring
Lettings income. In 2015 we delivered growth in Lettings income of
12%. Lettings Income increased as a proportion of the Estate Agency
business and represented 28% of total Estate Agency Division income
in 2015 (2014: 26%).
We delivered organic Lettings growth of 5% and in addition,
in-line with our strategy substantially increased the rate of
Lettings book acquisitions, acquiring 30 Lettings books in 2015 for
a total consideration of GBP9.6m(5) . This is a significant
increase against 2014 when we acquired 10 Lettings books for a
total consideration of GBP1.8m.
We have maintained consistent investment criteria for Lettings
book acquisitions throughout the year and we have not changed our
investment criteria as we have increased the rate of investment.
The Lettings books have been successfully integrated into our
networks.
Financial Services
Total Financial Services income grew strongly again with 16%
year on year growth in 2015. We have also delivered over 16%
compound growth since 2011 as we have rolled out our model across
the Estate Agency business and delivered growth from our
intermediary networks.
Post our 2015 year-end, we acquired a 65.0% interest in GFL in
February 2016, which provides mortgage and protection brokerage
services to the purchasers of new homes through its subsidiaries,
Mortgages First Limited and Insurance First Brokers Limited. This
investment supports LSL's strategy to grow long term profitability
in the provision of residential property services in the UK, by
identifying value enhancing opportunities. Further, the investment
strengthens LSL's relationships with its key housebuilder
clients.
Selective Estate Agency acquisitions
We remain committed to our strategy of evaluating selective
acquisition of Estate Agency businesses.
In February 2015 we acquired Thomas Morris, a multi
award-winning Estate Agency and Lettings business with seven
branches in Cambridgeshire, Bedfordshire and Hertfordshire. We are
pleased with the performance of the business in 2015 and also note
that since acquisition, Thomas Morris has increased its Financial
Services Income, an example of how we can add value to our
acquisitions.
Marsh & Parsons
Given the overall challenging prime Central London market, I am
pleased to report that Marsh & Parsons revenue grew 9% in 2015
to GBP35.3m (2014: GBP32.5m) and profit increased by 6% to GBP6.9m
(2014: GBP6.5m).
This growth was a result of strong Lettings performance of 10%,
growth in Land and New Homes and resilience in Residential Sales,
with good results from the new offices opened previously in the
outer prime Central London locations.
We continued with our branch expansion strategy in 2015, opening
two branches during the year in the outer prime Central London
locations of Shoreditch and Queens Park. We have continued with our
strategy in 2016 and since the year-end have opened a branch in
Tooting. We are pleased with the performance of these new
branches.
Our ambition remains to expand to 36 branches by 2019. Outer
prime Central London has not been as negatively impacted as prime
Central London and Marsh & Parsons is looking to expand its new
office footprint in outer prime Central London locations.
Estate Agency profit per branch (Your Move, Reeds Rains and
LSLi)
LSL successfully increased operating profit per branch from
GBP4,600 in 2011 to GBP45,600 in 2014. Our medium term strategy is
to drive operating profit per owned branch to between GBP80,000 and
GBP100,000 on the expectation of longer term stability in the UK
residential property sector. Our Lettings growth and Financial
Services growth across the network continues to underpin this
strategy.
We invested in 2015 to drive future growth by increasing branch
headcount to support our successful Lettings and Financial Services
businesses and also in our growing Land and New Homes business. We
increased our headcount in these growing businesses by over 100
colleagues during the year. This investment will support further
growth and has resulted in a short-term fall in branch
profitability by 7% in 2015.
Estate Agency operating margin was 13.2% (2014: 15.0%)
reflecting these investments in the business and also the market
decline in repossessions, impacting LSL's Asset Management
business.
Surveying Division
During 2015 we continued to focus on optimising the
profitability of our Surveying business.
The 2014 contract renewals and wins as well as the project
undertaken in Q4 2014 to optimise operational performance and
productivity have delivered full year benefits in 2015. With
further optimisation of capacity management in 2015, profit margins
have therefore improved in the year to 28.3% (2014: 21.4%). A
technology refresh is also in progress to deliver further
enhancements.
Income per job increased by 17% to GBP196 (2014: GBP167) and we
performed 327,267 total jobs in 2015 (2014: 371,717) as we
optimised the mix of our business. We will further support our
graduate programme which continues to be successful.
Our customers
Our continued focus on providing the best service to our
customers has been recognised in 2015 with numerous industry awards
including:
-- e.surv: What Mortgage? Awards 2015; Best Survey Provider-Winner
-- e.surv: Equity Release Awards 2015; Best Valuer-Winner
-- First Complete: Money Marketing Awards 2015; Best Mortgage Network-Winner
-- Pink Home Loans: Financial Adviser Service Awards 2015; 5 star award
-- Linear Financial Solutions: Mortgage Strategy Awards 2015;
Best Broker for General Insurance-Winner
-- Marsh & Parsons: Estate Agency of the Year Awards 2015,
sponsored by The Times and Sunday Times; Best Marketing-Gold award,
Best Medium Lettings Agency, London-Gold Award. The Negotiator
Awards 2015; London Agency of the Year-Gold Award
Balance Sheet
The Group has a strong balance sheet with closing Net Bank Debt
at 31(st) December 2015 of GBP39.9m (2014: GBP34.7m) reflecting the
acquisitions made during the year and a gearing level at 0.83 times
adjusted EBITDA (2014: 0.74 times)(6) . The Group has a committed
revolving credit facility until August 2017.
At 31(st) December 2015, we held a 2.7% shareholding in Zoopla,
valued at GBP27.1m.
In December 2014 we announced the need to further increase our
PI Costs provision due to the historic market issues relating to
the 2004 to 2008 high risk lending period and an additional reserve
of GBP24.6m was provided and included as an exceptional item in
2014. In 2015 we continued to make positive progress in addressing
these historic claims and the reduction in the rate of
notifications and claims from the high risk lending period has been
in line with our expectations during the year, and those assumed in
setting the provision.
Outlook
We have started 2016 in line with our expectations across the
Group and are well placed to deliver a solid performance during the
year. We continue to consistently execute on our strategy and are
well placed to deliver increased Shareholder value.
I look forward to working with all my colleagues to deliver
another successful year in 2016.
Ian Crabb
Group Chief Executive Officer
3(rd) March 2016
Note 1- Source: Bank of England for "House Purchase Approvals"
and "Total Mortgage Approvals" 2015
Note 2-Source December 2015 LSL Property Services/ACADATA
HPI
Note 3-Source Council of Mortgage Lenders arrears and
repossessions data relating to properties taken into possession by
first-charge mortgage lenders for 2015
Note 4-CML, new mortgages sold by intermediaries
Note 5- Total consideration of up to GBP9.6m when taking into
account potential contingent consideration
Note 6- Adjusted EBITDA is Group Underlying Profit as previously
defined plus depreciation on property plant and equipment
Business Review - Estate Agency Division
2015 2014 %
Financial GBPm GBPm change
------------------------------------ ------- ------- -------
Residential Sales exchange income 92.9 92.1 1
Lettings income 65.4 58.5 12
Asset Management income 7.8 11.7 (34)
Financial Services income 50.5 43.7 16
Other income(1) 19.9 19.3 3
Total income 236.5 225.3 5
Operating expenditure (205.2) (191.4) 7
Operating profit(2) 31.3 33.9 (8)
------------------------------------ ------- ------- -------
KPIs
------------------------------------ ------- ------- -------
Exchange units 29,311 29,704 (1)
Exchange units(3) 28,251 29,111 (3)
Operating margin (%) 13.2% 15.0%
Fees per unit 3,170 3,101 2
Fee per unit(3) 3,087 2,968 4
------------------------------------ ------- ------- -------
House purchase approvals(4) 806 769 5
Total Mortgage approvals(4) 1,388 1,280 8
UK Housing Transactions (000s)(5) 1,231 1,219 1
Repossessions(6) 10,200 21,000 (51)
------------------------------------ ------- ------- -------
(MORE TO FOLLOW) Dow Jones Newswires
March 03, 2016 02:02 ET (07:02 GMT)
1 'Other income' includes franchising income, conveyancing
services, EPCs, Home Reports, utilities and other products and
services to clients of the branch network.
2 Operating profit is before exceptional items, contingent
consideration, amortisation of intangible assets and share-based
payments.
3 Exchange units and fee per exchange are on a like-for-like
basis (excluding branch openings, acquisitions and closures).
4 Source: Bank of England, "Mortgage approvals for house
purchases" and "Total mortgage approvals" 2015.
5 Source: HMRC Stats, "Monthly property transactions completed
in the UK with value of GBP40,000 or above" 2015.
6 Source: Council of Mortgage Lenders arrears and repossessions
data relating to properties taken into possession by first-charge
mortgage lenders for 2015.
7 Source: Council of Mortgage Lenders, Press Release 21(st) January 2016
Estate Agency Performance
Estate Agency Division Performance
Year-on-year income growth in the Estate Agency Division was 5%.
All key income streams other than the counter-cyclical Asset
Management business showed positive growth.
Residential Sales exchange income
Residential Sales exchange income grew 1% during the year.
Whilst in the first half income fell by 5% reflecting the market,
the second half performance was stronger with 7% growth, reflecting
the market stabilisation post General Election and the investments
in Estate Agency business made by LSL in the first half. Exchange
units were broadly flat in 2015, with an increase in fees per unit,
largely on the back of house price inflation.
Lettings income
Lettings income grew consistently throughout the year, as we put
more dedicated Lettings staff into Estate Agency branches. Organic
Lettings growth for the year was 5%. Combined with the Lettings
acquisitions, overall growth was strong, at 12% for the full year.
This followed growth of 12% in 2014 and reflects our continued
focus on this recurring revenue stream.
Financial Services income
Total Financial Services Income delivered through the Estate
Agency Division's branches, the intermediary networks of First
Complete and Pink Home Loans and Linear Financial Solutions grew
strongly again with 16% year-on-year growth in 2015. We have also
achieved over 16% compound growth since 2011 as we have rolled out
the model across the Estate Agency business.
In February 2016 the Group acquired a 65.0% interest in GFL
which provides mortgage and protection brokerage services to the
purchasers of new homes through its subsidiaries, Mortgages First
Limited and Insurance First Brokers Limited.
The investment supports LSL's strategy to grow long term
profitability in the provision of residential property services in
the UK, by identifying value enhancing opportunities. Further, the
investment strengthens LSL's relationships with its key
housebuilder clients.
In total the Group arranged mortgage lending completions of
GBP14.5bn during 2015 (2014: GBP11.6bn), with an estimated market
share of 6.6% giving the Group an important position as a mortgage
distributor for lender clients(7) .
Other income
Other income grew by 3% year-on-year mainly due to improved
conveyancing and Land and New Homes income.
Marsh & Parsons
Marsh & Parsons delivered a strong performance in a
challenging prime Central London market which was impacted by a
number of factors including the 2014 Stamp Duty changes. The
increase in the number of Marsh & Parsons branches outside
prime Central London, strong exposure to the mid-market, strong
recurring Lettings income which was up 10% and a growing Land and
New Homes development business, all contributed to the delivery of
9% income growth and a 6% improvement in profit.
Asset Management
Asset Management delivered a robust performance in a shrinking
market with revenues lower by 34% compared to the 51% market fall
in repossessions to 10,200(6) in 2015. With a strong market share,
the Asset Management business is well positioned to capitalise on
any future increase in repossession volumes. Asset Management is
developing its corporate property management service offering to
further enhance counter-cyclical revenues in the Group.
Estate Agency Division operating margin
The Estate Agency Division operating margin was 13.2% in 2015
(2014: 15.0%) which resulted from lower Asset Management profits,
new Estate Agency branches opened, and headcount investment in
Financial Services, Lettings and Land and New Homes.
2016 Strategy
During 2015, the Group has delivered on its strategy, continuing
to make selective acquisitions and has added to the Estate Agency
Division in the South East through the acquisitions of Thomas
Morris and 30 lettings books.
LSL will continue to target the selective acquisition of Estate
Agency and Lettings books and will focus on driving organic growth
in Residential Sales, Lettings and Financial Services as well as
rolling out new branches in Marsh & Parsons.
Regulation - Financial Services
First Complete and Pink Home Loans (the trading name of Advance
Mortgage Funding) are both directly authorised by the FCA in
relation to the sale of mortgage, pure protection and general
insurance products. Your Move, Reeds Rains, First2Protect and
Embrace Mortgage Services along with the LSLi subsidiaries are all
appointed representatives of First Complete, while Linear Financial
Solutions is an appointed representative of Advance Mortgage
Funding for mortgage and insurance business and also an appointed
representative of Openwork for investment business.
Regulation - Residential Sales and Lettings
The Estate Agency Division's branches adhere to the Codes of
Practice issued by industry professional and regulatory bodies, The
Property Ombudsman (TPO) and/or the Association of Residential
Lettings Agents (ARLA). Membership of these bodies is in addition
to observing compliance with relevant legislation, such as the
Consumer Protection Regulations, the Consumer Rights Act, guidance
material published by relevant regulators, including the
Competition and Markets Authority (CMA) (and its predecessor the
Office of Fair Trading (OFT)), the National Trading Standards
Agency/Trading Standards Institute (TSI), HMRC and codes published
by other relevant bodies, including the Advertising Standards
Authority (ASA). LSL from time to time also enters into direct
dialogue with the regulators and consumer groups, such as Which?.
During 2015, LSL on behalf of all its Estate Agency businesses
entered into a primary authority agreement with York Trading
Standards Office.
Branch numbers
Breakdown of LSL's Estate Agency branches as at 31(st) December
2015.
Owned Franchised Totals
---------------- ----- ---------- ------
Your Move 215 67 282
Reeds Rains 124 43 167
LSLi 61 4 65
Marsh & Parsons 24 0 24
Total 424 114 538
---------------- ----- ---------- ------
The above branch numbers include two virtual branches
Business Review-Surveying Division
2015 2014 %
Financial GBPm GBPm change
------------------------------------------ ------ ------ -------
Revenue 64.1 62.2 3
Operating expenditure (46.0) (48.9) (6)
Operating profit(1) 18.1 13.3 36
------------------------------------------ ------ ------ -------
KPIs
------------------------------------------ ------ ------ -------
Profit margin (%) 28.3% 21.4%
Jobs Performed (000's) 327 372 (12)
Revenue from private surveys (GBPm) 2.4 4.0 (40)
Income per job (GBP) 196 167 17
PI Costs provision (Balance Sheet) at
31(st) December 29.7 38.7
Number of qualified surveyors at 31(st)
December (FTE)(3) 347 361 (4)
Total Mortgage approvals ('000s)(2) 1,388 1,280 8
------------------------------------------ ------ ------ -------
1 Operating profit is before exceptional items, contingent
consideration, amortisation of intangible assets and share-based
payments.
2 Source: Bank of England, "Mortgage approvals for house
purchases" and "Total mortgage approvals" 2015.
3 Full Time Equivalent (FTE)
Surveying Division Performance
Total mortgage approvals(2) increased in the year by 8.4% to
1.388m (2014: 1.280m) with a flat first half followed by an
increase in the second half. This reflected the strong prior year
growth in H1 pre the Mortgage Market Review launch and consumer
confidence post the General Election in 2015.
Surveying turnover was GBP64.1m (2014: GBP62.2m), an increase of
3% on last year and the total number of jobs performed was 327,267
(2014: 371,717) reflecting management of the mix of jobs. Double
digit profit growth was strongly influenced by the full year impact
of the 2014 mid-year contract renewals and wins and the Q4 2014
operational performance and productivity project.
We also continued to focus on optimising capacity management in
2015, driving an increase in income per job to GBP196, an
improvement of 17% year-on-year. As a result we delivered an
increase in Operating profit to GBP18.1m (2014: GBP13.3m) with an
enhancement of profit margin to 28.3% (2014: 21.4%).
The total number of qualified surveyors at 31(st) December 2015
was 347(3) , a reduction of 4% year-on-year. LSL's on-going
graduate programme continues to be successful and assists in
alleviating the impact of skill constraints in the market. In 2016
LSL will continue to focus on improving our efficiency through
optimising capacity management supported by use of better
technology.
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At 31(st) December 2015 the total provision for PI Costs was
GBP29.7m. In 2015 LSL continued to make positive progress in
addressing these historic claims and the reduction in the rate of
notifications and claims from the high risk lending period has been
in line with our expectations during the year, and those assumed in
setting the provision.
Financial Review
The key drivers of the financial performance of LSL in 2015 are
summarised below:
Income statement
Revenue
Revenue increased by 4.6% to GBP300.6m in the year ended 31(st)
December 2015 (2014: GBP287.5m).
Operating Expenses
Operating expenses increased by 4.6% to GBP260.7m (2014:
GBP249.3m). The increase was in the Estate Agency Division and was
mainly as a result of acquisitions (e.g. Thomas Morris), new Marsh
& Parsons branches and an investment in headcount to support
growth in Lettings, Financial Services and Land and New Homes.
The average number of full time equivalent employees during the
year was 4,677 (2014: 4,760).
Underlying Operating Profit
Group Underlying Operating Profit (before exceptional gains and
exceptional costs, contingent consideration, amortisation of
intangible assets and share-based payments) increased by 2.0% to
GBP42.9m (2014: GBP42.0m) with the Underlying Operating Margin of
14.3% (2014: 14.6%). On a statutory basis, the Group operating
profit increased by 22.2% to GBP41.4m (2014: GBP33.9m).
Exceptional Items
Total net exceptional costs in 2015 were GBP0.3m (2014: GBP6.2m
net exceptional costs). Exceptional costs in 2015 comprised the
closure of an administration centre and the subsequent
restructuring costs incurred which included redundancy costs.
In 2014, exceptional costs comprised of PI Costs of GBP24.6m,
acquisition related costs of GBP0.3m and restructuring, redundancy
and other associated branch closure costs including onerous lease
provisions of GBP1.1m. These exceptional costs were partly offset
by the gain on the sale of part of LSL's investment in Zoopla on
its IPO totalling GBP19.8m.
Provision for PI claims and notifications
In December 2014, LSL announced the need to further increase the
PI Costs provision due to the historic market issues relating to
the 2004 to 2008 high risk lending period and an additional reserve
of GBP24.6m was provided and included as an exceptional item in
2014.
At 31(st) December 2015, the total provision for PI Costs was
GBP29.7m. In 2015 the Group continued to make positive progress in
addressing these historic claims and the reduction in the rate of
notifications and claims from the high risk lending period has been
in line with LSL's expectations during the year, and those assumed
in setting the provision.
Contingent consideration
Certain contingent consideration arrangements have been
accounted for as remuneration as the arrangements potentially
involve the vendors forfeiting amounts otherwise due if continued
services are not provided. These amounts are shown separately on
the face of the Income Statement. Contingent consideration amounted
to a credit of GBP1.5m in 2015 (2014: GBP0.4m credit).
Net Financial Costs
Net financial costs (excluding exceptional finance credit)
amounted to GBP2.8m (2014: GBP2.2m). The finance costs related
principally to interest and fees on the revolving credit facility.
Additional costs relate to the unwinding of discounts on provisions
and contingent consideration and interest on loan notes.
Taxation
The UK standard corporation tax rate has reduced from 21.0% as
at 1st January 2015 to 20.0% from 1st April 2015 with further
reductions to 19.0% from 1(st) April 2017 and 18.0% from 1(st)
April 2020. The effective rate of tax for the year was 21.1% (2014:
21.2%). The effective tax rate for 2015 was decreased as a result
of reducing the rate at which deferred tax is provided resulting
from the reduction in the headline rate of corporation tax.
Deferred tax charged directly to other comprehensive income is
GBP0.5m (2014: credit of GBP2.7m); this is comprised of a credit of
GBP0.05m and a charge of GBP1.0m and relates to the disposal and
revaluation of financial assets (see Annual Report and Accounts
2015). There is also a credit arising as a result of the impact of
rate change on deferred tax of GBP0.5m. Income tax credited
directly to the share based payment reserve is GBPnil (2014:
GBPnil).
In July 2015, the UK Government announced proposals to reduce
the main rate of corporation tax to 19.0% from 1(st) April 2017,
and further reduced to 18.0%, effective from 1(st) April 2020. As
of 31(st) December 2015 reductions to the main rate of corporation
tax to 18.0% had been enacted. Accordingly, this is the rate at
which deferred tax has been provided.
Adjusted Basic Earnings per Share
The Basic Earnings per Share was 29.7 pence (2014: 24.5 pence).
The Adjusted Basic Earnings per Share (as calculated in Note 4 to
the Financial Statements) is 31.5 pence (2014: 30.5 pence). The
Directors consider that the adjustments made to exclude the after
tax effect of exceptional items, contingent acquisition
consideration treated as remuneration, and amortisation of
acquisition intangibles provides a better and more consistent
indicator of the Group's underlying performance.
Balance Sheet
Capital Expenditure
Total capital expenditure in the year amounted to GBP4.8m (2014:
GBP8.6m) and an additional GBP3.2m (2014: GBP0.7m) has been spent
internally on developing new software which has been treated as an
intangible asset.
Bank Facilities
LSL refinanced its bank facility in 2013 with a GBP100.0m
revolving credit facility in place until August 2017 (2014:
GBP100.0m). Further details on the Group's financial commitments as
well as the Group's treasury and risk management policies are set
out in the Annual Report and Accounts 2015. During the period under
review, the Group complied with all of the financial covenants
contained within the facility.
Net Bank Debt and Cashflow
As at 31(st) December 2015 Net Bank Debt was GBP39.9m (2014:
GBP34.7m) and Shareholders' funds amounted to GBP107.4m (2014:
GBP83.1m) giving balance sheet gearing of 37.1% (2014: 41.8%). The
increase in Net Bank Debt arose mainly as a result of the increased
number of acquisitions. The 2015 gearing level was 0.83 times
adjusted EBITDA(1) (2014: 0.74 times). The Group has a committed
revolving credit facility until August 2017. In 2015 the Group
generated cash from operations of GBP36.5m (2014: GBP25.7m).
Zoopla
Subsequent to the 2015 interim date, Zoopla completed an
anniversary offer allowing LSL to subscribe for a further 619,318
shares at the GBP2.20 IPO price with a 20.0% discount. These have
been taken up by LSL. At the same time, a further 169,350 shares
were sold through the anniversary member offer at GBP1.76 with
proceeds of GBP0.3m net of associated costs included in other
operating income. Zoopla's share price at 31(st) December 2015 was
GBP2.40 per share. The fair value of the Group's 2.7% stake in
Zoopla is calculated to be GBP27.1m at 31(st) December 2015.
Net Assets
The Group's net assets as at 31(st) December 2015 were GBP107.4m
(2013: GBP83.1m).
Treasury and Risk Management
LSL has an active debt management policy. LSL does not hold or
issue derivatives or other financial instruments for trading
purposes.
Post Balance Sheet Events
Subsequent to the year end the following transactions have been
completed:
a. LSL acquired three small lettings book acquisitions for a
total initial consideration of GBP1.82m.
b. On 17(th) February 2016, Your Move acquired a 65.0% interest
in GFL for an initial consideration of GBP9.1m, with 50% paid at
completion and the remaining 50% to be in March 2017.
The Group is in the process of allocating the purchase price in
accordance with IFRS 3. As a result the initial accounting for the
acquisitions above are currently incomplete, so a fair value table
of the identifiable assets and liabilities has not been
presented.
International Financial Reporting Standards (IFRS)
The Financial Statements have been prepared under IFRS as
adopted by the European Union.
Note 1- Adjusted EBITDA is Group Underlying Profit as previously
defined plus depreciation on property plant and equipment
Principal Risks and Uncertainties
LSL has an overall framework for management of risks and
internal controls to mitigate the risks. Through this framework,
the Board, which has overall accountability and responsibility for
the management of risk, on a regular basis identifies, evaluates
and manages the principal risks and uncertainties faced by LSL,
areas which could adversely affect its business, operating results
and financial condition.
Development of risk appetite
During 2015, in line with the FRC's Guidance on 'Risk
Management, Internal Control and Related Financial and Business
Report' which was published in 2014 and which integrated and
replaced the FRCs previous guidance on risk management and internal
controls, the Board has developed LSL's approach to risk appetite
to ensure continued compliance with the Code and FRC guidance. The
Board has through this process expressed the types and level of
risk which it is willing to take or accept to achieve LSL's plans
and to support consistent, risk-informed decision making across the
Group.
The development of the risk appetite began with the Directors
defining the draft risk appetite statements for LSL's principal
risks, and for key decisions made by the Board. These statements
provide parameters within which the Board typically expect LSL's
businesses to operate, facilitating structured consideration of the
risk and reward trade-off for the decisions made around how the
Group conducts business.
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The discussions covered a wide range of risks, which reflect the
nature of LSL's businesses and acknowledges that there is not a one
size fits all approach to establishing risk parameters. During
2016, LSL will continue to develop the framework in line with
emerging best practice, including evolution of existing objective
measures defining risk appetite elements and analysis of how
individual risk conditions interact with each other.
The Board will seek to establish clear parameters, whilst at the
same time fostering an environment within which innovation and
entrepreneurial activities thrive. Where there is any proposal to
shift the Group significantly closer to or outside agreed risk
parameters, this will be discussed and subject to Board approval
before commencing any activities to ensure that appropriate
mitigation controls are put into place.
Once finalised, LSL's risk appetite statements will be
incorporated into our existing Group risk processes, and used to
monitor business activities and decision making. Whilst good
progress has been made in 2015, the continued development of the
risk appetite framework remains a key priority for the Board in
2016.
Developing the financial viability statement
In developing the financial viability statement, it was
determined that a three year period should be used, consistent with
the period of the Group's strategic plan.
The Management Team reviewed the principal risks, and considered
which of these risks might threaten the Group's viability.
A number of severe but plausible scenarios were considered and
modelled in detail with input from a cross functional group of
senior managers, including representatives from Finance.
The main focus of the scenario modelling related to the impact
of a significant downturn in the property market as occurred in the
2008 to 2009 period. Modelling included the plans LSL put in place
during that recessionary period. The skills and many of the
personnel with experience to manage through such a scenario remain
within the business which has helped this process and gives a
degree of confidence to manage through a similar scenario.
Detailed assumptions for each scenario were built up and
modelled by month across the three year period. The models measured
the downside impact on revenue and the management action which
would be taken to retain cash reserves and maintain the operating
capacity of the business as a result of the stress scenarios.
Assumptions were also made for the potential growth of LSL
counter-cyclical businesses, notably asset management, and the
extent to which some activities, such as Lettings, tend to be less
affected through the cycle. The modelling and assumptions took
account of the broad range of services across a broad geography
which allows some protection from the impact of stress
scenarios.
The current GBP100.0m revolving credit facility is committed
until August 2017. The Group expects to agree a new extended
facility during 2016. External professional advice has also been
sought and has confirmed the Directors' confidence that the
refinancing will proceed as planned. This assumption has been
included in LSL's financial plans and stress testing.
As set out in the Audit Committee's Report in the Annual Report
and Accounts 2015 the Directors reviewed and discussed the process
undertaken by the Management Team in proposing the viability
statement.
The Directors' financial viability statement is contained in the
Directors' Report within the Annual Report and Accounts 2015.
Risk management and internal controls framework
LSL's risk management and internal controls framework for 2015
included:
a. ownership of the risk management and internal controls
framework by the Board, including a Risk Framework policy,
supported by the Group Chief Financial Officer, the Company
Secretary, Head of Risk and Internal Audit and members of the Group
Finance team;
b. a network of risk owners in each of LSL's businesses with
specific responsibilities relating to risk management and internal
controls;
c. the documentation and monitoring of risks are recorded and
managed through standardised risk registers which undergo regular
reviews and scrutiny by local boards and the Head of Risk and
Internal Audit;
d. the Board regularly identifies, reviews and evaluates the
principal risks which may impact the Group as part of the planning
and reporting cycle to ensure that such risks are identified,
monitored and mitigated;
e. the development and application of LSL's risk appetite
statement and associated framework (for further details on steps
taken during the year, please see the Annual Report and Accounts
2015) and;
f. 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.
As stated above, LSL has in place a Group-wide risk appetite
statement and framework which will continue to be developed in
2016. This framework includes the following:
a. assessment of principal risks and their management or mitigation;
b. assessment of prospects and viability;
c. review of effectiveness of the risk management and internal control systems; and
d. going concern confirmation (for LSL's going concern
disclosure please refer to the Annual Report and Accounts
2015).
During the year, the Directors carried out a robust assessment
of the principal risks facing the Group, including those that
threaten the business model, future performance, solvency or
liquidity. The Directors believe that the assessment which has been
completed is appropriate to the complexity, size and circumstances
of the Group, which is a matter of judgement of the Board and has
been supported by the Management Team.
These risks may change over time due to changes in business
models, performance, strategy, operational processes and the stage
of development of the Group in its business cycle as well as with
changes in the external environment. This robust assessment is
focused on the principal risks and it differs from the review of
the effectiveness of the systems of risk management and internal
controls.
In accordance with the requirements of the Code the Annual
Report and Accounts 2015 includes descriptions of principal risks
together with a high level explanation of how they are being
managed or mitigated. This includes clear descriptions of the risks
together with an evaluation of the likelihood of a typical risk
event crystallising and its possible impact. Mitigating steps and
any significant changes to specific areas of risk are also referred
to within the tabular summary.
As noted above, this robust analysis of principal risks has also
contributed to the Group's viability statement which is set within
the Annual Report and Accounts 2015. The Directors have also
considered the impact if risks coincide, namely a combination of
non-principal risks could potentially represent a single compound
principal risk.
The Group also faces other risks which, although important and
subject to regular review, have been assessed as less significant
and are not listed overleaf. 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 as 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 2015 is set out in the Audit Committee Report
(Internal Controls) in the Annual Report and Accounts 2015.
Principal Risk and Uncertainties
Description Mitigation
--- ---------------------------------------------- --------------------------------------------------------------
Strategic:
-------------------------------------------------------------------------------------------------------------------
1 UK housing market
Group performance is intrinsically * Daily, weekly and monthly monitoring of trading and
linked to the overall performance market performance data.
of the UK housing market
(including subsets - e.g.
prime Central London) * Market share, product mix and segmentation
initiatives.
* Development of counter-cyclical and less cyclical
income streams.
* Investment in acquisition teams.
* Responsive cost control measures to market
deterioration.
* Balanced UK-wide geographical spread.
* Monitoring of wider macro-economic developments.
--- ---------------------------------------------- --------------------------------------------------------------
2 New UK housing market entrants
Traditional business models * Competitor/industry benchmarking.
for property services are
exposed increasingly to
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new business models and * Monitoring of potential acquisitions and joint
technological advancements venture opportunities.
- (e.g. web-based agents
and Automated Valuation
Models). * Service delivery enhancements and experimentation.
* Marketing initiatives.
* Staff incentive schemes.
--- ---------------------------------------------- --------------------------------------------------------------
3 Acquisitions and growth
initiatives * Defined pre and post-acquisition reporting to the
Realising appropriate targets Board.
for acquisition and major
project initiatives, including
delivery of appraisals, * Structured authority levels.
due diligence and integration/implementation
requirements.
* Dedicated acquisition and post-acquisition teams.
* External consultative support as necessary.
* Established integration planning methodology.
* Post-acquisition and post-implementation reviews.
* Risk and Internal Audit engagements.
--- ---------------------------------------------- --------------------------------------------------------------
Sales/distribution:
-------------------------------------------------------------------------------------------------------------------
4 Professional services
Exposure to major PI claims * Board-level authorities for PI claims settlement
arising from any lapses payments and governance of underlying claims handling
in surveying and valuation and accounting processes.
practices.
* Dedicated surveying risk team.
* Timely data capture of all claims and associated
trends.
* Robust framework and monitoring routines to maintain
valuation accuracy.
* Utilisation of technology to monitor valuation trends
and trigger alerts.
* Risk and Internal Audit reviews.
* Experienced claims handling personnel supported by
legal experts.
* Culture promoting effective sales conduct and open
lines of communication with clients.
--- ---------------------------------------------- --------------------------------------------------------------
5 Client Contracts
The performance of the Surveying * Customer outcome focused forums and initiatives.
and Asset Management businesses
is dependent on securing
and retaining key lender * Designated senior members of staff with
contracts. responsibility for relationship management.
* Sufficient investment in resources to ensure LSL has
the capacity to meet service level demands.
* Targeted marketing/hospitality events.
* Monitoring of compliance with lender contractual
requirements.
* Robust control framework supporting the accuracy of
surveys/valuations.
* Dedicated in-house Group Legal Services team.
* Risk & Internal Audit reviews.
--- ---------------------------------------------- --------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------------------------------
6. Information technology infrastructure
The Group has varied operations * Board level IT governance, policies and initiatives.
which require a robust IT
infrastructure. The IT environment
needs to remain adaptable * Dedicated in-house IT teams.
to support growth initiatives,
harness technological advancements
and counter business continuity * Maintenance of infrastructure to maintain effective
threats, including malicious service delivery.
and cyber related attacks.
* On-going IT investment programme.
* Implementable business continuity and disaster
recovery solutions.
* Monitoring of compliance with relevant contractual
and regulatory requirements.
* Inter-Group IT forums.
* External consultative support as necessary.
* Risk and Internal Audit reviews.
--- ---------------------------------------------- --------------------------------------------------------------
7. Information security
Group operations involve * LSL Information Security Governance Group.
the processing of high volumes
of personal data, with potential
for unintended data loss * Dedicated LSL Information Security personnel.
and exposure to increasing
levels of external cyber-crime.
* Group data protection policies and training.
* Tracking of data assets/data sharing, in line with
authority levels.
* Penetration testing programme.
* Second and third-line risk-based reviews.
--- ---------------------------------------------- --------------------------------------------------------------
8. Regulatory and legal
Relationships with regulators * Top-down culture focused on fairness, transparency
and compliance with legal and successful customer outcomes.
and regulatory requirements,
including oversight of standards
adopted by business partners * Open dialogue with regulators and monitoring of
(e.g. franchises and joint emerging developments.
ventures).
* Group risk framework policy incorporating a
'three-line of defence' model to track compliance
with regulations.
* Group ethics policies - e.g. whistleblowing
structures and anti-fraud policy.
* Group-level forums with regulatory focus.
* Dedicated compliance teams in higher risk/regulated
functions.
* Evolution of IT systems to strengthen oversight
routines.
* Responsive complaints tracking of any emerging
themes.
* In-house Group Legal Services team, with external
consultative support when needed.
* Group Risk and Internal Audit reviews.
--- ---------------------------------------------- --------------------------------------------------------------
People:
-------------------------------------------------------------------------------------------------------------------
9. Employees
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Securing and retaining key * Oversight by LSL Remuneration and Nominations
strategic population and Committees.
ensuring the effective management
of personnel standards across
varied Group businesses. * Group remuneration policies and incentive schemes to
retain key strategic population.
* Regular benchmarking and appraisals of senior
management.
* Succession planning reviews.
* Dedicated in-house recruitment team.
* Staff surveys and Group HR initiatives to improve
staff morale, relieve areas of pressure and improve
operational efficiencies.
* Investment in Group-wide HR IT systems.
* Monitoring of statutory requirements and
developments.
* Culture of transparency, clear Group policies and
whistleblowing procedures should staff need to
confidentially raise concerns.
--- ---------------------------------------------- --------------------------------------------------------------
Group Income Statement
for the year ended 31(st) December 2015
2015 2014
Note GBP'000 GBP'000
---------- ----------
Revenue 3 300,594 287,498
Operating expenses:
Employee and subcontractor costs (171,216) (167,581)
Establishment costs (19,012) (18,852)
Depreciation on property, plant
and equipment (5,296) (4,918)
Other (65,180) (57,938)
---------- ----------
(260,704) (249,289)
Other operating income 1,865 2,404
(Loss)/Gain on sale of property,
plant and equipment (44) 13
Group's share of profit after
tax in joint ventures 1,156 1,383
Group operating profit before
contingent consideration, exceptional
items, amortisation and share-based
payments 42,867 42,009
Share-based payments (871) (1,775)
Amortisation of intangible assets (1,803) (565)
Exceptional gains 5 - 19,841
Exceptional cost 5 (258) (26,035)
Contingent consideration 5 1,477 405
Group operating profit 3 41,412 33,880
---------- ----------
Finance income 5 14
Finance costs (2,817) (2,181)
Exceptional finance credits 5 - 230
Net financial costs (2,812) (1,937)
Profit before tax 38,600 31,943
Taxation
- related to exceptional items
and contingent consideration 52 1,146
- others (8,190) (7,931)
7 (8,138) (6,785)
---------- ----------
Profit for the year 30,462 25,158
---------- ----------
Attributable to
- Owners of the parent 30,414 25,103
- Non-controlling interest 48 55
Earnings per share expressed in
pence per share:
Basic 4 29.7 24.5
Diluted 4 29.5 24.3
Adjusted - basic 4 31.5 30.5
Adjusted - diluted 4 31.3 30.2
Group Statement of Comprehensive Income
for the year ended 31(st) December 2015
2015 2014
GBP'000 GBP'000
--------- -----------
Profit for the year 30,462 25,158
--------- -----------
Items to be reclassified to profit
and loss in subsequent periods:
Reclassification adjustments for disposal
of financial assets (440) (20,568)
Income tax effect 53 4,114
Revaluation of financial assets 5,130 6,903
Income tax effect (580) (1,381)
--------- -----------
Net other comprehensive income/(loss)
to be reclassified to profit and loss
in subsequent periods: 4,163 (10,932)
Total other comprehensive income/(loss)
for the year, net of tax 4,163 (10,932)
--------- -----------
Total comprehensive income for the
year, net of tax 34,625 14,226
--------- -----------
Attributable to
- Owners of the parent 34,577 14,171
- Non-controlling interest 48 55
Group Balance Sheet
as at 31(st) December 2015
2015 2014
GBP'000 GBP'000
---------- ----------
Non-current assets
Goodwill 136,395 131,560
Other intangible
assets 30,517 20,110
Property, plant
and equipment 19,393 20,272
Financial assets 28,871 23,033
Investments in joint
ventures 8,778 9,121
Total non-current
assets 223,954 204,096
----------
Current assets
Trade and other
receivables 35,366 36,165
Cash and cash equivalents 5,603 -
---------- ----------
Total current assets 40,969 36,165
Total assets 264,923 240,261
---------- ----------
Current liabilities
Financial liabilities (15,777) (4,659)
Trade and other
payables (50,102) (50,336)
Current tax liabilities (2,525) (373)
Provisions for liabilities (12,100) (16,539)
---------- ----------
Total current liabilities (80,504) (71,907)
---------- ----------
Non-current liabilities
Financial liabilities (52,511) (56,420)
Deferred tax liability (6,927) (6,462)
Provisions for liabilities (17,625) (22,372)
---------- ----------
Total non-current
liabilities (77,063) (85,254)
---------- ----------
Total Liabilities (157,567) (157,161)
Net assets 107,356 83,100
---------- ----------
Equity
Share capital 208 208
Share premium account 5,629 5,629
Share-based payment
reserve 3,564 3,498
Treasury shares (5,988) (7,922)
Fair value reserve 20,878 16,715
Retained earnings 82,880 64,835
---------- ----------
Equity attributable
to owners of parent 107,171 82,963
Non-controlling
interests 185 137
Total equity 107,356 83,100
---------- ----------
Group Statement of Cash Flows
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for the year ended 31(st) December 2015
31(st) December 31(st)
2015 December
2014
GBP'000 GBP'000 GBP'000 GBP'000
Cash generated from operating
activities
Profit before tax 38,600 31,943
Adjustments to reconcile profit
before tax to net cash from operating
activities
Exceptional operating items
and
contingent consideration (1,219) 4,324
Amortisation of intangible assets 1,803 565
Finance income (5) (14)
Finance costs 2,817 2,181
Exceptional finance (credit) - (230)
Share-based payments 871 1,775
--------- ---------
Total adjustments 4,267 8,601
---------------- ----------
Group operating profit before
amortisation and share-based
payments 42,867 40,544
Depreciation 5,296 4,918
Dividend income (835) (1,579)
Share of results of joint ventures (1,156) (1,383)
Loss/(Gain) on sale of property,
plant and
equipment and financial assets (253) (48)
--------- ---------
3,052 1,908
Decrease/(increase) in trade
and other receivables 975 (449)
(Decrease) in trade and other
payables (1,026) (4,263)
Decrease in provisions (9,345) (12,075)
--------- ---------
(9,396) (16,787)
---------------- ----------
Cash generated from operations 36,523 25,665
Interest paid (1,852) (1,764)
Payment of contingent consideration
relating to
remuneration - (1,426)
Loan refinance costs paid -
Tax paid (5,613) (1,339)
---------
(7,465) (4,529)
---------------- ----------
Net cash generated from operating
activities 29,058 21,136
Cash flows from investing activities
Cash acquired on purchase of
subsidiary
undertaking 774 250
Acquisitions of subsidiaries
and other
businesses (13,202) (4,963)
Payment of contingent consideration (4,015) -
Investment in joint venture 17 - (2,422)
Investment in financial assets 16 (1,178) (1,155)
Cash received on sale of financial
assets 297 20,838
Tax on Sale of Zoopla - (4,015)
Dividends received from joint
venture 1,499 1,302
Dividends received from financial
assets 549 1,579
Interest received 5 5 14
Purchase of property, plant
and equipment
And intangible assets 14,15 (7,991) (9,244)
Proceeds from sale of property,
plant and
equipment 15 328 195
--------- ---------
Net cash (expended)/ generated
on investing activities (22,934) 2,379
Cash flows from financing activities
Drawdown of loans 11,500 10,000
Repayment of overdraft (718) (1,830)
Repayment of loan notes (63) 63
Payment of deferred consideration - -
Purchase of LSL shares by the
employee
Benefit trust (EBT) (Treasury
Shares) - (5,621)
Proceeds from exercise of share
options 1,314 1,690
Dividends paid 11 (12,554) (28,286)
--------- ---------
Net cash used in financing activities (521) (23,984)
Net increase/(decrease) in cash
and cash equivalents 5,603 (469)
Cash and cash equivalents at
the beginning of the year - 469
--------- ---------
Cash and cash equivalents at
the end of the year 19 5,603 -
--------- ---------
Group Statement of Changes in Equity
Year ended 31(st) December 2015
Share Share Share- Treasury Fair Retained Total Non-controlling
capital premium based shares value earnings equity interests
account payment Reserve
reserve
Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st)
January
2015 208 5,629 3,498 (7,922) 16,715 64,835 82,963 137 83,100
Disposal of
financial
assets (net
of tax) - - - - (387) - (387) - (387)
Revaluation
of financial
assets (net
of tax) - - - - 4,550 - 4,550 - 4,550
-------- -------- -------- --------- --------- --------- --------- ---------------- ---------
Other
comprehensive
income for
the year - - - - 4,163 - 4,163 - 4,163
Profit for
the year - - - - - 30,414 30,414 48 30,462
Total
comprehensive
income for
the year - - - - 4,163 30,414 34,577 48 34,625
Exercise of
options - - (805) 1,934 - 185 1,314 - 1,314
Share-based
payments - - 871 - - - 871 - 871
Dividend
payment - - - - - (12,554) (12,554) - (12,554)
At 31(st)
December 2015 208 5,629 3,564 (5,988) 20,878 82,880 107,171 185 107,356
-------- -------- -------- --------- --------- --------- --------- ---------------- ---------
Year ended 31(st) December 2014
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 0 0 0 0 (10,932) 0 (10,932) 0 (10,932)
Profit for
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the year - - - - - 25,103 25,103 55 25,158
Total comprehensive
income for
the year 0 0 0 0 (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
-------- -------- -------- -------- --------- --------- --------- -------- ---------
Notes to the Preliminary Results
The financial information in this preliminary announcement does
not constitute LSL's statutory financial statements for the year
ended 31(st) December 2015 but has been extracted from the
Financial Statements included in LSL's 2015 Annual Report &
Accounts and as such, does not contain all information required to
be disclosed in the financial statements prepared in accordance
with IFRS.
Statutory financial statements for this year will be filed
following the 2016 AGM. The auditors have reported on these
financial statements. Their report was unqualified and did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
1. Directors responsibility statement
Each of the Directors confirms that, to the best of their
knowledge, the financial statements, prepared in accordance with
IFRS as adopted by EU standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
issuer and the undertakings included in the consolidation taken as
a whole; and the Directors' Report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
2. Basis of preparation
The accounting policies adopted are consistent with those of the
previous financial year except for the adoption of new Standards
and interpretations as of 1(st) January 2015 which are applicable
to the Group. For the Financial Statements for the year ended
31(st) December 2015, there were no IFRS, amendments or IFRIC
interpretations effective for the first time this financial year
that had a material impact on the Group. This is with the exception
of IFRS 16, for which we are currently evaluating the impact.
3. 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, Embrace Mortgage Services, First2Protect and Linear
Financial Solutions. 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 lending corporations and individual
customers.
Each segment has various products and services and the revenue
from these products and services are disclosed in the Business
Review section of the Strategic Report of the Annual Report and
Accounts 2015.
The Management Team monitors the operating results of its
business units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance
is evaluated based on operating profit or loss which in certain
respects, as explained in the table below, is measured differently
from operating profit or loss in the Group Financial Statements.
Head office costs, Group financing (including finance costs and
finance incomes) and income taxes are managed on a Group basis and
are not allocated to operating segments.
Operating segments
The following table presents revenue and profit information
regarding the Group's operating segments for the financial year
ended 31(st) December 2015 and financial year ended 31(st) December
2014 respectively.
Year ended 31(st) December 2015
Estate
Agency Surveying
and Related and Valuation
Services Services Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000 GBP'000
----------
Segmental revenue 236,525 64,069 - 300,594
--------------- --------------- ------------ ----------
Segmental result:
- before exceptional costs,
contingent consideration,
amortisation and share-based
payments 31,288 18,104 (6,525) 42,867
- after exceptional costs,
contingent 29,347 17,459 (5,394) 41,412
consideration, amortisation
and share-based payments
--------------- --------------- ------------ ----------
Finance income 5
Finance costs (2,817)
Profit before tax 38,600
Taxation (8,138)
Profit for the year 30,462
----------
Year ended 31(st) December 2014
Estate Agency Surveying
and Related and Valuation
Services Services Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
----------
Income statement information
Segmental revenue 225,274 62,224 - 287,498
---------------- --------------- ------------ ----------
Segmental result:
- before exceptional costs,
contingent consideration,
amortisation and share-based
payments 33,892 13,331 (5,214) 42,009
- after exceptional costs,
contingent 52,310 (12,611) (5,819) 33,880
consideration, amortisation
and share-based payments
---------------- --------------- ------------ ----------
Finance income 14
Finance costs (2,181)
Exceptional finance credits 230
----------
Profit before tax 31,943
Taxation (6,785)
Profit for the year 25,158
----------
4. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the
year attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
year.
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Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
year plus the weighted average number of Ordinary Shares that would
be issued on the conversion of all the dilutive potential Ordinary
Shares into Ordinary Shares.
Profit Weighted 2015 Weighted 2014
after average Per share Profit average Per share
tax number amount after number amount
of shares Pence tax of shares Pence
GBP'000 GBP'000
Basic EPS 30,414 102,406,770 29.7 25,103 102,479,989 24.5
Effect of dilutive
share options 791,256 - 925,536 -
Diluted EPS 30,414 103,198,026 29.5 25,103 103,405,525 24.3
--------- ------------ ----------- ---------- ------------ -----------
There have been no other transactions involving Ordinary Shares
or potential Ordinary Shares between the reporting date and the
date of completion of these Financial Statements.
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
2015 2014
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): 42,819 41,954
Net finance costs (excluding exceptional
costs and contingent consideration) (2,360) (2,167)
Normalised taxation (8,193) (8,554)
Adjusted profit after tax(1) before exceptional
costs, share-based payments and amortisation 32,266 31,233
--------- ---------
Adjusted basic and diluted EPS
Adjusted Weighted 2015 Adjusted Weighted 2014
profit average Per share profit average Per share
after number amount after number amount
tax(1) of shares tax(1) of shares
GBP'000 GBP'000
Pence Pence
Adjusted Basic EPS 32,266 102,406,770 31.5 31,233 102,479,989 30.5
Effect of dilutive
share options 791,256 - 925,536 -
Adjusted Diluted
EPS 32,266 103,198,026 31.3 31,233 103,405,525 30.2
--------- ------------ ----------- --------- ------------ -----------
This represents adjusted profit after tax attributable to equity
holders of the parent. The normalised tax rate in 2015 is 20.25%
(2014: 21.5%).
5. Exceptional items and contingent consideration
2015 2014
GBP'000 GBP'000
---------- ----------
Exceptional costs:
Branch closure and restructuring costs including
redundancy costs 258 1,092
Acquisition related costs - 373
Provision for professional indemnity claims/notifications - 24,570
---------- ----------
258 26,035
---------- ----------
Contingent consideration on acquisitions (1,477) (405)
---------- ----------
Exceptional gains:
Gain on disposal of freehold properties - (35)
Gain on disposal of financial assets - (19,806)
---------- ----------
- (19,841)
---------- ----------
Exceptional finance credits:
Movement in fair value of interest rate swap - (230)
---------- ----------
(1,219) 5,559
---------- ----------
6. Dividends paid and proposed
2015 2014
GBP'000 GBP'000
------- -------
Declared and paid during the year:
Equity dividends on ordinary shares:
2013 Final: 7.2 pence per share - 7,406
2014 Interim: 4.0 pence per share - 4,074
2014 Special dividend: 16.5 pence per share - 16,806
2014 Final: 8.3 pence per share 8,458
2015 Interim: 4.0 pence per share 4,096
------- -------
12,554 28,286
------- -------
Dividends on Ordinary Shares proposed (not
recognised as a liability as at 31(st)
December):
Equity dividends on Ordinary Shares:
Dividend: 8.6 pence per share (2014: 8.3 pence
per share) 8,808 8,458
------- -------
7. Taxation
(a) Tax on profit on ordinary activities
The major components of income tax charge in the Group income
statements are:
2015 2014
GBP'000 GBP'000
---------- ----------
UK corporation tax - current year 7,787 6,460
- adjustment in respect of prior years 391 144
----------
8,178 6,604
Deferred tax:
Origination and reversal of temporary differences (470) 98
Adjustment in respect of prior year 430 83
---------- ----------
Total deferred tax (credit)/expense (40) 181
---------- ----------
Total tax charge in the income statement 8,138 6,785
---------- ----------
The UK standard corporation tax rate has reduced from 21.0% as
at 1(st) January 2015 to 20.0% from 1(st) April 2015 with further
reductions to 19.0% from 1(st) April 2017 and 18.0% from 1st April
2020. The effective rate of tax for the year was 21.1% (2014:
21.2%). The effective tax rate for 2015 was decreased as a result
of reducing the rate at which deferred tax is provided resulting
from the reduction in the headline rate of corporation tax.
Deferred tax charged directly to other comprehensive income is
GBP0.5m (2014: credit of GBP2.7m); this is comprised of a credit of
GBP0.05m and a charge of GBP1.0m and relates to the disposal and
revaluation of financial assets (see Note 16 to the Financial
Statements). There is also a credit arising as a result of the
impact of rate change on deferred tax of GBP0.5m. Income tax
credited directly to the share based payment reserve is GBPnil
(2014: GBPnil).
In July 2015, the UK Government announced proposals to reduce
the main rate of corporation tax to 19.0% from 1(st) April 2017,
and further reduced to 18.0%, effective from 1(st) April 2020. As
of 31(st) December 2015 reductions to the main rate of corporation
tax to 18.0% had been enacted. Accordingly, this is the rate at
which deferred tax has been provided.
(b) Factors affecting tax charge for the year
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