TIDMLSL
RNS Number : 9099F
LSL Property Services
02 August 2016
For Immediate Release 2 August 2016
LSL Property Services plc
Interim Results For the six months ended 30 june 2016
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 June 2016.
2016 2015 Change
----------------------------------- ---------- ---------- -------
Group revenue GBP151.4m GBP140.2m +8%
Group operating profit(1) GBP11.3m GBP10.3m +10%
Operating profit margin 7.5% 7.4%
----------------------------------- ---------- ---------- -------
Profit before tax GBP8.4m GBP6.2m +35%
Basic earnings per share 6.3p 4.7p +34%
Adjusted basic earnings per share 8.6p 7.2p +19%
Net bank debt at 30 June GBP61.7m GBP53.0m
Interim dividend 4.0p 4.0p -%
(1) Operating Profit is before exceptional gains and costs,
contingent consideration, amortisation of intangible assets and
share based payments
Strong first half Group financial performance in a changing
market
-- Group revenue up 8% to GBP151.4m with growth in both Divisions:
o Estate Agency up 9% and Surveying up 5%
-- Group operating profit(1) up 10% to GBP11.3m with operating profit margins slightly higher at 7.5%
o Estate Agency up 10%, Surveying up 7%
-- Double digit growth in Lettings income up 11% and Financial Services income up 29%
-- Nine Lettings books acquired in the period for a total investment of GBP4.1m (2015: GBP3.9m)
-- Group First Limited, a provider of mortgage and protection brokerage services, acquired in February 2016
-- Net bank debt of GBP61.7m (2015: GBP53.0m); GBP100m committed banking facility extended to May 2020
-- Interim dividend of 4.0 pence (2015: 4.0 pence)
Current trading and outlook
-- Transaction volumes in the UK residential housing market grew strongly in Q1 as the well flagged changes to
Stamp Duty, which took effect on 1 April 2016, resulted in an acceleration of market activity. As expected, Q2
saw a slowing down of transaction volumes in the run up to the EU referendum and following the accelerated
activity in Q1
-- As announced in the Group's trading update on 22 July 2016 the EU referendum has impacted UK consumer confidence
-- Whilst it is difficult to accurately predict market transactions and consumer confidence for the remainder of
calendar year 2016, as reported in the Group's recent pre-interim results trading update, LSL does not expect
market conditions to improve sufficiently to meet previous financial expectations for the full year
Commenting on today's announcement, Simon Embley, Chairman,
said:
"The Group has delivered a strong first half performance in a
changing market. I am particularly pleased with the profit growth
in both Estate Agency and Surveying.
Whilst we expect Residential Sales volumes to remain suppressed
in the second half, trends in other parts of our business are
expected to be more resilient. Our Lettings business continues to
perform well, now representing 29% of total Estate Agency income.
Mortgage cost and availability remain positive for the UK housing
market with increasing distribution of products through
intermediary channels which will support our growing Financial
Services business.
Whilst these are uncertain times in the residential housing
market, the Group has strong fundamentals with a robust balance
sheet and relatively low levels of gearing. The business will adapt
quickly as it has in the past and is well positioned to navigate
the current market conditions. I remain confident that LSL will
continue to deliver long term value to our shareholders."
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,
Sophie Cowles
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
Group Chief Executive's Review
Introduction
The Group has delivered a strong first half financial
performance in a changing market with revenue and profit up in both
Divisions. Group revenue was up 8% to GBP151.4m with Estate Agency
up 9% and Surveying up 5%. Group operating profit(1) was up 10% to
GBP11.3m with Estate Agency up 10% and Surveying up 7%.
The UK residential housing market place demonstrated two clear
trends in the first half. Underlying housing transaction(2) volumes
were ahead 16.5% in the first quarter of the year compared to the
same period in 2015 as increases in stamp duty effective from 1
April 2016 accelerated market activity. Market activity(2) slowed
in the second quarter being 1.5% ahead of the comparative period in
2015 as completions slowed ahead of the EU referendum. The Estate
Agency Division performance reflected these trends.
Financial Results
Group revenue was up 8% at GBP151.4m (2015: GBP140.2m). Group
operating profit(1) was up 10% to GBP11.3m (2015: GBP10.3m) and
Group operating profit margin(1) was slightly up at 7.5% (2015:
7.4%).
The Estate Agency Division revenues were up 9% at GBP118.9m
(2015: GBP109.1m) reflecting double digit growth in both Lettings
income and Financial Services income. Estate Agency Division
operating profit(1) increased by 10% to GBP6.9m (2015: GBP6.3m).
Surveying Division revenues were up 5% at GBP32.5m (2015:
GBP31.1m). Operating profits(1) in the Surveying Division increased
by 7% to GBP8.1m (2015: GBP7.6m).
Group operating profit after contingent consideration,
exceptional costs, amortisation and share based payments was up 18%
to GBP8.9m (2015: GBP7.5m) reflecting the increase in operating
profit(1) and the net effect of a lower charge to contingent
consideration this year compared to last year, partly offset by an
increase in amortisation of intangible assets following the higher
level of lettings book acquisitions in the last 12 months.
Net finance costs were GBP0.5m (2015: GBP1.3m). The effective
tax rate for the period was 23.1% (2015: 22.3%). Group profit after
tax was GBP6.4m (2015: GBP4.8m). Earnings per share were 6.3p
(2015: 4.7p) and adjusted earnings per share were 8.6p (2015:
7.2p).
Cash generated by operations was GBP7.2m (2015: cash used
GBP0.3m). Operating cash flow included Professional Indemnity (PI)
cash settlements of GBP3.8m (2015: GBP7.6m). Capital expenditure,
including intangibles, was GBP3.6m (2015: GBP3.1m), including two
new Marsh & Parsons branches opened during the period, in
Tooting and Tufnell Park.
The fair value of the Group's 2.7% stake in Zoopla was
calculated to be GBP30.1m at 30 June 2016. In July 2016 the Group
disposed of one million shares for gross proceeds of GBP3.0m which
has been used to reduce net bank debt. Following this disposal, the
Group retains a 2.5% stake in Zoopla.
Net assets at 30 June 2016 were GBP108.4m (2015: GBP88.1m) with
the increase year on year driven by the acquisition of Group First
Limited and lettings books. Net bank debt at 30 June 2016 was
GBP61.7m compared to GBP53.0m at 30 June 2015. Compared to 31
December 2015, net bank debt has increased by GBP21.8m driven by
investments in acquisitions and the normal seasonality of the
Estate Agency Division cash flows, continuing PI cash payments, and
the payment of dividends, taxes and bonuses. In May 2016, the
Group's existing revolving credit facility of GBP100m was extended
on more favourable terms for LSL until May 2020.
The Board remains confident in the underlying fundamentals and
prospects of the business and has declared an interim dividend
payment amounting to 4.0p pence per share (2015: 4.0 pence). The
ex-dividend date for the interim dividend is 11 August 2016, with a
record date of 12 August 2016 and a payment date of 6 September
2016. 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
Residential Sales income increased by 1% to GBP42.5m (2015:
GBP42.0m) with average fees per unit up 1%. Exchange volumes were
flat year on year reflecting an acceleration of completions ahead
of the Stamp Duty changes on 1 April 2016, with a slowdown in Q2
following the strong Q1 and the run up to the EU referendum and
continuing in the period afterwards.
The Group's Lettings income grew strongly again by 11% to
GBP34.0m (2015: GBP30.6m) with organic growth of 5%. LSL acquired
nine lettings books in the period for GBP4.1m (2015: GBP3.9m).
These acquired lettings books are performing in line with
expectations. The Lettings business continued to perform well
across all brands in the first half and is expected to remain more
resilient against residential housing market fluctuations.
Marsh & Parsons total revenues were up 11% to GBP17.1m
(2015: GBP15.4m). Marsh & Parsons operating profit(1) increased
by 47% to GBP2.2m (2015: GBP1.5m) with increased operating margins
of 12.9% (2015: 9.4%). Residential Sales were up 10% and Lettings
performed strongly again up 13%. Two new Marsh & Parsons
branches opened during the period, in Tooting and Tufnell Park.
Financial Services revenue increased by 29% to GBP29.5m (2015:
GBP22.8m) and in total the Group arranged mortgage lending of
GBP8.3bn during the first half (2015: GBP6.0bn).
Organic performance remains strong across our Financial Services
products including mortgage and re-mortgage products, protection
products and general insurance products. We continue to improve
penetration in our own Estate Agency networks and our Intermediary
networks continues to benefit from the trend towards intermediary
distribution of lender products.
In February 2016 the Group acquired a 65% interest in Group
First Limited which provides mortgage and protection brokerage
services to purchasers of new homes through its subsidiaries,
Mortgages First Limited and Insurance First Brokers Limited. This
business has performed in line with our expectations in the period
since acquisition.
Asset Management outperformed the market(3) for repossessions
with a fall in revenue of 19% in the period to GBP3.5m (2015:
GBP4.3m).
Surveying Division
The Surveying Division traded well in the first half with
revenue up 5% and operating profit(1) up 7%. Revenue per job was up
8% to GBP203 (2015: GBP188) reflecting a favourable mix across
lenders and the types of jobs performed. Surveyor headcount was
optimised to meet business requirements with 335 qualified
surveyors employed at the end of the period (2015: 367). Profit
margin increased to 24.9% (2015: 24.4%). A technology refresh
during the second half will deliver further enhancements.
At 30 June 2016, the total provision for PI Costs was GBP26.2m
(2015: GBP31.9m). In 2016 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 of 2004 to 2008 has been in line with LSL's expectations
during the year and those assumed in setting the PI costs
provision.
Strategy
LSL remains focused on the strategy communicated in March 2015.
The focus in Estate Agency is to drive operating profit per branch
to between GBP80k to GBP100k in the medium term, by growing
recurring income streams and Financial Services income; making
selective acquisitions; and investing in the Marsh & Parsons
new branch roll-out.
The focus in Surveying is to optimise contract performance from
B2B customers, to achieve further improvement in efficiency and
capacity utilisation and to use technology to drive further
customer enhancements and quality improvements.
In the current uncertain market conditions, LSL will also focus
on maintaining a robust balance sheet and will continue to use a
highly selective and disciplined approach to all investment
activity.
LSL is taking selective cost measures where necessary to adapt
the Group's cost base to the more uncertain market conditions. In
the second half, a cost saving programme across the Group and the
technological refresh in Surveying will result in between GBP2m to
GBP3m of exceptional costs in H2 2016.
Outlook
The Group has a balanced business portfolio including Asset
Management and the Letting and Financial Services businesses which
are both proving more resilient to residential housing market
fluctuations and we will continue to benefit from the increasing
proportion of our business represented by these revenue
streams.
Mortgage costs and availability remain positive with continued
share of lending taken by the intermediary market.
In Surveying, we will continue to use technology to drive
further customer enhancements, quality improvements and improvement
in efficiency and capacity utilisation. We will continue to
optimise contract performance and revenue generation from B2B
customers.
Whilst it is difficult to accurately predict housing market
transactions and consumer confidence for the remainder of calendar
2016, as reported in the Group's recent pre-interim results trading
update, LSL does not expect market conditions to improve
sufficiently to meet previous financial expectations for the full
year.
The Group has strong fundamentals, with a robust balance sheet.
The business is well positioned to adapt to a changing market as it
has in the past and to successfully navigate through a more
difficult market environment. The Board remains confident that LSL
will continue to deliver long term value to our shareholders.
Ian Crabb
Group Chief Executive
2 August 2016
(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"
January-May 2015/2016
(3) H1 market performance estimated. Per Q1 CML market
statistics there was a 30% decline in the repossession market
compared to the same period in 2015
Principal risks and uncertainties
The key risks and uncertainties relating to the Group's
operations remain consistent with those disclosed in the Group's
Annual Report and Accounts 2015 on pages 22 to 25. The Annual
Report and Accounts 2015 can be accessed on the Group's website:
www.lslps.co.uk. Having reconsidered these principal risks and
uncertainties which are summarised below, the Board continues to
consider them appropriate.
-- Housing market
-- New UK housing market entrants
-- Acquisitions and growth initiatives
-- Professional services
-- Client contracts
-- Information technology infrastructure
-- Information security
-- Regulatory and legal
-- Employees
The recent Group Risk Appetite Assessment exercise includes an
evaluation of continually evolving aspects of risk management.
Recent examples include the capture of anticipated post-Brexit
impacts on the residential housing market and articulation of
established 'conduct risk' routines used to support delivery of
appropriate customer outcomes. The Board has concluded that such
aspects are included in the principal risk and uncertainties noted
above. Therefore the principal risks and uncertainties of the Group
remain the same as those included within the Annual Report and
Accounts 2015.
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 Group's
Annual Report and Accounts 2015 on pages 22 to 25 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 in LSL's Annual Report and Accounts 2015 (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 2016
Unaudited Audited
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2016 2015 2015
Note GBP'000 GBP'000 GBP'000
--------- --------- -----------
Revenue 3,4 151,367 140,159 300,594
Operating expenses:
Employee and subcontractor
costs (92,631) (86,522) (171,216)
Establishment costs (10,257) (10,826) (19,012)
Depreciation on property,
plant and equipment (2,565) (2,666) (5,296)
Other (35,776) (30,367) (65,180)
--------- --------- -----------
(141,229) (130,381) (260,704)
Other operating income 3 639 600 1,865
Gain/(Loss) on sale of
property, plant and equipment 3 19 (44)
Group's share in post-tax
profits/(loss) of joint
ventures 535 (84) 1,156
Group operating profit
before contingent consideration,
exceptional costs, amortisation
and share-based payments 4 11,315 10,313 42,867
Share-based payments (746) (397) (871)
Amortisation of intangible
assets (2,065) (186) (1,803)
Contingent consideration 6 365 (2,142) 1,477
Exceptional costs 6 - (83) (258)
Group operating profit 4 8,869 7,505 41,412
Finance income 3 - 112 5
Finance costs (502) (1,403) (2,817)
Net finance costs (502) (1,291) (2,812)
Profit before tax 4 8,367 6,214 38,600
Taxation (charge)/credit
- related to exceptional
costs (33) 17 52
- other (1,898) (1,404) (8,190)
--------- --------- -----------
8 (1,931) (1,387) (8,138)
Profit for the period/year 6,436 4,827 30,462
--------- --------- -----------
Attributable to:
- Owners of the parent 6,439 4,804 30,414
- Non-controlling interest (3) 23 48
Earnings per share expressed
in pence per share:
Basic 5 6.3 4.7 29.7
Diluted 5 6.2 4.7 29.5
Adjusted - basic 5 8.6 7.2 31.5
Adjusted - diluted 5 8.5 7.2 31.3
Interim Group Statement of Comprehensive Income
for the six months ended 30(th) June 2016
Unaudited Audited
Six Months Year
Ended Ended
30(th) 30(th) 31(st)
June June December
2016 2015 2015
GBP'000 GBP'000 GBP'000
-------- -------- ---------
Profit for the period 6,436 4,827 30,462
Items to be reclassified
to profit and loss in subsequent
periods:
Reclassification adjustments
for disposal of financial
assets - - (440)
Income tax effect - - 53
Revaluation of financial
assets 2,998 8,855 5,130
Income tax effect (469) (1,771) (580)
-------- -------- ---------
Net other comprehensive
income to be reclassified
to profit and loss in subsequent
periods: 2,529 7,084 4,163
-------- -------- ---------
Total other comprehensive
income, net of tax 2,529 7,084 4,163
-------- -------- ---------
Total comprehensive income,
net of tax 8,965 11,911 34,625
-------- -------- ---------
Attributable to
- Owners of the parent 8,968 11,888 34,577
- Non-controlling interest (3) 23 48
-------- -------- ---------
Interim Group Balance Sheet
as at 30(th) June 2016
Unaudited Audited
Six Months Year
Ended Ended
30(th) 30(th) 31(st)
June June December
2016 2015 2015
Note GBP'000 GBP'000 GBP'000
---------- ---------- ----------
Non-current assets
Goodwill 152,009 135,954 136,395
Other intangible assets 33,969 23,734 30,517
Property, plant and equipment 20,204 20,863 19,393
Financial assets 9 31,869 31,976 28,871
Investments in joint ventures 8,246 9,036 8,778
----------
Total non-current assets 246,297 221,563 223,954
----------
Current assets
Trade and other receivables 37,452 39,070 35,366
Cash and cash equivalents - 998 5,603
---------- ---------- ----------
Total current assets 37,452 40,068 40,969
---------- ---------- ----------
Total assets 283,749 261,631 264,923
---------- ---------- ----------
Current liabilities
Financial liabilities 10 (20,409) (8,990) (15,777)
Trade and other payables (50,507) (47,659) (50,102)
Current tax liabilities (1,398) (1,612) (2,525)
Provisions for liabilities (10,887) (15,086) (12,100)
---------- ---------- ----------
Total current liabilities (83,201) (73,347) (80,504)
---------- ---------- ----------
Non-current liabilities
Financial liabilities 10 (68,219) (75,032) (52,511)
Deferred tax liability (8,623) (8,191) (6,927)
Provisions for liabilities 11 (15,331) (16,995) (17,625)
---------- ---------- ----------
Total non-current liabilities (92,173) (100,218) (77,063)
---------- ---------- ----------
Total Liabilities (175,374) (173,565) (157,567)
----------
Net assets 108,375 88,066 107,356
---------- ---------- ----------
Equity
Share capital 208 208 208
Share premium account 5,629 5,629 5,629
Share-based payment reserve 3,773 3,275 3,564
Treasury shares (5,462) (6,341) (5,988)
Fair value reserve 23,407 23,799 20,878
Retained earnings 80,638 61,336 82,880
---------- ---------- ----------
Equity attributable to
owners of parent 108,193 87,906 107,171
Non-controlling interests 182 160 185
Total equity 108,375 88,066 107,356
---------- ---------- ----------
Interim Group Cash Flow Statement
for the six months ended 30(th) June 2016
Unaudited Unaudited Audited
30(th) June 30(th) June 31(st) December
2016 2015 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash generated from
operating activities
Profit before tax 8,367 6,214 38,600
Adjustments to reconcile
profit before tax
to net cash from operating
activities
Exceptional operating
income and costs and
contingent consideration
(non-cash) (365) 2,142 (1,219)
Amortisation of intangible
assets 2,065 186 1,803
Finance income - (112) (5)
Finance costs 502 1,403 2,817
Share-based payments 746 397 871
------------- -------- --------
2,948 4,016 4,267
-------- --------- ---------
Group operating profit
before amortisation
and share-based payments 11,315 10,230 42,867
Depreciation 2,565 2,666 5,296
Dividend income (293) (309) (835)
Share of results of
joint ventures (535) 84 (1,156)
(Gain)/Loss on sale
of property, plant
and equipment (3) 83 (253)
------------- -------- --------
1,734 2,524 3,052
(Increase)/decrease
in trade and other
receivables (1,178) (2,727) 975
Decrease in trade
and other payables (1,107) (3,413) (1,026)
Decrease in provisions (3,607) (6,909) (9,345)
------------- -------- --------
(5,892) (13,049) (9,396)
-------- --------- ---------
Cash generated from/(utilised
by) operations 7,157 (295) 36,523
Interest paid (979) (890) (1,852)
Tax paid (3,386) (415) (5,613)
------------- --------
(4,365) (1,305) (7,465)
-------- --------- ---------
Net cash generated
from/(utilised by)
operating activities 2,792 (1,600) 29,058
Unaudited Unaudited Audited
30(th) June 30(th) June 31(st) December
2016 2015 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from investing
activities
Cash acquired on purchase
of subsidiary undertaking 1,542 773 774
Acquisition of subsidiaries
and other businesses (8,525) (8,058) (13,202)
Payment of contingent
consideration (2,352) (162) (4,015)
Investment in joint
venture - - -
Investment in financial
assets - (88) (1,178)
Cash received on sale
of financial assets - - 297
Dividends received
from joint ventures - - 1,499
Dividends received
from financial assets 579 309 549
Interest received - 112 5
Purchase of property,
plant and
equipment and intangible
assets (3,580) (3,109) (7,991)
Proceeds from sale
of property,
plant and equipment 35 163 328
-------- ------------------ -----------
Net cash (used in)/
from investing activities (12,301) (10,060) (22,934)
Cash flows from financing
activities
Drawdown of loans 16,190 20,000 10,719
Repayment of loan (1,720) - -
notes
Payment of deferred (1,968) - -
consideration
Proceeds from exercise
of share options 216 1,116 1,314
Dividends paid (8,812) (8,458) (12,554)
-------- ------------------ -----------
Net cash from/(used
in) financing activities 3,906 12,658 (521)
Net (decrease)/increase
in cash and cash equivalents (5,603) 998 5,603
Cash and cash equivalents
at the beginning of -
the year 5,603 -
--------- --------- ---------
Cash and cash equivalents
at the end of the
year - 998 5,603
--------- --------- ---------
Interim Group Statement of changes in equity
for the six months ended 30th June 2016
Unaudited six months ended 30(th) June 2016
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 2016 208 5,629 3,564 (5,988) 20,878 82,880 107,171 185 107,356
Revaluation of
financial
assets (net
of tax) - - - - 2,529 - 2,529 - 2,529
Other
comprehensive
income for
the period - - - - 2,529 - 2,529 - 2,529
Profit for the
period - - - - - 6,439 6,439 (3) 6,436
Total
comprehensive
income for
the period - - - - 2,529 6,439 8,968 (3) 8,965
Exercise of
options - - (441) 526 - 131 216 - 216
Share-based
payments - - 650 - - - 650 - 650
Dividend
payment - - - - - (8,812) (8,812) - (8,812)
At 30(th) June
2016 208 5,629 3,773 (5,462) 23,407 80,638 108,193 182 108,375
--------- --------- -------- ---------- --------- ---------- -------- ----------------- --------
During the six month period to 30(th) June 2016 a total of
150,082 share options were exercised relating to LSL's various
share option schemes resulting in the shares being sold by the
Trust. LSL received GBP216,000 on exercise of these options.
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
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
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.
Audited year ended 31(st) December 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) - - - - (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
--------- --------- -------- ---------- --------- ---------- --------- ----------------- ---------
During the year ended 31(st) December 2015, the Trust did not
acquire any LSL shares. During the period 551,446 share options
were exercised relating to LSL's various share option schemes
resulting in the Shares being sold by the Trust. LSL received
GBP1,314,000 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 2016 were approved by the LSL Board on 1(st)
August 2016. The interim financial statements are not the statutory
accounts. The financial information for the year ended 31(st)
December 2015 is extracted from the audited statutory accounts for
the year ended 31(st) December 2015, 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 consolidated group financial statements
for the period ended 30(th) June 2016 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 consolidated group
financial statements have been prepared on a going concern
basis.
The interim condensed consolidated 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 2015
which are included in LSL's Annual Report and Accounts 2015.
With the exception of the transaction detailed in Note 10, there
have been no other significant related party transactions in the
period to 30 June 2016.
Significant accounting policies
The accounting policies adopted in the preparation of the
interim condensed consolidated 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
2015.
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
on-going 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 2015. These
assumptions are discussed in detail in the Group's Annual Report
and Accounts 2015. The assumptions discussed are as follows:
-- Valuation in acquisitions
-- Impairment of intangible assets
-- Assessment of the useful life of an intangible asset
-- Professional indemnity (PI) 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 meets its day to day working capital requirements
through a revolving credit facility. The Group currently has a
GBP100m credit facility which was extended in May 2016 and will now
expire in May 2020. As shown in Note 10, the Group had available
GBP45m of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met. The Group's forecasts
and projections, taking account of reasonably possible changes in
trading performance, show that the Group is expected to operate
within the terms of its current facilities 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 housing 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
2016 2015 2015
GBP'000 GBP'000 GBP'000
Revenue from services 151,367 140,159 300,594
--------- --------- ----------
Operating revenue 151,367 140,159 300,594
--------- --------- ----------
Rental income 346 291 729
Dividend income 293 309 835
Gain on disposal of financial
assets - - 301
--------- --------- ----------
Other operating income 639 600 1,865
--------- --------- ----------
Finance income - 112 5
Total revenue 152,006 140,871 302,464
--------- --------- ----------
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
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 2015 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 2016, for the six months ended 30(th) June 2015 and for
the year ended 31(st) December 2015.
Six months ended 30(th) June 2016
Estate Surveying
agency and valuation
and related services
services GBP'000 Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000
------------- -------------- ------------- ---------
Segmental revenue 118,894 32,473 - 151,367
------------- -------------- ------------- ---------
Segmental result:
- before exceptional
costs, contingent
consideration, amortisation
and
share-based payments 6,882 8,078 (3,645) 11,315
- after exceptional
costs, contingent 4,714 7,749 (3,594) 8,869
consideration, amortisation
and
share-based payments
------------- -------------- ------------- ---------
Finance income -
Finance costs (502)
Profit before tax 8,367
Taxation (1,931)
Profit for the period 6,436
---------
In the period ended 30(th) June 2016, there is no revenue from
one customer that accounts for 10% or more of the Group's total
revenue (2015 - none).
Balance sheet information
Segment assets - intangible 174,084 11,894 - 185,978
Segment assets - other 87,612 9,131 1,028 97,771
-------- -------- -------- ---------
Total Segment assets 261,696 21,025 1,028 283,749
Total Segment liabilities (55,785) (38,403) (81,186) (175,374)
-------- -------- -------- ---------
Net assets/(liabilities) 205,911 (17,378) (80,158) 108,375
-------- -------- -------- ---------
All of the joint venture interests of the Group are recorded in
the Estate Agency and Related Services segment. Unallocated net
liabilities comprise plant and equipment (GBP9,000), other assets
(GBP1,020,000), accruals (GBP923,000), financial liabilities
(GBP8,553,000), deferred and current tax liabilities
(GBP10,021,000), overdraft (GBP6,690,000) and revolving credit
facility overdraft (GBP55,000,000).
4. Segment analysis of revenue and operating profit (continued)
Operating segments
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
Year ended 31(st) December 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 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
consideration, amortisation
and
share-based payments 29,347 17,459 (5,394) 41,412
------------- -------------- ------------- ---------
Finance income 5
Finance costs (2,817)
Profit before tax 38,600
Taxation (8,138)
Profit for the year 30,462
---------
In the period ended 31(st) December 2015, there is no revenue
from one customer that accounts for 10% or more of the Group's
total revenue (2014 - none).
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 155,670 11,242 - 166,912
Segment assets - other 82,883 8,659 6,469 98,011
------------------ -------------- ------------- ---------
Total Segment assets 238,553 19,901 6,469 264,923
Total Segment liabilities (43,052) (42,461) (72,054) (157,567)
------------------ -------------- ------------- ---------
Net assets/(liabilities) 195,501 (22,560) (65,585) 107,356
------------------ -------------- ------------- ---------
Unallocated net liabilities comprise plant and equipment
(GBP9,000), other assets (GBP857,000), cash (GBP5,603,000),
accruals (GBP1,554,000), financial liabilities (GBP15,548,000),
deferred and current tax liabilities (GBP9,452,000), revolving
credit facility (GBP45,500,000).
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 2016 Weighted 2015
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 6,439 102,658,362 6.3 4,804 102,337,501 4.7
Effect of dilutive
share options 469,387 - 436,809 -
Diluted EPS 6,439 103,127,749 6.2 4,804 102,774,310 4.7
---------- ------------ -------- ---------- ------------ --------
Year ended 31(st) 2015
December 2015 Profit Weighted Per
after average share
tax number amount
GBP'000 of shares Pence
--------- ----------- -------
Basic EPS 30,414 102,406,770 29.7
Effect of dilutive
share options - 791,256 -
Diluted EPS 30,414 103,198,026 29.5
--------- ----------- -------
Adjusted basic and diluted EPS
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
Year
Six months ended Ended
30(th) 31(st)
30(th) June June December
2016 2015 2015
GBP'000 GBP'000 GBP'000
Group operating profit before
contingent consideration
in acquisitions linked to
employment, exceptional costs,
share-based payments and
amortisation 11,315 10,313 42,867
Add back non-controlling
interest 3 (23) (48)
Group operating profit before
contingent consideration
in acquisitions linked to
employment, exceptional costs,
share-based payments and
amortisation (excluding non-controlling
interest) 11,318 10,290 42,819
Net finance costs (excluding
exceptional costs and unwinding
of discount on contingent
consideration) (335) (1,032) (2,360)
Normalised taxation (2,197) (1,874) (8,193)
Adjusted profit after tax(1)
before exceptional costs,
share-based payments and
amortisation 8,786 7,384 32,266
------------ --------- ----------
5. EPS (continued)
Six months ended 30(th) June
Adjusted 2016 Adjusted 2015
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 8,786 102,658,362 8.6 7,384 102,337,501 7.2
Effect of dilutive
share options 469,387 - 436,809 -
Adjusted diluted
EPS 8,786 103,127,749 8.5 7,384 102,774,310 7.2
--------- ------------ -------- --------- ------------ --------
Year ended 31(st) December 2015
Adjusted 2015
profit Weighted Per
after average share
tax(1) number amount
GBP'000 of shares Pence
Adjusted basic
EPS 32,266 102,406,770 31.5
Effect of dilutive - 791,256 -
share options
Adjusted diluted
EPS 32,266 103,198,026 31.3
----------- ------------ --------
(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 20.00% (30(th) June 2015: 20.25%; 31(st) December
2015: 20.25%).
6. Exceptional items and contingent consideration
Six Months Year Ended
Ended
30(th) 30(th) 31(st)
June June 2015 December
2016 2015
Exceptional costs: GBP'000 GBP'000 GBP'000
--------------- ---------------- -------------
Loss on disposal of freehold
properties - 83 -
Administration centre closure
costs including redundancy
costs - - 258
Total operating exceptional
costs - 83 258
Deferred and contingent consideration
on acquisitions (365) 2,142 (1,477)
--------------- ---------------- -------------
(365) 2,142 (1,477)
--------------- ---------------- -------------
Net exceptional (gain)/cost
and contingent consideration (365) 2,225 (1,219)
--------------- ---------------- -------------
Contingent consideration on acquisitions
The credit for deferred and contingent consideration on the
acquisition of Marsh & Parsons (in 2011) amounted to GBP142,000
(31(st) December 2015: credit of GBP3,002,000 and 30(th) June 2015:
expense of GBP602,000). The contingent consideration credit
recognised in the period relates to other acquisitions, a credit of
GBP268,000 in LMS, and a charge of GBP45,000 in LSLi (31(st)
December 2015: a charge of GBP2,136,000 in LMS and a credit of
GBP611,000 in LSLi and 30(th) June 2015: charge of GBP1,431,000 in
LMS and a charge of GBP109,000 in LSLi).
7. Dividends paid and proposed
Dividends per share
A final dividend in respect of the year ended 31(st) December
2015, of 8.6 pence per share (December 2014: 8.3 pence per share),
amounting to GBP8.8m was paid in the period ended 30(th) June
2016.
An interim dividend has been announced amounting to 4.0 pence
per share (June 2015: 4.0 pence).
Interim dividends are recognised when paid.
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
2016 2015 2015
GBP'000 GBP'000 GBP'000
-------- -------- ----------
UK corporation tax:
- current year 1,881 1,429 7,787
- adjustment in respect of
prior years 162 - 391
-------- ----------
2,043 1,429 8,178
Deferred tax:
Origination and reversal of
temporary differences (85) (42) (470)
Adjustment in respect of prior
year (27) - 430
-------- -------- ----------
(112) (42) (40)
-------- -------- ----------
Total tax charge in the income
statement 1,931 1,387 8,138
-------- -------- ----------
Income tax charged directly to other comprehensive income is
GBP469,000 (31(st) December 2015: GBP527,000 and 30(th) June 2015:
GBP1,771,000) and relates to the revaluation of financial assets.
Income tax credited directly to the share based payment reserve is
GBP96,000 (30(th) June 2015: GBPnil and 31(st) December 2015: GBP
nil).
Effective from 1(st) April 2017, the main rate of corporation
tax will decrease to 19% and is expected to decrease to 17%
effective from 1(st) April 2020. A reduction to 18% from 1(st)
April 2020 has already been substantially enacted in legislation
and 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
2016 2015 2015
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Unquoted shares at fair value 1,774 1,774 1,774
Quoted shares at fair value 30,095 30,202 27,097
-------- -------- ----------
31,869 31,976 28,871
-------- -------- ----------
Opening balance 28,871 23,033 23,033
Acquisitions - 88 1,178
Disposals - - (470)
Fair value adjustment recorded
through other comprehensive
income 2,998 8,855 5,130
Closing balance 31,869 31,976 28,871
-------- -------- ----------
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 in
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 30(th) June 2016 was GBP2.66 per share.
The Directors consider the best estimate of the fair value of LSL's
investment in Zoopla to be the share price which values the Group's
stake in Zoopla at GBP30,095,000. Subsequent to 30(th) June 2016,
LSL sold 1,040,000 shares in Zoopla for net proceeds of
GBP2,972,000.
Other investments
The carrying value of the Group's investment in Vibrant Energy
Matter (VEM) at 30(th) June 2016 has been assessed as GBP912,000
(31(st) December 2015: GBP912,000).
The carrying value of the Group's investment in GPEA Limited
(GPEA) at 30(th) June 2016 has been assessed as GBP862,000 (31(st)
December 2015: GBP862,000).
10. Financial liabilities
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2016 2015 2015
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Current
Overdraft 6,690 - -
12% unsecured loan notes - - 10,033
2% unsecured loan notes 5,569 - -
Deferred consideration 5,081 2,422 2,422
Contingent consideration 3,069 6,568 3,322
20,409 8,990 15,777
-------- -------- ----------
Non-current
Bank loans - revolving credit
facility (RCF) 55,000 54,000 45,500
12% unsecured loan notes - 9,918 -
2% unsecured loan notes 2,000 - -
Deferred consideration - 465 447
Contingent consideration 11,219 10,649 6,564
68,219 75,032 52,511
-------- -------- ----------
Contingent consideration -
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2016 2015 2015
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Marsh & Parsons Growth Shares 1,746 5,103 1,518
LSLi contingent consideration 5,002 8,963 4,790
LMS 530 2,388 3,093
Group First Limited 6,581 - -
Other 429 763 485
-------- -------- ----------
14,288 17,217 9,886
-------- -------- ----------
Opening balance 9,886 13,730 13,730
Cash paid (2,352) (162) (4,015)
Acquisition 6,581 1,248 1,178
Amounts recorded though income
statement 173 2,401 (1,007)
-------- -------- ----------
Closing balance 14,288 17,217 9,886
-------- -------- ----------
10. Financial liabilities (continued)
The 12% unsecured loan notes were issued as part satisfaction of
the consideration for the acquisition of Marsh & Parsons in
2011. GBP1.7m of these loan notes was redeemed in February 2016. A
variation to the 2011 loan notes was agreed on the retirement of
Peter Rollings in March 2016. The total principal amount of the
2011 Loan Note will be paid but at a reduced rate of interest of
2%. The first instalment has been paid in July 2016, and a final
payment of GBP2m is due in March 2018, subject to certain
conditions being satisfied.
GBP1,746,000 (31(st) December 2015: GBP1,518,000 and 30(th) June
2015: GBP5,103,000) 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 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.
GBP5,002,000 (31(st) December 2015: GBP4,790,000 and 30(th) June
2015: GBP8,963,000) of contingent consideration relates to payments
to third parties in relation to the acquisition of LSLi and certain
of its subsidiaries between 2007 and 2016. 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 2016, the contingent consideration has been
recalculated based on the Directors' latest expectation using a
discount rate of 6.5% (31(st) December 2015 and 30(th) June 2015:
6.5%).
GBP530,000 (31(st) December 2015: GBP3,093,000 and 30(th) June
2015: GBP2,388,000) of contingent consideration relates to payments
to third parties in relation to the acquisition of LMS in September
2014. This was paid in July 2016.
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: 2016 2015 2015
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Remuneration 3,800 6,718 3,362
Put options over non-controlling
interests 530 5,662 3,093
Arrangement under IFRS 3 9,958 4,837 3,431
-------- -------- ----------
Closing balance 14,288 17,217 9,886
-------- -------- ----------
Contingent consideration profit
and loss impact in the period
relating to amounts accounted
for as:
Remuneration 379 607 (2,739)
Put options over non-controlling
interests (268) 1,341 1,799
Arrangement under IFRS 3 (105) 194 (519)
Unwinding of discount on contingent
consideration 167 259 452
-------- -------- ----------
Charge/(credit) 173 2,401 (1,007)
-------- -------- ----------
11. Provisions for liabilities
Six months ended 30(th) June:
2016 2015
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 29,672 53 29,725 38,719 192 38,911
Acquired in
the period - 17 17 - - -
Amount utilised (3,954) - (3,954) (7,901) - (7,901)
Amount released - (40) (40) - (55) (55)
Unwinding of
discount 100 - 100 79 - 79
Provided in
the period (including
exceptional
costs) 370 - 370 1,047 - 1,047
Balance at 30(th)
June 26,188 30 26,218 31,944 137 32,081
---------------- ------------- ----------- ------------- ----------- -----------
Current 10,871 16 10,887 15,031 55 15,086
Non-current 15,317 14 15,331 16,913 82 16,995
26,188 30 26,218 31,944 137 32,081
---------------- ------------- ----------- ------------- ----------- -----------
Year ended 31(st) December 2015
Professional
indemnity Onerous
claim leases Total
provision
GBP'000 GBP'000 GBP'000
---------------- --------------- -----------
Balance at 1(st) January 38,719 192 38,911
Amount utilised (11,156) (6) (11,162)
Amount released - (133) (133)
Unwinding of discount 159 - 159
Provided in the period (including
exceptional costs) 1,950 - 1,950
Balance at 31(st) December 29,672 53 29,725
---------------- --------------- -----------
Current 12,056 44 12,100
Non-current 17,616 9 17,625
29,672 53 29,725
---------------- --------------- -----------
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 such
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 proportion of the provision has been classified as
non-current.
At 30(th) June 2016 the total provision for PI Costs was
GBP26.2m. The Directors have considered the sensitivity analysis on
the key risks and uncertainties discussed above.
11. Provisions for liabilities (continued)
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 IBNR. Should
the costs to settle and resolve these claims and future claims
increase by 10%, an additional GBP2.2m would be required.
Rate of claim
The IBNR assumes that the rate of claim for the high risk
lending period in particular reduces over 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 GBP0.3m.
Notifications
The Group 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 GBP0.4m would be
required.
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
2016 2015 2015
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Interest bearing loans and
borrowings
* Current 20,409 8,990 15,777
* Non-current 68,219 75,032 52,511
-------- -------- ----------
88,628 84,022 68,288
Less: 12% unsecured loan notes - (9,918) (10,033)
Less: 2% unsecured loan notes (7,569) - -
Less: cash and short-term deposits - (998) (5,603)
Less: deferred and contingent
consideration (19,369) (20,104) (12,755)
-------- -------- ----------
Net Bank Debt at the end of
the period 61,690 53,002 39,897
-------- -------- ----------
Net Bank Debt at 30(th) June 2016 was GBP61.7m.
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 2015.
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 2015.
The Group has a current ratio of net bank debt (excluding loan
notes) to EBITDA of 1.26 (31(st) December 2015: 0.83 and 30(th)
June 2015: 1.25). 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:
30(th) 30(th) 31(st)
June June Dec 2015
2016 2015
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 5,603
Available-for-sale financial
assets 31,869 31,976 28,871
Financial liabilities
Interest-bearing loans and
borrowings:
Floating rate borrowings (55,000) (54,000) (45,500)
Contingent consideration (14,288) (17,217) (9,886)
Deferred consideration (77) (2,887) (2,869)
12% unsecured loan notes - (9,918) (10,033)
2% unsecured loan notes (7,569) - -
The fair value of the Zoopla investment is made with reference
to the share price as at the period end as this is a listed
investment (listed on the London Stock Exchange). 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 2016, 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.
-- 30(th) Level Level Level
June 1 2 3
2016
GBP'000 GBP'000 GBP'000 GBP'000
--------- ----------------- --------------------- ----------
Assets measured at fair
value
Financial assets 31,869 30,095 - 1,774
Liabilities measured at
fair value
Contingent consideration 14,288 - - 14,288
Deferred consideration 77 - - 77
Liabilities for which
fair values are disclosed
Interest-bearing loans
and borrowings:
Floating rate borrowings 55,000 - - 55,000
2% unsecured loan notes 7,569 - - 7,569
14. Fair values of financial assets and financial liabilities (continued)
30(th) Level Level Level
June 1 2 3
2015
GBP'000 GBP'000 GBP'000 GBP'000
------------ -------- --------- ------------
Assets measured at fair
value
Financial assets 31,976 30,202 1,774
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 -
-- 31(st) Level Level Level
Dec 1 2 3
2015
GBP'000 GBP'000 GBP'000 GBP'000
------------ -------- --------- ------------
Assets measured at fair
value
Financial assets 28,871 27,097 - 1,774
Liabilities measured at
fair value
Contingent consideration 9,886 - - 9,886
Deferred consideration 2,869 - - 2,869
Liabilities for which
fair values are disclosed
Interest-bearing loans
and borrowings:
Floating rate borrowings 45,500 - 45,500 -
12% unsecured loan notes 10,033 - 10,033 -
The other investments totalling GBP1,774,000 are still valued
using Level 3 valuation techniques. The Directors reviewed the fair
value of the financial assets at 30(th) June 2016. 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%, to GBP1.6 million.
The contingent consideration relates to amounts payable in the
future on acquisitions. The amounts payable are based on the
amounts agreed in the contracts and based on the future
profitability of each entity acquired. In valuing each provision,
estimates have been made as to when the options are likely to be
exercised and the future profitability of the entity at this date.
Further details of these provisions are shown in Note 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 2016 was
assessed to be insignificant.
15. Acquisitions
During the period the Group acquired nine lettings businesses
for a total consideration of GBP4.0m. The fair value of the
identifiable assets and liabilities of these businesses as at the
date of acquisition have been provisionally determined as
below:
Fair value
recognised
on acquisition
GBP'000
Intangible assets 3,834
Total identifiable net assets acquired 3,834
Purchase consideration 3,975
-------------------
Goodwill 141
-------------------
In February 2016, the Group, through a wholly owned subsidiary,
acquired 65% interest in Group First Limited, who provide mortgage
and protection brokerage services to the purchasers of new homes
through its subsidiaries, Mortgages First Limited and Insurance
First Brokers Limited. The consideration for the initial investment
is GBP9.1m cash with 50% paid on completion, and a further 50%
payable in 2017. The remaining 35% is subject to put and call
options which are exercisable between 2018 and 2020. The contingent
consideration is management's best estimation of the probable
discounted payout (using a rate of 6.5%), based upon current
forecasts over the earn-out period. 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 as at the date of
acquisition have been determined as below:
Fair value
recognised
on acquisition
GBP'000
Intangible assets 809
Property, plant and equipment 847
Trade and other receivables (No impairment
identified) 127
Cash and cash equivalents 1,542
Trade and other payables (1,527)
Current tax (216)
Deferred tax liabilities (38)
Total identifiable net assets acquired 1,544
Purchase consideration 15,681
-------------------
Goodwill 14,137
-------------------
Purchase consideration discharged by:
Cash 4,550
Deferred consideration 4,550
Contingent consideration 6,581
-------
15,681
-------
The acquisition accounting above is considered provisional as
LSL is still reviewing the estimates of the likely payments under
the contract, but the calculation above represents the Directors
best estimate at 30(th) June 2016. In addition, work is on-going to
identify acquired intangibles in the Group. This work will be
finalised in the Group's Financial Statements for the year ended
31(st) December 2016 and at that stage any deferred tax liability
will be recognised. None of the goodwill is expected to be
deductible for tax purposes
15. Acquisitions (continued)
The goodwill of Group First Ltd 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. Group First Ltd
has contributed GBP795,000 profit before tax and GBP2,750,000
revenue in the period since acquisition. If it had been acquired at
the beginning of the year then the consolidated revenue would have
been GBP920,000 higher and the consolidated profit before tax would
have been GBP222,000 higher. An analysis of cash-flow on
acquisition is given in the table below.
From the date of acquisition to 30(th) June 2016, the
acquisitions in aggregate, including Group First, have contributed
GBP3,032,000 of revenue and GBP982,000 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 GBP1,200,000 and the
consolidated profit before tax would have been higher by
GBP409,000. Transaction costs have been expensed.
GBP'000
Transaction costs 52
Net cash acquired with the subsidiaries
and other businesses (1,542)
Purchase consideration discharged 8,525
--------
Net Cash outflow on acquisition 7,035
--------
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 2016 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(th)
June 2016 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
2(nd) August 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR VFLFBQVFXBBQ
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