TIDMLSL
RNS Number : 6739Y
LSL Property Services
07 March 2017
For Immediate Release 7(th) March 2017
LSL Property Services plc ("LSL" or "The Group")
PRELIMINARY ANNOUNCEMENT
LSL Property Services plc, a leading provider of residential
property services incorporating both estate agency and surveying
businesses, announces preliminary results for the year ended 31(st)
December 2016.
2016 2015 % change
Group revenue - GBPm 307.8 300.6 +2
Group Underlying Operating Profit(1) - GBPm 34.6 42.9 -19
Group Underlying Operating Margin - % 11.3 14.3
---------------------------------------------- ------ ------ ---------
Group operating profit - GBPm 65.4 41.4 +58
Profit before tax - GBPm 63.5 38.6 +65
Exceptional gain / (costs) - GBPm 32.2 (0.3)
Basic Earnings Per Share - pence 49.2 29.7 +66
Adjusted Basic Earnings Per Share - pence(2) 25.9 31.5 -18
Net Bank Debt(3) at 31(st) December - GBPm 20.3 39.9
Final proposed dividend per share - pence 6.3 8.6
Full year dividend per share - pence 10.3 12.6 -18
---------------------------------------------- ------ ------ ---------
1 Group Underlying Operating Profit is before exceptional costs,
contingent consideration, amortisation of intangible assets and
share-based payments (as defined in Note 4)
2 Refer to Note 6 for the calculation
3 Refer to Note 9 for the calculation
-- Group operating profit growth of 58% at GBP65.4m (2015: GBP41.4m)
-- Solid performance in a changing market with full year Group
Underlying Operating Profit(1) of GBP34.6m (2015: GBP42.9m)
-- Continued momentum in the Estate Agency Division with 3% overall revenue growth
-- Lettings income growth of 9%, delivered through organic growth and selective acquisitions
-- Growth in Financial Services income of 27% delivered through
strong organic growth (13%) and the acquisition of Group First
-- Marsh & Parsons delivered a resilient performance despite
a challenging London market with total revenue down 5% whilst
Lettings revenue performed strongly with growth of 6%
-- The Surveying Division delivered overall revenue growth of
1%, as the mix of volume and income per job was optimised, with an
EBIT margin of 27.1% (2015: 28.3%)
-- Improving PI Costs outlook with GBP1.6m exceptional provision release
-- Exceptional gain of GBP32.9m on sale of Zoopla shares
-- Exceptional restructuring costs of GBP2.3m
-- Strong operational cash flow and low level of gearing
Commenting on today's announcement, Simon Embley, Chairman,
said:
"Following a strong first half performance, the Group delivered
a resilient second half performance given the changing market
conditions. I am pleased that we maintained revenue growth in both
the Estate Agency and Surveying Divisions.
The Group reacted decisively to the changing market conditions
in the second half by taking selective cost measures and
strengthening the balance sheet. The Group has relatively low
levels of gearing and is very cash generative at an operational
level. The business is well positioned to capitalise on 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 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 mortgage, pure
protection and general insurance brokerage services. 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
Following a strong first half performance, the Group delivered a
resilient second half performance given the changing market
conditions, with 2016 Group Underlying Operating Profit(1) of
GBP34.6m (2015: GBP42.9m). Group Operating Profit was GBP65.4m
(2015: GBP41.4m). Group revenue grew by 2.4% to GBP307.8m (2015:
GBP300.6m) with growth in both the Estate Agency and Surveying
Divisions. Profit before tax grew by 64.6% to GBP63.5m (2015:
GBP38.6m).
Performance
After a strong overall first half performance in the Estate
Agency Division, with a notable first quarter acceleration of
transactions in the run up to the change in stamp duty regulations
on 1(st) April 2016, we reacted decisively to the changing market
conditions in the second half of the year with selective cost
reduction measures and branch closures and protected the balance
sheet by disposing of the Group's shareholding in Zoopla and
pausing acquisition activity. We continued to invest in Lettings
and Financial Services headcount during the second half of 2016. As
a result, in 2016 we delivered full year growth of 9% in the
Lettings business and delivered Financial Services revenue growth
of 27%.
The Surveying Division delivered a robust performance with 1%
revenue growth and a strong operating profit margin of 27.1%.
Dividend
Due to the Board's positive view of the future prospects for the
business, the proposed dividend payment is at the upper end of our
previously stated policy of applying a dividend pay-out ratio of
between 30% to 40% of Group Underlying Operating Profit after
interest and tax. The Board has reviewed the policy while
considering the risks and capital management decisions facing the
Group.
A final dividend of 6.3 pence per share (2015: 8.6 pence per
share) will be proposed to Shareholders at the forthcoming AGM,
giving a total dividend for 2016 of 10.3 pence per share (2015:
12.6 pence per share).
The ex-dividend date for the final dividend is 30(th) March
2017, with a record date of 31(st) March 2017 and a payment date of
2(nd) May 2017. Shareholders have the opportunity to elect to
reinvest their cash dividend and purchase existing shares in LSL
through a dividend reinvestment plan.
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 measured by the
number of branches with 267 branches nationwide. The businesses are
organised to deliver integrated Residential Sales, Lettings and
Financial Services, as well as a range of additional property
related services.
We continued to invest in our brands in 2016 to drive future
growth, with a national media campaign to support the Your Move
brand during the first half of 2016 and by increasing dedicated
headcount to support our successful Lettings and Financial Services
businesses and growing our Land and New Homes businesses. During
2016 we opened two new Marsh & Parsons branches.
We continue to hold a leading market position in Surveying,
maintaining strong relationships with many of the major lenders.
LSL's Surveying Division is one of the country's largest providers
of residential valuation services nationwide and is one of the
largest employers of surveyors in the UK(2) .
We operate in a highly competitive residential property market,
which is characterised by on-going new entrants and evolving
business models. We continue to proactively develop and evolve our
offering to ensure our competitiveness in this changing
marketplace. We will also take selective cost action as required to
underpin our competitiveness, as we did in the second half of
2016.
During the second half of 2016 we completed extensive consumer
and market research. In 2017 we will progress the next phase of our
strategy by exploring and evaluating LSL's digital opportunities
and a further update will be provided to Shareholders during
2017.
We continue to selectively acquire businesses. To drive
recurring income growth, we acquired nine lettings books in 2016
for GBP4.1m (2015: 30 lettings books for GBP9.6m), with internal
disciplines in place to ensure successful integration into the
Group.
In February 2016 we acquired a 65% interest in Group First which
provides mortgage and protection brokerage services to the
purchasers of new homes. This acquisition supports LSL's strategy
to grow long term profitability in the UK residential property
services sector.
In Financial Services, the Group arranged total mortgage lending
of GBP17.4bn (2015: GBP14.5bn), representing 7.1% of the overall
market(3) . Measured by the number of appointed representatives,
LSL's overall combined network is the second largest in the UK(4)
.
LSL notes the publication of the Housing White Paper in January
2017 which confirmed the Government's intent (as announced in the
Autumn Statement in November 2016) to bring forward legislation (as
soon as Parliamentary time allows) to ban letting agent fees to
tenants. LSL will continue to monitor the review and contribute to
the consultation as appropriate during the year.
Corporate Governance and Board
The Board remains committed to high levels of corporate
governance and during 2016, LSL has complied in all respects with
the UK Corporate Governance Code (September 2014 edition). We have
also considered the amendments included in the April 2016 edition
of the Code to ensure we continue to comply during 2017 and are
monitoring the Government's review of corporate governance, which
is set out in the Green Paper published in November 2016.
There were a number of changes to the Board during the year. At
the 2016 AGM, Mark Morris, who had been a Non Executive Director
and Chairman of the Audit Committee since LSL's IPO in 2006,
retired from the Board and its Committees. David Stewart, who
joined the Board as a Non Executive Director in May 2015, was
appointed Chairman of the Audit Committee. David is also a member
of LSL's Remuneration and Nominations Committees. In January 2017,
Adrian Gill stepped down from the Board and on 2(nd) February 2017
we announced the appointment of Helen Buck as Executive Director -
Estate Agency. Helen had been a Non Executive Director of LSL since
December 2011 and has excellent knowledge of the business. Her
appointment followed a comprehensive selection process.
The Nominations Committee has during the year reviewed the
Board's composition, which at the date of this Report includes
three independent Non Executive Directors and three Executive
Directors and myself as Chairman. The Board has expertise in
strategy, technology, estate agency, surveying, financial services,
the residential housing sector, commercial property, retail and
marketing, operations, business services, entrepreneurial private
and public companies, finance, consumer and employee matters and
corporate governance.
The Board continues to recognise the benefits of diversity in
the boardroom, including gender and racial diversity and the
current Board composition includes two female Directors, Helen Buck
(Executive Director - Estate Agency) and Kumsal Bayazit Besson
(Independent Non Executive Director). Whilst we continue to 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 any new directors take into account diversity, including gender
and race.
In respect of 2016, the Board has 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
appraisal produced a number of recommendations to further improve
the effectiveness of the Board, which will be implemented during
2017. These include reviewing Board meeting planning and reporting
arrangements, the development of Executive Director and senior
management succession plans, the provision of Director training and
an evaluation of the Group's cultures, values and ethics.
In addition, and taking into consideration the revised Code
published in April 2016, the Board reviewed the composition of the
Audit Committee and confirmed that the Audit Committee as a whole
has the competence relevant to the sectors in which LSL operates.
Further details relating to the Audit Committee are contained in
the Audit Committee Report or the Annual Report and Accounts
2016.
As Chairman, with the responsibility for leadership of the
Board, I review its effectiveness on all aspects of its role and
encourage feedback.
Our people
Ultimately the success of our business model has always been
underpinned by our strong brands and excellence in delivery by our
knowledgeable local colleagues. The number of Group employees as at
31(st) December 2016 was 4,990 (2015: 5,181). Our success is
attributable to the high levels of customer service provided by our
staff in all parts of our business across the entire UK and I would
like to thank all of our staff for the continued hard work and
commitment which they have demonstrated throughout 2016.
Current trading and outlook
We have started the year positively in both the Estate Agency
and Surveying Divisions.
In the Estate Agency Division, trading is encouraging and
in-line with expectations, with quality buyers and good
availability of mortgages. Whilst there remains a shortage of
stock, our sales conversion remains strong.
In our Surveying Division, trading is in line with expectations
and the second phase of the technology refresh is progressing
well.
Whilst it is difficult to accurately predict housing market
transaction volumes and consumer confidence for the remainder of
the year, 2017 is expected to see a reduced volume of house
purchase transactions compared to the prior year, with modest house
price inflation outside prime Central London. However, mortgage
costs and availability remain positive and the medium to longer
term fundamentals of the UK housing market remain robust.
Underpinned by a series of strategic initiatives, the business
is well placed to deliver a solid performance in 2017. We are
positive regarding the outlook for the business, 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 well placed to capitalise on market conditions to
increase Shareholder value.
Simon Embley
Chairman
7(th) March 2017
Note 1 Group Underlying Operating Profit is before exceptional
costs, contingent consideration, amortisation of intangible assets
and share-based payments (as defined in Note 4)
Note 2 Source: LSL estimates
Note 3 Source: Council of Mortgage Lenders - January 2017
Note 4 Source: Which Network? January 2017
Group Chief Executive's Review
2016 Overview
As reported in the Interims Results announcement in August 2016,
the Group delivered a strong first half performance, with the
notable acceleration of transactions in the first quarter in the
lead up to the change in stamp duty on 1(st) April 2016. The Group
reacted decisively to the changed market conditions in the second
half of the year following the EU referendum result.
Selective cost measures were taken across the Group and the
balance sheet has been strengthened with our operational gearing
ratio(1) reduced to 0.51 at the end of 2016 (2015: 0.83). We
continued to invest in the growing parts of our businesses and
delivered strong year-on-year revenue growth in Lettings (up 9%)
and Financial Services (up 27%).
Group revenue increased by 2.4% to GBP307.8m (2015: GBP300.6m).
Group Underlying Operating Profit(2) was GBP34.6m (2015: GBP42.9m)
and Group Operating Profit was GBP65.4m (2015: GBP41.4m). After
strong first half revenue growth of 8% and profit growth of 10%,
second half revenue fell by 2.5%, impacted by residential property
market trends following the EU referendum, with a subsequent fall
in second half profits.
I would like to take this opportunity to thank all my colleagues
across our business for their professionalism and dedication. The
efforts of my colleagues delivered revenue growth in both Estate
Agency and Surveying, which was especially pleasing given the
degree of change during the year.
The Market in 2016
The UK residential property services market in 2016 was impacted
by two main events; the lead up to the stamp duty changes on 1(st)
April 2016 and the EU referendum outcome on 23(rd) June 2016; and
the subsequent impact on consumer confidence and residential
property transactions during the second half of the year.
Approvals for house purchases(3) 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(st) April 2016 led to an
acceleration in market activity in the period up to this change.
Volumes(3) slowed in the second quarter being 1.5% ahead of the
comparative period in 2015 as completions slowed following the
stamp duty change and ahead of the EU referendum on 23(rd) June
2016.
Following the EU referendum on 23(rd) June 2016 consumer
confidence was impacted and volumes(3) fell by 12.4% in the third
quarter compared to the same period in 2015. Volumes(3) fell again
by 4.8% in the fourth quarter of 2016 compared to the same period
in 2015.
The second half impact on market transactions was more
pronounced in London and the South East. Market transactions are
estimated to have fallen in prime Central London areas by between
20% to 40% in the third quarter 2016, dependent on the postcode(4)
.
Total Mortgage Approvals(3) increased by 5.7% in 2016. This
reflected an increase in remortgage approvals in the first and
second half of 2016 compared to the same periods in 2015 reflecting
low interest rates and the availability of remortgage products.
Average house prices(5) in England and Wales grew 3.1% (2015:
6.6%) to GBP298,000 annually as stock shortages continued to have
an impact. Excluding London and the South East, the average
increase was 4.4%.
Residential property values in Greater London increased by 0.2%.
Prime Central London (5 prime boroughs) prices fell while outer
prime Central London experienced an increase in year-on-year house
prices(5) .
The proportion of new sales instructions given to online/hybrid
estate agents continued to grow, increasing from 3% of the market
in the second half of 2015 to 6% in the second half of 2016(6) .
While traditional estate agents continue to represent the vast
majority of the market (95% of residential sales instructions in
2016(6) ), we continue to closely monitor market developments.
The proportion of mortgage lending in the market placed through
intermediaries continued to increase during the year(7) .
Following market declines in the repossessions market in the
past few years, market repossession volumes again declined in 2016,
reducing by 25% to 7,700(8) total repossessions as interest rates
remained low and was the lowest number since 1982.
Strategy
We remain committed to delivering on our stated strategy:
Estate Agency
-- Ambition to drive operating profit per branch to between
GBP80,000 and GBP100,000 in the medium term
-- Ambition to expand the number of Marsh & Parsons branches
to a total of 36 by 2019, particularly outside prime Central
London
-- Grow recurring and where market conditions permit counter-cyclical income streams
-- Complete selective acquisitions of both residential sales businesses and lettings books
In addition to delivering on our stated strategy, we are also
exploring options to capitalise on digital opportunities created by
the growth in consumer acceptance of online/hybrid agency business
models. During the second half of 2016 we completed extensive
consumer and market research and in 2017 we are progressing to the
next phase by exploring and evaluating LSL's digital opportunities.
We will provide a further update to Shareholders during 2017.
Surveying
-- Optimise contract performance and revenue generation from business to business customers
-- Achieve further improvement in efficiency and capacity utilisation
-- Use technology to target further improvements in customer satisfaction and performance
-- Continue the graduate training programme
LSL performance in 2016
Estate Agency Division
Total Estate Agency income of GBP243.1m (2015: GBP236.5m)
increased by 3%. This increase resulted from the consistent
execution of our strategy with strong growth in both Lettings and
in Financial Services income, where we continued to invest in
additional people to support growth.
During the second half of the year following the EU referendum
we implemented selective cost reduction measures to adapt the
Group's costs base and ensure we remain competitive. We closed 21
branches in the second half with little disruption to our business,
which is testament to the professionalism and experience of our
staff.
Residential Sales exchange income
Residential Sales exchange income decreased by 10% to GBP83.8m
(2015: GBP92.9m) with average fees per unit down 2%. Exchange
volumes fell by 8%, with a strong first quarter followed by a
slowdown in subsequent quarters following the stamp duty changes
and the EU referendum. The fall in fees reflected increased
competitive pressure in the second half as volumes reduced.
Lettings income
We remain committed to our strategy of increasing recurring
Lettings income. In 2016 we delivered growth in Lettings income of
9%. Lettings Income increased as a proportion of the Estate Agency
business and represented 29% of total Estate Agency Division income
in 2016 (2015: 28%).
We delivered organic Lettings growth of 4% with growth across
all our brands. In line with our strategy, we continued to invest
in lettings book acquisitions, acquiring nine lettings books in
2016 for a total consideration of GBP4.1m(9) . The lettings books
have been successfully integrated into our networks. Lettings book
acquisitions were paused during the second half of the year
following the EU referendum.
Financial Services
Total Financial Services income grew strongly again with 27%
year-on-year growth in 2016. Adjusting for the acquisition of Group
First, we delivered organic growth of 13% as we continued to roll
out our model across the Estate Agency business and delivered
growth from our intermediary networks.
In February 2016 we acquired a 65% interest in Group First which
provides mortgage and protection brokerage services to the
purchasers of new homes. This acquisition supports LSL's strategy
to grow long term profitability in the UK residential property
services sector.
Marsh & Parsons
Given the overall challenging prime Central London market,
compounded by the result of the EU referendum which caused
transaction levels to drop significantly, Marsh & Parsons
revenue fell by 5% in 2016 to GBP33.5m (2015: GBP35.3m) and profit
fell by 36% to GBP4.4m (2015: GBP6.9m).
Whilst Residential Sales fell by 12% we believe this to be a
solid performance in light of the overall London market conditions.
We were pleased with the Lettings performance with Lettings income
up 6% against 2015, accounting for more than half of Marsh &
Parson's total revenue.
We continued with our branch expansion strategy in 2016, opening
two new branches during the year in the outer prime Central London
locations of Tooting and Tufnell Park. We have continued with our
strategy in 2017 and since the year-end have opened a branch in
Brixton. We are pleased with the performance of these new branches.
This takes our total number of Marsh & Parsons branches to
26.
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)
The reduction in operating profit per owned branch in 2016 to
GBP30,500 (2015: GBP42,500) reflects the challenging residential
sales market conditions following the EU referendum.
LSL has increased operating profit per owned branch from
GBP20,100 in 2012 to GBP30,500 in 2016. Our medium term ambition 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
ambition and we will also focus on Land and New Homes. We will also
consider further opportunities to re-engineer the cost base.
Surveying Division
During 2016 we continued to focus on optimising the
profitability of our Surveying business with particular emphasis on
delivering a market leading IT system. Total Surveying Division
income in 2016 of GBP64.7m (2015: GBP64.1m) was 1% higher than
2015, reflecting a good performance in a changing market.
During the first half of 2016, implementation started of a new
market leading IT system to deliver modern and scalable technology
for LSL that provides an improved platform to deliver services to
our clients. Phase one is complete and a roadmap of further
developments will be rolled out in 2017. This system will enable
our Surveying Division to continue to improve efficiency,
operational performance and hence the quality of service to our end
customers.
Following on from the significant improvements in 2014 and 2015,
capacity optimisation has been maintained helping to underpin
profit margins of 27.1% (2015: 28.3%). Income per job increased by
4% to GBP203 (2015: GBP196) and we performed in total 318,077 jobs
in 2016 (2015: 327,267) as we optimised the mix of our business. We
have continued with our graduate training programme which continues
to be successful.
Our customers
Our continued focus on providing the best service to our
customers has been recognised in 2016 with numerous industry awards
including:
-- Marsh & Parsons: Estate Agency of the Year Awards 2016,
in association with The Times and The Sunday Times: Overall Winner
of the Estate Agency of the Year Award and Best Large UK Estate
Agency - Gold Award.
-- Your Move: Lettings Agency of the Year Awards 2016, in
association with The Times and The Sunday Times: Best Property
Management (1001+ properties) Lettings Agency - Gold Award.
-- Davis Tate: Estate Agency of the Year Awards 2016, in
association with The Times and The Sunday Times: Best Medium Estate
Agency, South East - Gold Award. The 2016 all Agents Awards: Best
Estate Agent - Overall Winner in Reading, Best Estate Agent - Gold
Awards in 10 UK postcode regions: Best Letting Agent - Gold Award
in 8 UK postcode regions.
-- Frost's Estate Agent: Estate Agency of the Year Awards 2016,
in association with The Times and The Sunday Times: Best Small
Estate Agency, East of England - Gold Award.
-- Intercounty: Estate Agency of the Year Awards 2016, in
association with The Times and The Sunday Times: Best Medium Estate
Agency, East of England - Gold Award. Lettings Agency of the Year
Awards 2016, in association with The Times and The Sunday Times:
Best Medium Lettings Agency, East of England - Gold Award.
-- Thomas Morris: The Negotiator Awards 2016: East of England
Agency of the Year - Gold Award. Relocation Agent Network Awards
2016: Best Agent, East Anglia and Essex - Winner, Customer
Relocation Award - Winner. The 2016 all Agents Awards: Best Estate
Agent, East of England - Gold Award. Agents Giving: Best Innovative
and Creative Fundraising Award - Winner. Agency Mentors:
Inspirational Agent 2016 - Winner (Sue Gipson St.Neots).
-- Pink Home Loans: Financial Adviser Service Awards 2016 : 5 star award.
-- Pink Home Loans and First Complete Financial Services:
Precise Mortgages Awards 2016: Best Distributor Group.
-- e.surv Chartered Surveyors: Equity Release Awards 2016: Best
Surveyor Award - Winner. Mortgage Strategy Awards 2016: Best
Surveyor Award, Individual Firms - Winner. Your Mortgage Awards
2016: Best Surveyor Award - Winner.
Balance Sheet and Exceptionals
The Group has a strong balance sheet with closing Net Bank Debt
at 31 December 2016 of GBP20.3m (2015: GBP39.9m) and a gearing
level at 0.51 times 2016 adjusted EBITDA (2015: 0.83 times)(1)
.
Between 20(th) July 2016 and 31(st) October 2016, we sold our
entire holding of 11.3m ordinary shares in Zoopla for total
proceeds of GBP36.1m at an average price per share of GBP3.19. The
proceeds of the disposal were used to reduce corporate
indebtedness.
As set out in our 2016 Interim Results announcement, during the
second half of 2016, a cost saving programme across the Group and
the technological refresh in the Surveying Division resulted in
exceptional costs of GBP2.3m.
In relation to the PI Costs provision, the Group continued to
make positive progress in addressing historic claims and there has
been a net GBP1.6m exceptional release.
Outlook
We have started 2017 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 my colleagues to deliver a
successful year in 2017.
Ian Crabb
Group Chief Executive Officer
7(th) March 2017
Note 1- Operational gearing is defined as net debt divided by
adjusted EBITDA (Adjusted EBITDA is Group Underlying Profit (note
4) plus depreciation on property plant and equipment)
Note 2- Group Underlying Operating Profit is before exceptional
costs, contingent consideration, amortisation of intangible assets
and share-based payments (as defined in Note 4)
Note 3- Source: Bank of England for "House Purchase Approvals"
and "Total Mortgage Approvals" - December 2016 released January
2017
Note 4- Source LSL estimates
Note 5-Source December 2016 LSL Property Services/ACADATA
HPI
Note 6- LSL sources/data analysis
Note 7-CML, new mortgages sold by intermediaries - February
2017
Note 8-Source Council of Mortgage Lenders - January 2017,
released February 2017
Note 9- Total consideration of up to GBP4.1m includes contingent
consideration
Business Review - Estate Agency Division
2016 2015 %
Financial GBPm GBPm change
--------------------------------- ------- ------- -------
Residential Sales exchange
income 83.8 92.9 -10%
Lettings income 71.4 65.4 +9%
Asset Management income 6.6 7.8 -15%
Financial Services income 64.1 50.5 +27%
Other income(1) 17.2 19.9 -14%
Total income 243.1 236.5 +3%
Operating expenditure (218.6) (205.2) -6%
Underlying Operating Profit(2) 24.5 31.3 -22%
--------------------------------- ------- ------- -------
KPIs
--------------------------------- ------- ------- -------
Exchange units 27,029 29,311 -8%
Underlying Operating Margin
(%) 10.1% 13.2%
Fees per unit GBP 3,102 3,170 -2%
--------------------------------- ------- ------- -------
Market data
--------------------------------- ------- ------- -------
House purchase approvals
(000s)(3) 799 806 -1%
Total Mortgage approvals
(000s)(3) 1,467 1,388 6%
UK Housing Transactions
(000s)(4) 1,235 1,230 1%
Repossessions(5) 7,700 10,200 -25%
--------------------------------- ------- ------- -------
1 'Other income' includes franchising income, conveyancing
services, EPCs, Home Reports, utilities and other products and
services to clients of the branch network.
2 Refer to Note 3 for the calculation
3 Source: Bank of England, "Mortgage approvals for house
purchases" and "Total mortgage approvals" - December 2016, released
January 2017.
4 Source: HMRC Stats, "Monthly property transactions completed
in the UK with value of GBP40,000 or above" - December 2016,
released January 2017
5 Source: Council of Mortgage Lenders - January 2017, released February 2017
Estate Agency Division Performance
Year-on-year income growth in the Estate Agency Division was 3%.
Lettings income and Financial Services income showed positive
growth with Residential Sales impacted by lower transaction volumes
in the second half. First half total income increased by 9%
compared to the comparative period in 2015 whilst second half
income fell by 3%.
Residential Sales exchange income
Residential Sales exchange income decreased by 10% to GBP83.8m
(2015: GBP92.9m) with average fees per unit decreased by 2%.
Residential Sales exchange volumes fell by 8%. The trend mirrored
the general market with a strong first quarter followed by a
slowdown in subsequent quarters following the stamp duty changes
and the EU referendum. The fall in fee reflected increased
competitive pressure in the second half as volumes reduced.
The second half reduction in transactions was more pronounced in
LSL's London and the South East brands, reflecting the same trends
as the general market.
Lettings income
Lettings income grew in each quarter of the year and across all
brands as LSL continued to focus on this growing revenue stream.
Organic Lettings growth for the year was 4%. Combined with the
Lettings acquisitions, overall growth was strong, at 9% for the
full year. LSL continues to focus on this recurring revenue stream
which represented 29% of total Estate Agency Division income in
2016 (2015: 28%).
Financial Services income
Total Financial Services Income delivered through the Estate
Agency Division's branches, Group First (acquired during the year)
and the intermediary networks of First Complete and Pink Home Loans
grew strongly again with 27% year-on-year growth in 2016.
Adjusting for the acquisition of Group First, organic Financial
Services income growth for 2016 was 13% and growth was achieved
across all Estate Agency brands and also the intermediary network
businesses.
In total the Group arranged mortgage lending completions of
GBP17.4bn during 2016 (2015: GBP14.5bn), with an estimated market
share of 7.1%(5) .
Other income
Other income fell by 14% year-on-year as conveyancing income
fell in line with lower residential transaction volumes.
Marsh & Parsons
Marsh & Parsons delivered a resilient performance in a
challenging prime Central London market which was impacted by a
number of factors including the 2016 stamp duty changes and the
result of the EU referendum. Total revenue fell by 5% in 2016 to
GBP33.5m (2015: GBP35.3m) and Underlying Operating Profit was
GBP4.4m (2015: GBP6.9m).
Whilst Residential Sales income fell by 12% the Board believe
this to be a highly robust performance in the light of the overall
London market conditions. The Board is very pleased with Lettings
performance with Lettings income up 6% against 2015, accounting for
more than half of Marsh & Parson's total revenue.
Asset Management
Asset Management delivered a robust performance in a shrinking
market with revenues lower by 15% compared to the 25% market fall
in repossessions to 7,700(5) in 2016. With a strong market share,
the Asset Management business as a counter-cyclical 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 recurring
revenues in the Group.
Estate Agency Division operating margin
The Estate Agency Division Underlying Operating Margin was 10.1%
in 2016 (2015: 13.2%) which resulted from the reduction in
Residential Sales volumes, a full year overhead charge for Thomas
Morris (acquired during 2015), new Marsh & Parsons branches
opened during the year and the national media campaign investment
in the Your Move brand which was launched during the first half of
2016. Profits were slightly lower in Asset Management as cost
measures taken did not fully offset the fall in repossession
volumes.
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,
Mortgages First and Embrace Mortgage Services along with the LSLi
subsidiaries are all appointed representatives of First Complete.
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 and Insurance First Insurance Brokers is an appointed
representative of Sesame Limited. LSL's Financial Services business
are also members of the Association of Mortgage Intermediaries
(AMI) which is an industry representative and trade body and the
Financial Services businesses are subject to the Financial
Ombudsman Service and contribute to the funding of the Financial
Services Compensation Scheme through regulatory fees and charges.
LSL is participating in and monitoring the FCA's market study on
competition in the mortgage sector which was launched in December
2016.
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 Data
Protection, 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. LSL has
also on behalf of all its Estate Agency businesses entered into a
primary authority agreement with York Trading Standards Office. LSL
is monitoring the Government's review of the housing market, which
is set out in the Housing White Paper published in January 2016 and
is considering the impact of the reforms on LSL's businesses.
Branch numbers
Breakdown of LSL's Estate Agency branches as at 31(st) December
2016.
Owned Franchised Totals
---------------- ----- ---------- ------
Your Move 202 65 267
Reeds Rains 117 40 157
LSLi 63 2 65
Marsh & Parsons 25 0 25
Total 407 107 514
Business Review-Surveying Division
2016 2015 %
Financial GBPm GBPm change
-------------------------------------- ------ ------ -------
Revenue 64.7 64.1 +1%
Operating expenditure (47.2) (46.0) -3%
Underlying Operating Profit(1) 17.5 18.1 -3%
-------------------------------------- ------ ------ -------
KPIs
-------------------------------------- ------ ------ -------
Underlying Operating Margin
(%) 27.1% 28.3%
Jobs Performed (000's) 318 327 -3%
Revenue from private surveys
(GBPm) 2.3 2.4 -4%
Income per job (GBP) 203 196 +4%
PI Costs provision (Balance
Sheet) at 31(st) December (GBPm) 20.7 29.7 -30%
Number of qualified surveyors
at 31(st) December (FTE)(2) 323 347 -7%
Total Mortgage Approvals ('000s)(3) 1,467 1,388 6%
-------------------------------------- ------ ------ -------
1 Refer to Note 3 for the calculation
2 Full Time Equivalent (FTE)
3 Source: Bank of England, "Mortgage approvals for house
purchases" and "Total mortgage approvals" 2016.
Surveying Division Performance
Total mortgage approvals(3) increased in the year by 5.7% to
1.467m (2015: 1.388m) with a strong first half followed by a
decrease in the second half. This reflects a strong market for buy
to let and second properties in the first quarter, prior to stamp
duty changes, and a reduction in consumer confidence post the EU
referendum in the second half.
Surveying turnover was GBP64.7m (2015: GBP64.1m), an increase of
1% on the previous year with the total number of jobs performed
during the year of 318,077 (2015: 327,267) reflecting the overall
management of the mix of jobs.
LSL continued to focus on optimising capacity management in
2016, driving an increase in income per job to GBP203, an
improvement of 4% year-on-year. As a result LSL delivered another
strong Underlying Operating Profit result at GBP17.5m (2015:
GBP18.1m) with an Underlying Operating Margin of 27.1% (2015:
28.3%).
The total number of qualified surveyors (FTE) at 31(st) December
2016 was 323(3) , a reduction of 7% year-on-year. LSL's on-going
graduate training programme continues to be successful and assists
in alleviating the impact of skill constraints in the market. In
2017 LSL will continue to focus on improving efficiency through
optimising capacity management supported by use of the new
technology.
At 31(st) December 2016 the total provision for PI Costs was
GBP20.7m. In 2016 the Group continued to make positive progress in
addressing historic claims and there has been a net GBP1.6m
exceptional release.
Financial Review
The key drivers of the financial performance of LSL in 2016 are
summarised below:
Income statement
Revenue
Revenue increased by 2.4% to GBP307.8m in the year ended 31(st)
December 2016 (2015: GBP300.6m).
Operating Expenses
Operating expenses increased by 5.6% to GBP275.3m (2015:
GBP260.7m). Increases were primarily in the Estate Agency Division
as a result of the acquisition of Group First, a full year charge
for Thomas Morris (acquired during 2015), Marsh & Parsons
branch openings and the national media campaign investment in the
Your Move estate agency brand during the first half of 2016.
The average number of full time equivalent employees during the
year was 4,630 (2015: 4,677).
Group Underlying Operating Profit
Group Underlying Operating Profit (as defined in Note 4 to the
Financial Statements) decreased by 19.2% to GBP34.6m (2015:
GBP42.9m) with the Underlying Operating Margin of 11.3% (2015:
14.3%). On a statutory basis, the Group operating profit increased
by 58% to GBP65.4m (2015: GBP41.4m).
Exceptional Items
Total exceptional costs in 2016 were GBP2.3m (2015: GBP0.3m).
The exceptional costs related to the closure and restructure of 21
branches and the costs relating to the technological refresh in the
Surveying Division. In 2015, exceptional costs comprised the
closure of an administration centre and the subsequent
restructuring costs incurred which included redundancy costs.
Total exceptional gains in 2016 were GBP34.5m (2015: nil)
comprising of GBP32.9m of gains relating to the sale of the Zoopla
shares and a GBP1.6m exceptional release relating to the PI Costs
provision.
PI Cost provision for PI claims and notifications
At 31(st) December 2016, the total provision for PI Costs was
GBP20.7m. In 2016 the Group continued to make positive progress in
addressing historic claims and there has been a net GBP1.6m
exceptional release.
Contingent consideration
The contingent consideration relates primarily to the growth
shares (C shares) acquired by the management of Marsh & Parsons
subsequent to acquisition, and payments due to third parties in
relation to the acquisition of LSLi and certain of its subsidiaries
between 2007 and 2016. Payments are due between three and five
years after the acquisition completion and depending on the
profitability of those subsidiaries in the relevant calculation
years. In 2016 contingent consideration in the Income Statement
amounted to a credit of GBP3.8m (2015: GBP1.5m credit). This
included a credit for consideration on the acquisition (in 2011) of
Marsh & Parsons of GBP1,964,000 (2015: credit GBP3,002,000), a
credit relating to LMS of GBP268,000 (2015: charge of GBP2,136,000)
and a credit of GBP1,142,000 in LSLi (2015: credit of
GBP611,000).
Amortisation
The amortisation charge was GBP3,900,000 (2015: GBP1,800,000).
The increase was the result of the full year impact of the
acquisition activity in 2015 and the first half 2016.
Net Financial Costs
Net financial costs amounted to GBP1.9m (2015: GBP2.8m). 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. The reduction in the net financial cost
results from reduced interest charges in part due to the variation
of the 2011 loan notes.
Taxation
Following the 2015 Summer Budget the headline rate of
corporation tax in the UK was further reduced from the current rate
of 20% to 19% effective from 1(st) April 2017 and further reduced
to 18%, effective from 1(st) April 2020. The Budget announcement in
March 2016 included a further reduction effective from 1(st) April
2020, when the proposed corporation tax rate will be lowered
further still to 17%.
Following the enactment of Finance Bill 2016 in September 2016,
the applicable corporation tax rate is 17% and this is the rate at
which deferred tax has been provided (2015: 18%). Corporation tax
is recognised at the headline UK effective rate of 20% (2015:
20.25%).
The effective rate of tax for the year was 20.5% (2015: 21.1%).
The effective tax rate for 2016 has decreased as a result of a
number of factors, including reducing the rate at which deferred
tax is provided resulting from the reduction in the headline rate
of corporation tax.
Deferred tax credited directly to other comprehensive income is
GBP3.8m (2015: charge of GBP0.5m). This is comprised of a credit of
GBP5.9m and a charge of GBP2.1m and relates to the disposal and
revaluation of financial assets. Income tax credited directly to
the share based payment reserve is GBP0.1m (2015: GBPnil).
In 2016 corporation tax payments of GBP8,900,000 (2015:
GBP5,600,000) were made which is lower than the current year
corporation tax charge of GBP12,700,000 (2015: GBP7,800,000). This
is a result of the timing of the settlement of the corporation tax
liability on the disposal of Zoopla share-holding in the second
half of 2016.
Basic Earnings per Share
The Basic Earnings per Share was 49.2 pence (2015: 29.7 pence).
The Adjusted Basic Earnings per Share (as calculated in Note 6 to
the Financial Statements) is 25.9 pence (2015: 31.5 pence) a drop
of 17.8% which is broadly in line with the decrease in Underlying
Group Operating Profit. The Group seeks to present a measure of
underlying performance which is not impacted by the unevenness in
profile of exceptional gains and exceptional costs, contingent
consideration, amortisation of intangible assets and share-based
payments. 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
Joint ventures and other investments
The Group has two joint ventures; a 33.3% (2015: 33.33%)
interest in TM Group, whose principal activity is to provide
property searches, and a 50% (2015: 49.99%) interest in LMS whose
principal activity is to provide conveyancing panel management
services.
In addition LSL owns an 18.1% (2015: 18.1%) share in the Guild
of Professional Estate Agents (GPEA), which is a membership
organisation with a national network of independently owned estate
agents. The carrying value of GPEA was assessed as at 31(st)
December 2016 and was revalued to GBP3.7m (2015: GBP0.9m).
Capital Expenditure
Total capital expenditure in the year amounted to GBP4.6m (2015:
GBP4.8m) and an additional GBP1.4m (2015: GBP3.2m) has been spent
internally on developing new software which has been treated as an
intangible asset.
Bank Facilities
In May 2016, LSL extended its bank facility until May 2020. The
facility includes a GBP100m revolving credit facility (2015:
GBP100m) and incorporated more favourable terms for LSL. 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 2016 Net Bank Debt was GBP20.3m (2015:
GBP39.9m) and Shareholders' funds amounted to GBP128.8m (2015:
GBP107.4m) providing a balance sheet gearing of 15.8% (2015:
37.1%). The decrease in Net Bank Debt was primarily the result of
the sale of the Group's entire holding of Zoopla shares and the
pause in acquisition activity in the second half of the year. The
2016 gearing level was 0.51 times adjusted EBITDA(1) (2015: 0.83
times). The Group has a committed revolving credit facility until
May 2020 and in 2016 the Group generated cash from operations of
GBP32.7m (2015: GBP36.5m).
Zoopla
Between 20(th) July 2016 and 31(st) October 2016, LSL sold its
entire holding of 11.3m ordinary shares in Zoopla for total
proceeds of GBP36.1m at an average price per share of GBP3.19. The
proceeds of the disposal were used to reduce corporate
indebtedness.
In January 2017 Zoopla (now known as ZPG) issued the Group with
226,711 warrants in accordance with the 2016 service agreement.
Net Assets
The Group's net assets as at 31(st) December 2016 were GBP128.8m
(2015: GBP107.4m).
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. 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 2016.
Post Balance Sheet Events
There have been no post balance sheet events to report.
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 Operating 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 2016, 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 continued to develop 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
approving a risk framework policy and defining individual 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 expects 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. This includes monitoring of risk measures and
identification of actions needed to bring any specific outlying
areas of risk within target levels. During 2016, exercises have
been initiated for targeted analysis of emerging areas of risk and
evaluation of components within individual principal risk areas
where management adopt the lowest risk appetite tolerances.
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
2017, LSL will continue to develop the framework in line with
emerging best practice, including broader development of risk key
performance indicators within management information and triggers
to be applied in specific areas to adjust levels of risk
exposure.
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.
On-going evolution of the risk management framework is carried
out as part of an on-going cycle of continual improvement, and
remains a key priority for the Board in 2017.
Developing the financial viability statement
In developing the financial viability statement, it was
determined that a three year period, ending on 31(st) December
2019, should be used, as this is consistent with Group's budget and
strategic planning cycles and is supported by the Group's funding
arrangements, which expire in May 2020.
The Executive Committee reviewed LSL's principal risks, and
considered which of these risks might threaten the Group's
viability. Each risk was assessed and ranked to differentiate
between a critical risk that should be modeled and risks that were
less critical and may be modeled as a conflating event.
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 the finance
teams.
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. A significant downturn assumed Total Mortgage
Approvals falling to 500,000; this compares to 799,000 approvals in
2016. Modelling included the plans LSL put in place during that
recessionary period such as reducing dividends and costs in
branches. 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 future scenario.
The impact on consumer confidence following result of the EU
referendum has already been factored into the budgets prepared by
the Group which is also the first year of this model; any further
uncertainty surrounding the Article 50 could impact the housing
market but this is already factored into the heavily reduced number
of housing approvals included within this model.
The current low interest rate market has been considered, and
discussed with senior management as to how this may impact the
viability of the company. Given the low gearing of the Group and
the absence of financial instruments this is not deemed a material
variable.
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's
recurring revenue and counter-cyclical income businesses, notably
Asset Management, and the extent to which recurring revenue
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.
As detailed in the Audit Committee's Report, the Directors
reviewed and discussed the process undertaken by the Management
Team in proposing the viability statement and the Audit Committee
oversaw the development of the statement. The Directors' financial
viability statement is contained in the Directors' Report.
Risk management and internal controls framework
LSL's risk management and internal controls framework for 2016
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 the Group Financial
Controller;
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 Audit Committee Report);
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 risk framework policy which will continue to be
developed in 2017.
This risk framework includes the following:
a. risk framework policy;
b. determination of risk appetite and management or mitigation
of risks in line with risk appetite tolerances;
c. assessment of prospects and viability;
d. review of effectiveness of the risk management and internal control systems; and
e. going concern confirmation (for LSL's going concern
disclosure see the Report of the Directors).
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 judgment of the Board and has
been supported by the Management Teams.
The Directors also carried out a risk appetite assessment
exercise which involved the evaluation of continually evolving
aspects of risk management. During 2016, this included the
capturing of anticipated impacts following the EU referendum on the
residential housing market and the articulation of established
'conduct risk' routines used to support the delivery of appropriate
customer outcomes. These aspects are included in the principal
risks and uncertainties summarised in this Report.
The identified 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 this Report
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
included the Report of the Directors. 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 in this statement. 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 2016 is set out in the Audit Committee Report
(Internal Controls).
Principal Risk and Uncertainties
Risk Description Mitigation
----- ---------------- ----------------------------- ---------------------------------------------------------------
Strategic:
---------------------------------------------------------------------------------------------------------------------
1 UK housing Group performance is
market intrinsically linked * Daily, weekly and monthly monitoring of trading and
to the overall performance market performance data.
of the UK housing market
(including subsets
- e.g. prime Central * Market share, product mix and segmentation
London). The market initiatives.
is also impacted by
changes in the global
political and economic * Development of counter-cyclical income and recurring
environments (e.g. revenue streams.
EU Referendum outcome).
* Responsive investment and cost control measures
during the housing market cycle.
* Investment in teams to delivery strategic projects.
* Balanced UK-wide geographical spread.
* Monitoring of wider macro-economic and political
developments.
----- ---------------- ----------------------------- ---------------------------------------------------------------
2 New UK Traditional business -- Competitor and industry benchmarking.
housing models for property -- Development of strategies in
market services are exposed response to market disrupters.
entrants increasingly to new -- External consultative support
business models and as necessary.
technological advancements * Monitoring of potential acquisitions and joint
(e.g. online/hybrid venture opportunities.
estate agents, Automated
Valuation Models and
automated financial * Service delivery enhancements and experimentation.
services operating
models).
* Infrastructure investment, upgrading and
consolidation of core operating systems.
-- Marketing initiatives.
-- Staff incentive schemes.
----- ---------------- ----------------------------- ---------------------------------------------------------------
3 Acquisitions Realising appropriate
and growth targets for acquisition * Defined pre and post-acquisition reporting to the
initiatives and major project Board and Audit Committee.
initiatives,
including delivery
of appraisals, due -- Structured authority levels.
diligence and * Responsive flexing of risk appetite during the
integration/implementation housing market cycle.
requirements.
* Flexible resource pool to support acquisition and
integration activities 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 Exposure to major PI
services claims arising from * Robust framework and monitoring routines to maintain
any lapses in surveying valuation accuracy.
and valuation practices.
* Dedicated surveying risk team.
* Timely data capture of all claims and associated
trends.
* 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.
* Board-level authorities for PI claims settlement
payments and governance of underlying claims handling
and accounting processes.
----- ---------------- ----------------------------- ---------------------------------------------------------------
5 Client The performance of
Contracts the Estate Agency and * Customer outcome focused forums and initiatives.
Surveying businesses
are dependent on securing
and retaining key contracts * Designated senior members of staff with
(e.g. lenders, portfolio responsibility for relationship management.
landlords and house
builders).
* Ongoing investment in resources, technology and
service standards to ensure LSL has the capacity to
meet service level demands.
* Targeted marketing and training events.
* Monitoring of client dependency and compliance with
contractual requirements.
* Robust control framework supporting the risk
profiling of prospective clients, contract renewals
and the quality of professional services.
* Dedicated in-house Legal Services and Claims
Management teams
* Risk & Internal Audit reviews.
----- ---------------- ----------------------------- ---------------------------------------------------------------
Operations:
---------------------------------------------------------------------------------------------------------------------
6. Information The Group has varied
technology operations which require * Board level IT governance, policies and initiatives.
infrastructure a robust IT infrastructure.
The IT environment
needs to remain adaptable * Focus on innovation within the Group's strategy.
to support growth
initiatives,
harness technological * Dedicated in-house IT teams.
advancements and counter
business continuity
threats, including * Maintenance of infrastructure to maintain effective
malicious and cyber service delivery.
related attacks.
* On-going IT investment and development 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 Group operations involve
security the processing of high * LSL Information Security and Governance Group and
volumes of personal Group IT Director in place.
data, with potential
for unintended data
loss and exposure to * Dedicated LSL Information Security personnel.
increasing levels of
external cyber-crime.
* Group data protection policies in place and training
delivered.
* Advice obtained from In house legal and external
advisers as appropriate.
* Tracking of data assets/data sharing, in line with
authority levels.
* Penetration testing programme.
* Benchmarking versus best practice standards - e.g.
ISO27001.
* Implementation of regulatory changes - e.g. General
Data Protection Regulation.
-- Second and third-line
risk-based reviews.
----- ---------------- ----------------------------- -------------------------------------------------------------
8. Regulatory Relationships with
and compliance regulators and compliance * Top-down culture focused on fairness, transparency
with legal and regulatory and successful customer outcomes.
requirements. Any compliance
breaches could result
in sanctions and * Open dialogue with regulators and monitoring of
reputational emerging developments and regulatory reforms.
damage (e.g. prosecutions
or fines).
* Group risk framework policy incorporating a
Regulatory and compliance 'three-lines of defence' model to track compliance
risk extends to oversight with regulations.
of standards adopted
by business partners
(e.g. franchises, appointed * Group policies including ethics (e.g. whistleblowing
representatives, joint structures and anti-fraud and anti-bribery policies)
ventures and minority and employee welfare.
investments).
The market and business * Group-wide health and safety arrangements to ensure
operations are also the welfare of employees and visitors to Group
impacted by regulatory premises.
reforms (e.g. Housing
White Paper) which
may have an effect * Group-level forums with regulatory focus and
on Group revenue and oversight (e.g. FSMC, FSRC and Information Security
expenditures. and Governance Group).
Regulatory costs, fees
and charges continue * Dedicated compliance teams in higher risk/regulated
to grow due to the functions.
rising funding requirements
of the Financial Services
Compensation Scheme. * Evolution of IT systems to strengthen oversight
routines.
* Responsive complaints tracking of any emerging
themes.
* In-house Legal Services team, with external
consultative support when needed.
* Group Risk and Internal Audit reviews.
----- ---------------- ----------------------------- -------------------------------------------------------------
People:
---------------------------------------------------------------------------------------------------------------------
9. Employees Securing and retaining
key strategic population * Oversight by LSL Remuneration and Nominations
and controlling attrition Committees.
in key business critical
areas, ensuring the
effective management * Group remuneration policies and incentive schemes to
of personnel standards retain key strategic population.
across varied Group
businesses.
* Regular benchmarking and appraisals of senior
management.
* Succession planning reviews and targeted reviews in
some areas.
* Dedicated in-house recruitment team.
* Targeted retention and recruitment initiatives.
* Staff surveys and Group HR initiatives to focus on
attrition, improve staff morale, relieve areas of
pressure and improve operational efficiencies.
* Group-wide HR IT systems.
* Monitoring of statutory requirements and
developments.
* Employee policies and monitoring framework (e.g.
health and safety).
* Culture of transparency, clear Group policies and
whistleblowing procedures to enable staff to
confidentially raise concerns.
----- ---------------- ----------------------------- -------------------------------------------------------------
Group Income Statement
for the year ended 31(st) December 2016
2016 2015
Note GBP'000 GBP'000
---------- ----------
Revenue 3 307,750 300,594
Operating expenses:
Employee and subcontractor
costs (182,687) (171,216)
Establishment costs (19,888) (19,012)
Depreciation on property,
plant and equipment (5,475) (5,296)
Other (67,282) (65,180)
---------- ----------
(275,332) (260,704)
Other operating income 1,165 1,865
(Loss) on sale of property,
plant and equipment (9) (44)
Group's share of profit
after tax in joint ventures 1,049 1,156
Group operating profit 4 34,623 42,867
Share-based payments (1,263) (871)
Amortisation of intangible
assets (3,914) (1,803)
Exceptional gains 5 34,531 -
Exceptional cost 5 (2,341) (258)
Contingent consideration 5 3,785 1,477
Group operating profit 3 65,421 41,412
---------- ----------
Finance income - 5
Finance costs (1,896) (2,817)
Net financial costs (1,896) (2,812)
Profit before tax 63,525 38,600
Taxation
- related to exceptional
items and contingent consideration (6,432) 52
- others (6,601) (8,190)
8 (13,033) (8,138)
---------- ----------
Profit for the year 50,492 30,462
---------- ----------
Attributable to
- Owners of the parent 50,493 30,414
- Non-controlling interest (1) 48
Earnings per share expressed
in pence per share:
Basic 6 49.2 29.7
Diluted 6 49.0 29.5
Group Statement of Comprehensive Income
for the year ended 31(st) December 2016
2016 2015
GBP'000 GBP'000
----------- ---------
Profit for the year 50,492 30,462
----------- ---------
Items to be reclassified
to profit and loss in subsequent
periods:
Reclassification adjustments
for disposal of financial
assets (33,022) (440)
Income tax effect 5,914 53
Revaluation of financial
assets 11,816 5,130
Income tax effect (2,015) (580)
Net other comprehensive (loss)/income
to be reclassified to profit
and loss in subsequent periods: (17,307) 4,163
Total other comprehensive
(loss)/income for the year,
net of tax (17,307) 4,163
----------- ---------
Total comprehensive income
for the year, net of tax 33,185 34,625
----------- ---------
Attributable to
- Owners of the parent 33,186 34,577
- Non-controlling interest (1) 48
Group Balance Sheet
as at 31(st) December 2016
2016 2015
GBP'000 GBP'000
---------- ----------
Non-current
assets
Goodwill 151,901 136,395
Other intangible
assets 33,249 30,517
Property, plant
and equipment 18,842 19,393
Financial assets 4,603 28,871
Investments
in joint ventures 8,762 8,778
Total non-current
assets 217,357 223,954
----------
Current assets
Trade and other
receivables 32,263 35,366
Cash and cash
equivalents - 5,603
---------- ----------
Total current
assets 32,263 40,969
Total assets 249,620 264,923
---------- ----------
Current liabilities
Financial liabilities (10,739) (15,777)
Trade and other
payables (50,900) (50,102)
Current tax
liabilities (7,581) (2,525)
Provisions for
liabilities (5,742) (12,100)
---------- ----------
Total current
liabilities (74,962) (80,504)
---------- ----------
Non-current
liabilities
Financial liabilities (26,469) (52,511)
Deferred tax
liability (3,801) (6,927)
Provisions for
liabilities (15,622) (17,625)
---------- ----------
Total non-current
liabilities (45,892) (77,063)
---------- ----------
Total Liabilities (120,854) (157,567)
Net assets 128,766 107,356
---------- ----------
Equity
Share capital 208 208
Share premium
account 5,629 5,629
Share-based
payment reserve 4,303 3,564
Treasury shares (5,368) (5,988)
Fair value reserve 3,571 20,878
Retained earnings 120,239 82,880
---------- ----------
Equity attributable
to owners of
parent 128,582 107,171
Non-controlling
interests 184 185
Total equity 128,766 107,356
---------- ----------
Group Statement of Cash Flows
for the year ended 31(st) December 2016
31(st) 31(st)
December December
2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Cash generated from operating
activities
Profit before tax 63,525 38,600
Adjustments to reconcile
profit before tax to net
cash from operating activities
Exceptional operating
items and
contingent consideration (35,975) (1,219)
Amortisation of intangible
assets 3,914 1,803
Finance income - (5)
Finance costs 1,896 2,817
Share-based payments 1,263 871
--------- ---------
Total adjustments (28,902) 4,267
---------- -----------
Group operating profit
before amortisation and
share-based payments 34,623 42,867
Depreciation 5,475 5,296
Dividend income (492) (835)
Share of results of joint
ventures (1,049) (1,156)
Loss/(Gain) on sale of
property, plant and
equipment and financial
assets 9 (253)
--------- ---------
3,943 3,052
Decrease in trade and
other receivables 3,265 975
(Decrease) in trade and
other payables (614) (1,026)
(Decrease) in provisions (8,561) (9,345)
--------- ---------
(5,910) (9,396)
---------- -----------
Cash generated from operations 32,656 36,523
Interest paid (1,948) (1,852)
Tax paid (8,861) (5,613)
---------
(10,809) (7,465)
---------- -----------
Net cash generated from
operating activities 21,847 29,058
Cash flows from investing
activities
Cash acquired on purchase
of subsidiary
undertaking 1,593 774
Acquisitions of subsidiaries
and other
businesses (8,451) (13,202)
Payment of contingent
consideration (3,537) (4,015)
Investment in financial
assets - (1,178)
Investment in joint venture (2) -
Cash received on sale
of financial assets 35,991 297
Dividends received from
joint venture - 1,499
Dividends received from
financial assets 778 549
Interest received - 5
Purchase of property,
plant and equipment
and intangible assets (6,064) (7,991)
Proceeds from sale of
property, plant and
equipment 69 328
--------- ---------
Net cash generated / (expended)
on investing activities 20,377 (22,934)
Cash flows from financing
activities
Repayment of loans (25,243) -
Drawdown of loans - 11,500
Repayment of overdraft (718)
Repayment of loan notes (7,294) (63)
Payment of deferred consideration (2,422) -
Proceeds from exercise
of share options 48 1,314
Dividends paid (12,916) (12,554)
--------- ---------
Net cash used in financing
activities (47,827) (521)
Net (decrease) / increase
in cash and cash equivalents (5,603) 5,603
Cash and cash equivalents 5,603 -
at the beginning of the
year
--------- ---------
Cash and cash equivalents
at the end of the year - 5,603
--------- ---------
Group Statement of Changes in Equity
for the year ended 31(st) December 2016
Share Share Share- Treasury Fair Retained Total Non-controlling Total
capital premium based shares value earnings equity interests
account payment Reserve
reserve
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
Disposal
of financial
assets (net
of tax) - - - - (27,108) - (27,108) - (27,108)
Revaluation
of financial
assets (net
of tax) - - - - 9,801 - 9,801 - 9,801
-------- -------- -------- --------- --------- --------- --------- ---------------- ---------
Other
comprehensive
income for
the year - - - - (17,307) - (17,307) - (17,307)
Profit for
the year - - - - - 50,493 50,493 (1) 50,492
Total
comprehensive
income for
the year - - - - (17,307) 50,493 33,186 (1) 33,185
Exercise
of options - - (524) 620 - (218) (122) - (122)
Share-based
payments - - 1,263 - - - 1,263 - 1,263
Dividend
payment - - - - - (12,916) (12,916) - (12,916)
At 31(st)
December
2016 208 5,629 4,303 (5,368) 3,571 120,239 128,582 184 128,766
-------- -------- -------- --------- --------- --------- --------- ---------------- ---------
Year ended 31(st) December 2015
Share Share Share- Treasury Fair Retained Total Non-controlling Total
capital premium based shares value earnings equity interests
account payment Reserve
reserve
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
-------- -------- -------- --------- --------- --------- --------- ---------------- ---------
Notes to the Preliminary Results Announcement
The financial information in this preliminary results
announcement does not constitute LSL's statutory financial
statements for the year ended 31(st) December 2016 but has been
extracted from the Financial Statements included in LSL's Annual
Report & Accounts 2016 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 2017 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 current 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 2016 which are applicable
to the Group. For the Financial Statements for the year ended
31(st) December 2016, 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 continue to evaluate 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 and as part of its
business model, the Estate Agency Division also provides associated
services including arranging 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,
Mortgage First, Insurance Brokers First and Linear Financial
Solutions. The financial services revenue included within the
Estate Agency Division includes two mortgage and insurance
distribution networks providing products and services for sale via
financial intermediaries. A significant proportion of the results
of the Financial Services are inextricably linked to the Estate
Agency business, they have therefore been aggregated with those of
the Estate Agency and Related Services segment.
-- 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 2016.
The Management Teams monitor the operating results of each
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 2016 and financial year ended 31(st) December
2015 respectively.
Year ended 31(st) December 2016
Estate Surveying
Agency and
and Related Valuation
Services Services Unallocated Total
Income statement GBP'000 GBP'000 GBP'000 GBP'000
information
----------
Segmental revenue 243,036 64,714 - 307,750
--------------- ----------- ------------ ----------
Segmental result:
- before exceptional
costs, contingent
consideration, amortisation
and share-based payments 24,500 17,508 (7,385) 34,623
- after exceptional
costs, contingent
consideration, amortisation
and share-based payments 22,344 18,030 25,047 65,421
--------------- ----------- ------------ ----------
Finance income -
Finance costs (1,896)
Profit before tax 63,525
Taxation (13,033)
Profit for the year 50,492
----------
Year ended 31(st) December 2015
Estate Surveying
Agency and
and Related Valuation
Services Services Unallocated Total
Income statement GBP'000 GBP'000 GBP'000 GBP'000
information
----------
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
----------
4. Adjusted performance measures
In addition to the various performance measures defined under
IFRS, the Group reports a number of alternative performance
measures that are designed to assist with the understanding of the
underlying performance of the Group. The Group seeks to present a
measure of underlying performance which is not impacted by the
inconsistency in profile of exceptional gains and exceptional
costs, contingent consideration, amortisation of intangible assets
and share-based payments. Share based payments are excluded from
the underlying performance due to the fluctuations that can impact
the charge, such as lapses and the level of annual grants. The
three adjusted measures reported by the Group are:
-- Group Underlying Operating Profit
-- Adjusted Basic EPS
-- Adjusted diluted EPS.
The Directors consider that these adjusted measures shown below
give a better and more consistent indication of the Group's
underlying performance. These measures form part of management's
internal financial review and are contained within the monthly
management information reports reviewed by the Board.
The calculations of adjusted basic and adjusted diluted EPS are
given in Note 6 and a reconciliation of Group Underlying Operating
Profit is shown below:
2016 2015
Note GBP'000 GBP'000
--------- --------
Group operating profit 3 65,421 41,412
Share-based payments 1,263 871
Amortisation of intangible
assets 3,914 1,803
Exceptional gains 5 (34,531) -
Exceptional costs 5 2,341 258
Contingent consideration 5 (3,785) (1,477)
--------- --------
Group Underlying Operating
Profit 34,623 42,867
--------- --------
5. Exceptional items and contingent consideration
2016 2015
GBP'000 GBP'000
---------- ----------
Exceptional costs:
Branch closure and restructuring
costs including redundancy costs 2,341 258
---------- ----------
Contingent consideration on acquisitions (3,785) (1,477)
---------- ----------
Exceptional gains:
Gain on disposal of Zoopla shares (32,931) -
Provision for PI Costs (claims and (1,600) -
notifications)
---------- ----------
(34,531) -
---------- ----------
6. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the
year attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
year.
Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
year plus the weighted average number of Ordinary Shares that would
be issued on the conversion of all the dilutive potential Ordinary
Shares into Ordinary Shares.
Profit Weighted 2016 Weighted 2015
after average Per Profit average Per
tax number share after number share
of shares amount tax of shares amount
GBP'000 Pence GBP'000 Pence
Basic EPS 50,493 102,575,484 49.2 30,414 102,406,770 29.7
Effect of dilutive
share options 519,565 791,256
Diluted EPS 50,493 103,095,049 49.0 30,414 103,198,026 29.5
--------- ------------ -------- ---------- ------------ --------
There have been no other transactions involving Ordinary Shares
or potential Ordinary Shares between the reporting date and the
date of completion of these Financial Statements.
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
2016 2015
GBP'000 GBP'000
--------- ---------
Group Underlying Operating Profit
(excluding non-controlling interest)
(Note 4): 34,625 42,819
Net finance costs (excluding exceptional
costs and contingent consideration) (1,410) (2,360)
Normalised taxation (6,643) (8,193)
Adjusted profit after tax(1) before
exceptional costs, share-based
payments and amortisation 26,572 32,266
--------- ---------
Adjusted basic and diluted EPS
Adjusted Weighted 2016 Adjusted Weighted 2015
profit average Per profit average Per
after number share after number share
tax(1) of shares amount tax(1) of shares amount
GBP'000 Pence GBP'000 Pence
Adjusted Basic
EPS 26,572 102,575,484 25.9 32,266 102,406,770 31.5
Effect of dilutive
share options 519,565 791,256
Adjusted Diluted
EPS 26,572 103,095,049 25.8 32,266 103,198,026 31.3
--------- ------------ -------- --------- ------------ --------
Note 1 -This represents adjusted profit after tax attributable
to equity holders of the parent. The normalised tax rate in 2016 is
20.00% (2015: 20.25%).
7. Dividends paid and proposed
2016 2015
GBP'000 GBP'000
------- -------
Declared and paid during the year:
Equity dividends on Ordinary Shares:
2014 Final: 8.3 pence per share 8,458
2015 Interim: 4.0 pence per share 4,096
2015 Final: 8.6 pence per share 8,812
2016 Interim: 4.0 pence per share 4,104
------- -------
12,916 12,554
------- -------
Dividends on Ordinary Shares
proposed (not recognised as a
liability as at 31(st) December):
Equity dividends on Ordinary Shares:
Dividend: 6.3 pence per share (2015:
8.6 pence per share) 6,466 8,808
------- -------
8. Taxation
(a) Tax on profit on ordinary activities
The major components of income tax charge in the Group income
statements are:
2016 2015
GBP'000 GBP'000
---------- ----------
UK corporation tax - current year 12,703 7,787
- adjustment in respect of prior
years 1,009 391
----------
13,712 8,178
Deferred tax:
Origination and reversal of temporary
differences (500) (470)
Adjustment in respect of prior year (179) 430
---------- ----------
Total deferred tax (credit) (679) (40)
---------- ----------
Total tax charge in the income statement 13,033 8,138
---------- ----------
The 2015 Summer Budget announced that the headline rate of
Corporation Tax in the UK would be further reduced from the current
rate of 20% to 19% effective from 1(st) April 2017, and further
reduced to 18%, effective from 1(st) April 2020. The Budget of
March 2016 announced that from 1(st) April 2020, the proposed
corporation tax will be lowered further still to 17%. Following the
substantive enactment of Finance Bill 2016 in September 2016, the
corporation tax rate of 17% has been confirmed. Accordingly this is
the rate at which deferred tax has been provided (2015: 18%).
Corporation tax is recognised at the headline UK effective rate of
20% (2015: 20.25%).
The effective rate of tax for the year was 20.5% (2015: 21.1%).
The effective tax rate for 2016 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
credited directly to other comprehensive income is GBP3.8m (2015:
charge of GBP0.5m); this is comprised of a credit of GBP5.9m and a
charge of GBP2.1m and relates to the disposal and revaluation of
financial assets. Income tax credited directly to the share based
payment reserve is GBP0.1m (2015: GBPnil).
(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is higher (2015:
higher) than the standard UK corporation tax rate, because of the
following factors:
2016 2015
GBP'000 GBP'000
----------- -------------
Profit on ordinary activities before
tax 63,525 38,600
----------- -------------
Tax calculated at UK standard rate
of corporation tax rate of20.0% (2015
- 20.25%) 12,705 7,816
Non-taxable income from joint ventures
and dividends (95) (403)
Other income not taxable (510) -
Benefit of deferred tax asset and
brought forward losses not previously
recognised - (32)
Disallowable expenses 577 381
Impact of movement in contingent
consideration credited to the Income
Statement (757) (295)
Capital gains in excess of accounting 183 -
profit
Share-based payment relief 251 57
Impact of rate change on deferred
tax (151) (207)
Prior period adjustments - current
tax 1,009 391
Prior period adjustment - deferred
tax (179) 430
----------- -------------
Total taxation charge 13,033 8,138
----------- -------------
9. Analysis of Net Bank Debt (excluding loan notes)
2016 2015
GBP'000 GBP'000
--------- ---------
Interest bearing loans and borrowings
* Current 10,851 15,777
* Non-current 26,357 52,511
--------- ---------
37,208 68,288
Less: Unsecured loan notes (2,000) (10,033)
Less: cash and short-term deposits - (5,603)
Less: deferred and contingent
consideration (14,952) (12,755)
--------- ---------
Net Bank Debt at the end of the
year 20,256 39,897
--------- ---------
During the year, the Group has repaid GBP29.0m (2015: drawn down
GBP11.5m) of the revolving credit facility. The utilisation of this
revolving credit facility may vary each month provided that it does
not exceed the maximum GBP100.0m facility (2015: GBP100.0m).
10. Acquisitions during the year
The Group acquired the following businesses during the year:
a. Lettings books and other
During the period the Group acquired nine lettings books and a
two branch estate agency business from a franchisee for a total
combined consideration of GBP4,241,000. The fair values 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 4,190
Cash and cash equivalents 51
Deferred tax liabilities (1,593)
Total identifiable net liabilities
acquired 2,648
Purchase consideration 4,241
Goodwill 1,593
================
Purchase consideration discharged by:
Cash 4,241
======
Analysis of cash flow on acquisition GBP'000
--------
Transaction costs (included in cash
flows from operating activities) 55
Net cash acquired with the subsidiary
(included in cash flows from investing
activities) (51)
Purchase consideration discharged
in cash (included in cash flows from
investing activities) 3,883
Net cash outflow on acquisition 3,887
========
b. Group First
In February 2016, the Group, through a wholly owned subsidiary,
acquired 65% interest in Group First, which provides mortgage and
protection brokerage services to the purchasers of new homes
through its subsidiaries, Mortgages First and Insurance First
Brokers. 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 the Director'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 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 127
Cash and cash equivalents 1,542
Trade and other payables (1,501)
Current tax liabilities (216)
Deferred tax liabilities 160
Total identifiable net assets acquired 1,768
Purchase consideration 15,681
Goodwill 13,913
================
Purchase consideration discharged by:
Cash 4,550
Deferred consideration 4,550
Contingent consideration 6,581
-------
15,681
-------
c. Total Acquisitions
At 31(st) December 2016, the acquisitions in aggregate,
including Group First, have contributed GBP7,979,000 of revenue and
GBP2,609,000 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 GBP1,749,000 and the consolidated profit before tax would
have been higher by GBP593,000. Transaction costs have been
expensed.
GBP'000
Transaction costs 55
Net cash acquired with the subsidiaries
and other businesses (1,593)
Purchase consideration discharged 8,433
--------
Net Cash outflow on acquisition 6,895
--------
11. Annual General Meeting (AGM)
The AGM will be held at the London offices of LSL, 1-3 Sun
Street, London EC2A 2EP on 27(th) April 2017 starting at
4.00pm.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFFTVEIRIID
(END) Dow Jones Newswires
March 07, 2017 02:00 ET (07:00 GMT)
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