LSL Property Services PLC Preliminary Results (5189F)

TIDMLSL

RNS Number : 5189F

LSL Property Services PLC

10 March 2020

For Immediate Release 10(th) March 2020

LSL Property Services plc ("LSL" or "The Group")

PRELIMINARY RESULTS ANNOUNCEMENT

LSL Property Services plc, a leading provider of residential property services incorporating estate agency, financial services and surveying and valuation businesses, announces its preliminary results for the year ended 31(st) December 2019.

 
                                                   2019    2018   change 
----------------------------------------------  -------  ------  ------- 
 Group Revenue - GBPm                             311.1   324.6      -4% 
 Group Underlying Operating Profit(1) - GBPm       37.0    35.9      +3% 
 Group Underlying Operating Margin - %             11.9    11.1 
----------------------------------------------  -------  ------  ------- 
 Group Adjusted EBITDA(2) - GBPm                   51.9    41.6     +25% 
 Net Exceptional Cost - GBPm                     (13.2)   (3.0) 
 Group Operating Profit - GBPm                     19.7    25.4     -22% 
 Profit Before Tax - GBPm                          16.0    23.1     -31% 
 Basic Earnings Per Share - pence                  12.6    17.4     -28% 
 Adjusted Basic Earnings Per Share(3) - pence      28.0    27.2      +3% 
 Net Bank Debt(4) at 31(st) December - GBPm        41.9    32.1     +30% 
 Final Dividend Per Share(5) - pence                7.2     6.9      +4% 
 Full Year Dividend Per Share(5) - pence           11.2    10.9      +3% 
----------------------------------------------  -------  ------  -------

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4 of the Financial Statements). Excluding the impact of IFRS 16 Group Underlying Operating Profit in 2019 was GBP36.2m.

2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation of right of use assets, plant, property and equipment (as defined in Note 4 of the Financial Statements). Excluding the impact of IFRS 16, Group Adjusted EBITDA in 2019 was GBP40.9m.

   3                      Refer to Note 6 of the Financial Statements for the calculation. 
   4                      Refer to Note 10 of the Financial Statements for the calculation 
   5                      Assuming Final intended 2019 proposed dividend is approved

Positive Group financial performance

-- Group Revenues increased by 4% on a like-for-like basis, which was a highly resilient performance in the context of challenging residential market conditions during 2019. Reported Group Revenues were down 4% to GBP311.1m (2018: GBP324.6m) including the impact of the reshaping of the Your Move and Reeds Rains branch networks announced on 5(th) February 2019

-- Positive performance with Group Underlying Operating Profit(1) up 3% to GBP37.0m (2018: GBP35.9m) and Group Adjusted EBITDA(2) up 25%. Excluding the impact of IFRS 16, Group Underlying Operating Profit was 1% ahead of prior year and Group Adjusted EBITDA was down 2% on prior year

-- Profit Before Tax declined to GBP16.0m (2018: GBP23.1m) as anticipated, reflecting the investment in 2019 in Exceptional Costs to deliver the Your Move and Reeds Rains branch reshaping. The reshaping has delivered a material year-on-year improvement in Your Move and Reeds Rains operating profit

-- The Estate Agency Division(3) delivered a strong performance with Underlying Operating Profit(1) up 30% to GBP14.5m (2018: GBP11.1m), benefiting materially from the reshaping of the Your Move and Reeds Rains branch networks, announced on 5(th) February 2019

-- The Financial Services Division(3) delivered a strong performance with Underlying Operating Profit(1) up 23% to GBP11.6m (2018: GBP9.5m) reflecting growth in the core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018, including cost synergies delivered in line with expectations

-- The Surveying Division's Underlying Operating Profit(1) of GBP16.3m (2018: GBP20.4m) was impacted by market volumes, and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new surveying and valuation services contract in May 2018

-- Exceptional costs of GBP15.7m were recognised in the period predominantly from the reshaping of the Your Move and Reeds Rains branch networks. Continued positive progress was made in addressing historical professional indemnity (PI) claims with a GBP2.5m exceptional provision release as claims were settled below previous expectations

-- Net Bank Debt GBP41.9m (2018: GBP32.1m) and modest level of gearing(4) at 0.8x EBITDA (2018: 0.8x)

-- The Group generated strong cash from operations of GBP38.8m (2018: GBP36.9m) converting 105% of Group Underlying Operating Profit to cash-flow from operations (pre PI and exceptionals) (2018: 103%).

-- The Board intends to propose a final dividend of 7.2p per share, resulting in a full year dividend of 11.2p per share. This is a payout at the upper end of the range of LSL's stated dividend policy, reflecting our confidence in the current level of performance of the business and of our balance sheet strength. Taking into account the unknown potential impact of COVID-19 virus on the UK housing market, the LSL Board will keep the proposed final dividend under review ahead of presenting its proposal to shareholders at the 2020 AGM

Commenting on today's announcement, Simon Embley, Chairman, said:

"The Group delivered a highly resilient Revenue and Underlying Operating Profit performance in 2019 in the context of challenging residential market conditions and the introduction of the tenant fee ban on 1(st) June 2019. This is a strong operational performance, as the successful execution of the stated Group strategy delivered tangible benefits to the Group's financial performance. We continue to deliver a range of proactive strategic and operational initiatives across our business lines, demonstrating the breadth of opportunity across the Group.

Market conditions to date in 2020 have been encouraging, reflected by our Estate Agency sales pipeline at 29(th) February 2020 being GBP3.6m ahead of the Board's prior expectations, benefiting from a favourable Estate Agency net sales performance during January and February. The operating profit performance of the Group in the two-month period to 29(th) February 2020 has been, as expected, circa GBP2m ahead of the same period in the prior year, benefiting materially from the successful execution of the reshaping of the Your Move and Reeds Rains branch networks, which was announced on 5(th) February 2019. These benefits have now normalised year-on-year.

Whilst we have been encouraged by the residential property market conditions to date in 2020, the situation regarding the COVID-19 virus is rapidly evolving and we have in recent days, seen some slight softening of our lead sales indicators in Estate Agency. We are monitoring the situation very closely as it may create headwinds for our business in 2020 if changes in consumer behaviour impact residential property market conditions. As and when any potential impact on the Group becomes clearer, we will provide updates as necessary.

The Board intends to propose a final dividend of 7.2p per share, resulting in a full year dividend of 11.2p per share. This is a payout at the upper end of the range of LSL's stated dividend policy, reflecting our confidence in the current level of performance of the business and of our balance sheet strength. Taking into account the unknown potential impact of COVID-19 virus on the UK housing market, the LSL Board will keep the proposed final dividend under review ahead of presenting its proposal to shareholders at the 2020 AGM.

The business is expected to continue to benefit from the range of LSL's ongoing strategic and operational measures. The Group has a robust balance sheet with relatively low levels of gearing and is highly cash generative at an operational level. The Board remain confident of the opportunities for further positive progress for the Group."

Estate Agency Financials

-- LSL announced the reshaping of its Your Move and Reeds Rains branch networks on 5(th) February 2019. We are pleased that the financial impact of this programme was ahead of our expectations despite the scale and complexity of the project. As a result, the revenue and operating profit in the keystone branch network in 2019 was ahead of the LSL business plan. During Q1, the Your Move and Reeds Rains Estate Agency branch network was reshaped from 308 owned branches to 144 keystone branches following the closure and merging of 81 neighbouring branches into the keystone branch network, the franchising of 39 branches and the closure of 44 branches

-- The Estate Agency Division(3) delivered a strong performance with Underlying Operating Profit(1) up 30% to GBP14.5m (2018: GBP11.1m), benefiting materially from the successful execution of the reshaping of the Your Move and Reeds Rains branch networks

-- Residential net sales for the Your Move and Reeds Rains keystone branches increased slightly in 2019, despite the challenging market conditions during the year, and showed modest growth in market share as measured by new instructions during 2019

-- Profit per branch (Your Move, Reeds Rains and LSLi) increased in 2019 to GBP47.0k (2018: GBP18.3k) as a result of the benefit from the reshaping of Your Move and Reeds Rains networks

-- The London market conditions continued to be challenging throughout 2019. Marsh & Parsons delivered a resilient revenue performance despite these market conditions with total revenue down 3%

-- In line with LSL's stated strategy, Marsh & Parsons opened two new branches in April 2019 in outer prime Central London, in Willesden Green and Streatham Hill. These new branches are trading in line with expectations

-- Legislation banning tenant fees came into effect on 1(st) June 2019 and LSL implemented the required changes across its Estate Agency brands

-- LSL continued its accretive lettings book acquisition programme with seven lettings books acquired during the period for a total consideration of GBP3.0m

Financial Services Financials

-- The Financial Services Division(3) delivered a strong performance with Underlying Operating Profit(1) up 23% to GBP11.6m (2018: GBP9.5m), reflecting growth in core businesses and the full year benefit of the acquisitions of PTFS and RSC in Q1 2018, including cost synergies delivered in line with expectations

-- Total Financial Services Division Revenue decreased by 2% to GBP69.8m (2018: GBP71.0m), reflecting the planned reshaping of the Your Move and Reeds Rains branch networks. Financial Services organic revenue growth, excluding Estate Agency, was 1% in 2019

-- The value of LSL's mortgage completions arranged in 2019 increased to GBP31.7bn (2018: GBP29.0bn)

-- The number of appointed representative firms as at 31(st) December 2019 increased to 878 (2018: 841)

   --      The number of financial advisers as at 31(st) December 2019 was 2,392 (2018: 2,321)

-- The roll out of Toolbox, the Financial Services technology system acquired with PTFS has been successfully completed in line with expectations

Surveying Financials

-- The Surveying Division's Underlying Operating Profit(1) of GBP16.3m (2018: GBP20.4m) was impacted by market conditions and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new surveying and valuation services contract in May 2018. Work is ongoing to leverage the scale benefits of the Surveying Division with the aim of improving cost efficiency

-- Surveying Division Revenue increased by 24% to GBP86.4m (2018: GBP69.8m) due to the new contract with Lloyds Bank plc, which was awarded in May 2018

-- In June 2019, the Surveying Division was awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank

-- Continued positive progress was made in addressing historical PI claims with a GBP2.5m exceptional provision release in 2019 as claims were settled below previous expectations

-- Technology enhancements were implemented during 2019 with further functionality releases designed to drive quality and efficiency improvements

For further information, please contact:

 
 Ian Crabb, Group Chief Executive 
  Officer 
 Adam Castleton, Group Chief 
  Financial Officer 
 LSL Property Services plc           0207 382 0360 
 Melanie Cowell, LSL PR Manager      07968 604 660 
 
 Helen Tarbet, Simon Compton 
 Buchanan                            0207 466 5000

Notes:

1. Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4 to the Financial Statements)

2. Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation on property, plant and equipment (as defined in Note 4 to the Financial Statements)

3. Following the change to LSL's segment reporting effective from 1(st) January 2019, the 2018 revenue and Underlying Operating Profit of the Estate Agency and Financial Services Divisions have been restated. The Estate Agency Division also receives a commercially agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison.

4. Operational gearing is defined as Net Bank Debt divided by Group Adjusted EBITDA(2) . Excluding the impact of IFRS 16, gearing was at 1.0x EBITDA

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 support, and mortgage, pure protection and general insurance brokerage services. Services to mortgage lenders include: valuations and panel management services, and asset management and property management services. For further information, please visit LSL's website: lslps.co.uk

Chairman's Statement

Introduction

The Group delivered a highly resilient Revenue and Underlying Operating Profit performance in 2019 in the context of challenging residential market conditions and the introduction of the tenant fee ban on 1(st) June 2019. This is a strong operational performance, as the successful execution of the stated Group strategy delivered tangible benefits to the Group's financial performance. We continue to deliver a range of proactive strategic and operational initiatives across our business lines, demonstrating the breadth of opportunity across the Group. We are pleased with the market share performance of the Your Move and Reeds Rains keystone branch networks in 2019. Estate Agency Division Franchise income increased materially in 2019, following the successful franchising of 39 Your Move and Reeds Rains branches from the previous owned network.

Group Underlying Operating Profit(1) was up 3% to GBP37.0m (2018: GBP35.9m), and Group Adjusted EBITDA(2) was up 25% to GBP51.9m (2018: GBP41.6m). Excluding the impact of IFRS 16, Group Underlying Operating Profit was 1% ahead of prior year at GBP36.2m (2018: GBP35.9m) and Group Adjusted EBITDA was down 2% to GBP40.9m (2018: GBP41.6m). Following decisive and early action to restructure the Your Move and Reeds Rains branch networks, Group Revenues increased by 4% on a like-for-like basis, which was a highly resilient performance in the context of challenging residential market conditions during 2019.

Estate Agency Division

In the Estate Agency Division, the changes to the structure of the Your Move and Reeds Rains estate agency branch networks and operations announced on 5(th) February 2019, has delivered a material improvement in financial performance of the Estate Agency Division, ahead of expectations. The successful implementation of this large and complex project demonstrates LSL's commitment and ability to evolve our business model to adapt to changes in the landscape and customer demands in order to drive value for our Shareholders.

We have transformed the Your Move and Reeds Rains businesses into a combined branch network of 144 keystone branches. All central support functions have been simplified and streamlined to provide more cost effective support to the smaller network of much larger keystones branches with both brands benefiting from new investment in people, systems, and marketing.

We are pleased to have created a branch network platform that is already benefiting from its larger scale, enabling us to invest in people and technology with the aim of providing enhanced levels of service to our customers whilst ensuring operational performance is optimised by competing more effectively in local markets.

Financial Services Division

In the Financial Services Division, we delivered further strong growth. The Group identified Financial Services as a major opportunity some time ago, since which time LSL's position has strengthened consistently, and w e are now an established leading distributor of mortgage and non-investment insurance products.

The Financial Services Division generated GBP11.6m of Underlying Operating Profit in the 2019 financial year, compared to GBP2.7m in 2015. I anticipate further positive opportunities for our Financial Services businesses going forwards. We have reported Financial Services as a separate Division from 1(st) January 2019 onwards, to reflect the increasing importance and development of LSL's Financial Services businesses over the last five years.

During 2019 we have delivered organic growth and executed in line with expectations on the delivery of cost synergies following the acquisition of PTFS and successfully re-branded the Group's Financial Service network activities as PRIMIS and reorganised our Estate Agency Financial Services structure under the Embrace Financial Services Brand. We continue to hold a strategic investment in Mortgage Gym, which is a digital mortgage marketplace for consumers.

Surveying Division

In the Surveying Division, the surveying and valuation services contract awarded to e.surv by Lloyds Bank plc in May 2018 has strengthened our position as a leading player in the market, and we are now taking the steps to drive improved financial performance by leveraging the scale benefits of the Surveying Division with the aim of improving cost efficiency.

Surveying Division's Underlying Operating Profit performance was disappointing at GBP16.3m (2018: GBP20.4m), impacted by market conditions, and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new contract. Whilst operating profit margin was 14.8% in the first half of 2019, this improved to 22.9% in the second half of 2019 as our operational changes started to deliver financial improvements.

In 2019, the Group continued to make positive progress in addressing historical Surveying PI claims and there has been a net GBP2.5m exceptional gain for the year. At 31(st) December 2019 the total provision for PI Costs reduced materially to GBP8.2m (2018: GBP12.4m).

Discussions with Countrywide plc ("Countrywide")

On 24(th) February 2020, the Board of LSL confirmed that it is in discussions with Countrywide regarding a possible all-share combination. Discussions between Countrywide and LSL are ongoing. At this stage, there can be no certainty that any offer will ultimately be made for Countrywide. LSL reserves the right to introduce other forms of consideration and/or vary the mix or composition of consideration of any offer. Further announcements will be made in due course as appropriate.

Dividend

The Board continues to support the previously communicated dividend policy to apply a dividend pay-out ratio of between 30% to 40% of Group Underlying Operating Profit(1) after interest and tax. The Board has reviewed the dividend policy while considering the risks and capital management decisions facing the Group.

Adjusted Basic Earnings per Share for 2019 was 28.0 pence, an increase of 3% on the prior year (2018: 27.2 pence per Share). The Board intends to propose a final dividend of 7.2p per Share (2018: 6.9 pence per Share), resulting in a full year dividend of 11.2p per Share (2018: 10.9 pence per Share). This is a payout at the upper end of the range of LSL's stated dividend policy, reflecting our confidence in the current level of performance of the business and of our balance sheet strength. Taking into account the unknown potential impact of COVID-19 virus on the UK housing market, the LSL Board will keep the proposed final dividend under review ahead of presenting its proposal to shareholders at the 2020 AGM.

Corporate Governance and Board

During 2019, the Board remained committed to high levels of corporate governance as we further strengthened the Board with the appointment of two new independent Non-Executive Directors. Darrell Evans joined the Board and its Committees in February 2019 and Gaby Appleton joined in September 2019. Darrell's and Gaby's skills enhanced the existing Board composition and further details on all of the Directors can be found within The Board section of the Annual Report and Accounts 2019 and within the AGM Notice.

Further, in compliance with the UK Corporate Governance Code (2018) LSL developed and published its Purpose Statement, supported by a series of values and culture statements that reflect the diverse group of businesses across LSL. Darrell Evans was also appointed as LSL's designated workforce engagement director. Since this appointment, Darrell has been working closely with the Group HR Director and participating in LSL's employee engagement arrangements. Further details are included within the Stakeholder Engagement and Corporate Governance Report sections of the Annual Report and Accounts 2019.

In relation to 2019, as Chairman, I have been responsible for leadership of the Board, and I have together with my fellow Directors, reviewed the effectiveness of the Board and its Committees. The 2019 annual evaluation exercise had regard to the requirements of the Code and its associated guidance. In particular, we reviewed the composition of the Board and its Committees and our succession arrangements. Following this review, we concluded that together we have the appropriate balance of skills, independence and knowledge of the Group together to enable the Board to discharge its duties and responsibilities effectively. The evaluation also considered other matters such as leadership, division of responsibilities, meeting arrangements, and included a review of the annual evaluation process itself.

Details of our corporate governance arrangements and the recommendations arising from the 2019 evaluation exercise are contained within the Corporate Governance Report section of the Annual Report and Accounts 2019 together with details of how we have implemented recommendations, which arose from the 2018 evaluation exercise.

Outlook

Simon Embley

Chairman

10(th) March 2020

Notes:

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4 to the Financial Statements). Excluding the impact of IFRS 16 Group Underlying Operating Profit in 2019 was GBP36.2m

2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation of right of use assets, plant, property and equipment (as defined in Note 4 to the Financial Statements). Excluding the impact of IFRS 16, Group Adjusted EBITDA in 2019 was GBP40.9m

Group Chief Executive's Review

2019 Overview

In the context of challenging market conditions, the Group delivered a highly resilient performance in 2019, underpinned by a continuing range of proactive strategic and operational measures delivered across the Group. LSL successfully executed its stated strategy during 2019, underpinned by consistent and effective implementation.

Group Revenues for the year ended 31(st) December 2019 decreased by 4% to GBP311.1m (2018: GBP324.6m) including the impact of the reshaping of the Your Move and Reeds Rains branch networks announced on 5 (th) February 2019, with Estate Agency Revenue(1) down 16%, Financial Services revenue(1) down 2% and Surveying Division revenue up 24%. Excluding the impact of the planned branch closures during Q1 2019, Group like-for-like revenues increased by 4%.

Group Underlying Operating Profit(2) was up 3% to GBP37.0m (2018: GBP35.9m), and Group Adjusted EBITDA(3) was up 25% to GBP51.9m (2018: GBP41.6m). Excluding the impact of IFRS 16, Group Underlying Operating Profit was 1% ahead of prior year at GBP36.2m (2018: GBP35.9m) and Group Adjusted EBITDA was down 2% to GBP40.9m (2018: GBP41.6m). Profit before tax of GBP16.0m was down 31% compared to the prior year (2018: GBP23.1m).

The Group has a maintained a strong balance sheet with closing Net Bank Debt at 31(st) December 2019 of GBP41.9m (2018: GBP32.1m) and a low level of reported gearing(4) at 0.8 times Group Adjusted EBITDA (2018: 0.8 times). The increase in Net Bank Debt in 2019 is after incurring total exceptional cash expenditure of GBP8.8m including the Estate Agency restructuring costs, GBP9.9m in respect of deferred and contingent consideration for the funding of two prior year Financial Services acquisitions (PTFS and Group First) and seven lettings books acquisitions during the year.

In the Estate Agency Division(1) , LSL executed the reshaping of the Your Move and Reeds Rains branch networks delivering an increase in Underlying Operating Profit (+30%). In the Financial Services Division(1) we delivered 23% growth in Underlying Operating Profit. In the Surveying Division, Underlying Operating Profit was GBP16.3m (2018: GBP20.4m) impacted by market conditions and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new surveying and valuation services contract in May 2018.

During 2019, we continued to execute on our stated strategy and made positive progress across the Group:

-- In Estate Agency, the effective execution of the major reshaping of the Your Move and Reeds Rains branch networks, announced on 5(th) February 2019 delivering material financial benefits

-- Successful implementation of Lloyds Bank plc surveying and valuation services contract strengthening LSL's position as the leading provider of surveying and valuation services in the UK

-- In June 2019, the Surveying Division was awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank

-- Successful integration of PTFS (acquired in 2018) into the PRIMIS network and cost synergies delivered, as well as the successful roll-out out of the Toolbox operating system (part of the rationale for acquiring PTFS)

-- During 2019, LSL continued its lettings book acquisition programme with seven lettings books acquired during the period

The Market in 2019

The UK residential property market remained challenging in 2019. HM Land Registry Property Transactions in 2019 decreased by 7%. Full year Rightmove Total Market Residential New Instructions decreased by 7% in 2019. Market transactions continued to decline in London and the South East(6) and Approvals for House Purchases(5) in 2019 were up by 0.9%. Total Mortgage Approvals(5) increased by 0.9% in 2019, with Re-mortgage Approvals up by 0.7%.

Average house prices(7) in England and Wales grew by 0.8% (2018: 0.5%) to GBP304k. Excluding London and the South East, the rest of England and Wales showed house price growth of 1.6%.

The proportion of residential housing stock available for sale with online and hybrid estate agents sector has declined on a year-on-year basis, decreasing from 7.6% in 2018 to 7.3% in 2019(8) .

Total gross mortgage lending in 2019 was in line with the prior year at GBP268bn(9) (2018: GBP269bn). The proportion of mortgage lending in the market placed through intermediaries increased to 74% in 2019 (2018: 71%)(10) .

Following market declines in the repossession market in the past few years, market repossessions volumes grew in 2019, increasing by 16% to 8,000(11) the highest since 2016, although still low in a historical context.

LSL's market position

LSL continues to hold market leading positions in its core Estate Agency business comprising 12 Estate Agency brands: Your Move, Reeds Rains, LSLi group (nine brands) and Marsh & Parsons. We continue to believe that traditional estate agents will represent the substantial majority of the Residential Sales and Lettings markets for the foreseeable future and that our Estate Agency branches will continue to remain core to providing the service our customers expect.

In Your Move and Reeds Rains, the newly established keystone network of 144 branches are situated in core locations across the UK and generally have larger teams of dedicated experts in Residential Sales, Lettings and Financial Services roles than the average Your Move and Reeds Rains branches previously had in place.

The continuing ambition for these keystone branches is to re-enforce a platform that will benefit from their larger scale, enabling us to invest in people and technology with the aim of providing enhanced levels of service to our customers whilst ensuring operational performance is optimised by competing more effectively in local markets. Our commitment to continued IT investment is intended to give these Your Move and Reeds Rains branches the opportunity to cover a wider geography and benefit from further scale.

Marsh & Parsons continues to implement its well established strategy of expanding its branch network with a focus on locations outside prime Central London. During 2019 we opened two new Marsh & Parsons branches in Willesden Green and Streatham Hill, in outer prime Central London, which are performing in line with expectations.

The LSLi group of companies today operate 57 owned branches and they will continue with their existing strategy to develop the nine well established local brands in their existing markets in the South East of England. In addition, in 2020 the LSLi group of companies will continue to actively evaluate opportunities for lettings book acquisitions.

In 2019, LSL further strengthened its position as a leading distributor of mortgage and non-investment insurance products and delivered strong overall growth in the value of mortgage completions which were up 9% to GBP31.7bn in 2019 (2018: GBP29.0bn). LSL's market share is estimated to be 8.5% (2018: 8.0%) of the total market value of mortgage completions. LSL is the second largest combined network nationwide, measured by the combined number of appointed representative firms. The number of financial advisers as at 31(st) December 2019 was 2,392 (2018: 2,321).

Our Surveying Division continued as a leading player in the market in 2019, maintaining strong relationships with many of the UK's largest lenders. During 2019 LSL was pleased to be awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank. LSL's Surveying Division is the UK's largest provider of residential valuation services nationwide and is the largest employer of residential surveyors in the UK(6) with 514 operational surveyors as at 31(st) December 2019.

Segment reporting

To reflect the increased importance of LSL's Financial Services businesses over the last five years, from 1(st) January 2019, LSL's Financial Services businesses are reported as a separate segment. The Estate Agency Division receives and reports a commercially agreed commission payment from the Financial Services segment, which reflects Financial Services income generated from the Estate Agency segment. Financial Services revenue reported in our full year financial results for 2018 has therefore been restated on this basis to assist comparison. The Surveying Division reporting is unchanged.

Strategy

LSL remains committed to delivering on its stated strategy:

Estate Agency

-- Ambition to achieve GBP80k-GBP100k profit per branch(13) in the medium term based on the expectation of a normalised level of market transactions

-- Ambition to expand the number of Marsh & Parsons branches to a total of 36 in the medium term, particularly outside prime Central London

   --      Grow recurring and where market conditions permit counter-cyclical income streams 
   --      Evaluate selective acquisitions of lettings books

Financial Services

-- Enhance LSL's position as a leading distributor of mortgage and non-investment insurance products

-- Consistent delivery of appropriate outcomes for consumers with a focus on "best practice" standards of regulatory compliance

-- Enhancement of technology solutions to improve the customer experience and operational efficiency

   --      Evaluate further selective Financial Services acquisitions

Surveying and Valuation Services

   --      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 recruitment programme

LSL performance in 2019

Estate Agency Division(1)

LSL announced the reshaping of its Your Move and Reeds Rains branch networks on 5(th) February 2019. We are pleased that the implementation of this programme has progressed slightly ahead of our expectations despite the scale and complexity of the project. During Q1 the Your Move and Reeds Rains estate agency branch network was reshaped from 308 owned branches to 144 keystone branches following the closure and merging of 81 neighbouring branches into the keystone branch network, the franchising of 39 branches and the closure of 44 branches. This reshaping was executed in-line with LSL announcement of 5(th) February 2019. Including the impact of this reshaping, total Estate Agency income of GBP154.9m (2018: GBP183.8m) decreased by 16%. Adjusting for the closure of the Your Move and Reeds Rains branches during the first quarter of 2019, like-for-like total Revenue decreased by 5% compared to 2018. Estate Agency Division Operating expenditure decreased by 19%, and o perating profit increased by 30%, reflecting the material improvement to Underlying Operating Profit in Your Move and Reeds Rains as a result of reshaping their branch networks.

Residential Net Sales for the Your Move and Reeds Rains keystone branches increased slightly in 2019, despite the challenging market conditions during the year, and showed modest growth in market share as measured by new instructions during 2019.

Residential Sales exchange income

Residential Sales exchange income decreased by 17% to GBP57.7m (2018: GBP69.9m) impacted by the reshaping of the Your Move and Reeds Rains branch networks and the market conditions. Adjusting for the closure of the Your Move and Reeds Rains branches during Q1 2019 Residential Sales income decreased by 3%.

LSL has remained extremely disciplined in its Residential Sales exchange fee strategy throughout 2019. Reported average LSL Estate Agency Residential Sales exchange fee (GBP) per unit increased by 12% to GBP3,452 (2018: GBP3,071). The average residential fee in 2019 benefitted from the closure of Your Move and Reeds Rains branches, which generated lower average fees. Like-for-like Residential Sales exchange fee (GBP) per unit in 2019 were maintained at the same level compared to the same period last year.

Lettings income

Legislation banning tenant fees came into effect on 1(st) June 2019 and LSL implemented the required changes across its Estate Agency brands. LSL continues to implement operational measures in lettings with the aim of optimising lettings income, and, in line with our stated strategy, we continued our lettings book acquisition programme during 2019 acquiring seven lettings books in 2019 for a total consideration of GBP3.0m. The lettings books are performing in line with expectations and have been successfully integrated into the Estate Agency networks.

Marsh & Parsons

Given the overall challenging prime Central London market, Marsh & Parsons delivered a resilient top line performance with revenue down by 3% in 2019 to GBP32.4m (2018: GBP33.5m). Marsh & Parsons Residential Sales income fell by 5% in 2019, which is a creditable performance in light of the overall prime Central London market conditions. Lettings declined by 2%. Lettings revenue represents 64% of Marsh & Parson's total revenue (2018: 63%). Full year Underlying Operating Profit remained flat at GBP2.3m (2018: GBP2.3m). Adjusted EBITDA as reported was GBP6.2m (2018: GBP3.4m). Excluding the impact of IFRS 16, Underlying Operating Profit was GBP1.7m (2018: GBP2.3m) and Adjusted EBITDA was GBP2.8m (2018: GBP3.4m).

In line with LSL's stated strategy, we continued with our Marsh & Parsons branch expansion strategy in 2019, opening two new branches in April 2019 in outer prime Central London, in Willesden Green and Streatham Hill. These new branches are trading in line with expectations. This takes our total number of Marsh & Parsons branches to 30 as at 31(st) December 2019.

Our ambition remains to expand the number of Marsh & Parsons branches to a total of 36 in the medium term, particularly outside prime Central London. Outer prime Central London has not been as negatively impacted by subdued market conditions as prime Central London and Marsh & Parsons continues to look to expand its branch footprint in outer prime Central London locations.

Estate Agency profit per branch (Your Move, Reeds Rains and LSLi)

In 2019, Profit per branch (Your Move, Reeds Rains and LSLi) increased to GBP47.0k (2018: GBP18.3k), benefiting materially from the reshaping of the Your Move and Reeds Rains networks during 2019.

Yopa

Traditional estate agents continue to represent the substantial majority of the Residential Sales and Lettings markets. LSL believes this will continue for the foreseeable future and that Estate Agency branches will continue to remain core to providing the service our customers expect.

LSL has an 8.8% minority shareholding in Yopa. LSL's previous carrying value of GBP7.8m (as at 31(st) December 2018) for Yopa was written down through reserves by GBP1.3m to GBP6.5m at the 2019 half year to reflect the Board's assessment of fair value, as reported in the Interim Results statement released by LSL on 30(th) July 2019.

Financial Services Division(1)

Total Financial Services Division Revenue including Estate Agency for the year was down by 2% to GBP69.8m (2018: GBP71.0m), reflecting the impact of the planned closure of the Your Move and Reeds Rains branches. Financial Services organic revenue growth was 1% year on year, excluding Estate Agency.

In 2019, LSL further strengthened its position as a leading distributor of mortgage and non-investment insurance products and LSL delivered strong overall growth in the value of mortgage completions which were up 9% to GBP31.7bn in 2019 (2018: GBP29.0bn). LSL's market share is estimated to be 8.5% (2018: 8.0%) of the total market value of mortgage completions. LSL is the second largest combined network nationwide, measured by combined number of appointed representative firms. The number of financial advisers as at 31(st) December 2019 was 2,392 (2018: 2,321).

The Financial Services Division delivered a strong performance with Underlying Operating Profit(1) up 23% to GBP11.6m (2018: GBP9.5m) reflecting growth in core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018. The Financial Services Division continues to display positive progress across its breadth of products including mortgage products, pure protection products and general insurance products. The integration of PTFS, which was acquired in January 2018, into the Financial Services Division is delivering cost synergy benefits in line with expectations.

In 2019, the roll out of the Toolbox operating system to network firms including Group businesses was completed in line with expectations, to the full network of over 2,300 brokers and 500 administrators. The technology was part of rationale for acquiring PTFS.

Surveying Division

Surveying Division Revenue increased by 24% to GBP86.4m (2018: GBP69.8m), which included a material contribution from the successful commencement of the Lloyds Bank plc surveying and valuation services relationship, awarded in May 2018. Total number of jobs performed during the year were 508,061 (2018: 365,504).

Revenue in the first half of 2019 was up by 37% year-on-year, which included a material contribution from the successful commencement of the Lloyds Bank plc surveying and valuation services contract awarded in May 2018 and which commenced in the second half of September 2018. Revenue in the second half 2019 was up 13% on the same period in 2018, reflecting the commencement of the Lloyds Bank plc revenue from September 2018.

Income per job in 2019 reduced to GBP170 (2018: GBP191) due to a change in the business mix. Total Surveying Division expenditure increased due to the additional headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new contract in May 2018. As a result, LSL reported a reduced Underlying Operating Profit in 2019 of GBP16.3m (2018: GBP20.4m) with a profit margin of 18.9% (2018: 29.3%). Profit margin was 14.8% in H1 2019, improving to 22.9% in H2 2019.

The total number of operational surveyors at 31(st) December 2019 was 514 (2018: 503). In 2020, the Surveying Division will continue to focus on its successful graduate programme, which assists in alleviating the impact of capacity constraints in the market.

During the first half of 2019, the Surveying Division was pleased to be awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank.

Work is ongoing to leverage the scale benefits of the Surveying Division with the aim of improving cost efficiency.

The technology roll out continued during 2019 with further functionality releases designed to enhance quality and drive efficiencies such as an updated surveyor software application to improve the user experience and surveyor efficiency.

At 31(st) December 2019 the total provision for PI Costs was GBP8.2m (2018: GBP12.4m). In 2019, the Group continued to make positive progress in addressing historical claims and there has been a net GBP2.5m exceptional gain in the year.

Our customers

Our continued focus on providing the best service to our customers has been recognised in 2019 with numerous industry awards including:

Estate Agency

-- Davis Tate: Best Estate Agent Guide 2020 (*): Best Estate Agency Guide Award (Berks/Hamps/Isle of Wight (Sales & Lettings)). Henley and Abingdon - Rated Exceptional (Lettings), Reading - Rated Excellent (Lettings). The AllAgents Awards: Best Estate Agency Award, Abingdon, Burghfield, Goring, Henley, Pangbourne, Reading, Sonning, Twyford, Wallingford - Gold Award, Best Letting Agency Award, Abbingdon, Burghfield, Goring, Henley, Reading, Wallingford and Wantage - Gold Award, Best Overall Agent, Abingdon, Burghfield, Goring, Henley, Pangbourne, Reading, Sonning, Twyford, Wallingford.

-- Frosts: The ESTAS : Estate Agency of the Year Awards: Best in County Letting Agent (Hertfordshire) - Winner

-- Goodfellows: Best Estate Agent Guide 2020 (*): Best Estate Agency Guide Award ( South West London (Sales)). The AllAgents Awards: Best O verall Agent Award, Carshalton, Cheam Village, Mitcham and Morden - Gold Award, Best Estate Agency Award, Cheam Village and Mitcham - Gold Award, Best Lettings Agency Award, Carshalton, Cheam Village, Mitcham and Morden - Gold Award

-- Intercounty: The Negotiator of the Year Awards: Large Lettings Agency of the Year - Gold Award, Regional: East of England Agency of the Year - Gold Award. Best Estate Agent Guide 2020(*): East of England (Lettings) - Winner

-- JNP: The AllAgents Awards: Best Estate Agency Award, Hazlemere, Princes Risborough and High Wycombe - Gold Award, Best Letting Agency Award, Princes Risborough - Gold Award.

-- Marsh & Parsons: UK Property Awards 2019 : Best Estate Agency Marketing, London - Gold Award, Best Real Estate Agency, Single Office, London - Award Winner. The Drum Out of Home Advertising Awards 2019: Best Local Campaign. The Data and Marketing Association (DMA) Awards 2019: Best Integrated Campaign and Best Customer Acquisition Campaign

-- Reeds Rains: Best Estate Agent Guide 2020: Reeds Rains Lettings - Best Estate Agency Guide Award. Bamber Bridge, Blackpool, Chorley, Didsbury, Garstang, Hanley, Huddersfield, Hull, Leyland, Manchester, Prescot, Rhyl, Sale, Salford, Stanley, Woodseats and York - Rated Exceptional (Lettings). Plaistow - Rated Exceptional (Sales). Bridlington, Castleford, Chester, Congleton, Durham City, Halifax, Hazel Grove, Hyde, Liverpool City Living, Macclesfield and Newcastle Under Lyme - Rated Excellent (Lettings). Chorley, Hillsborough, Salford Quays City Living, Wakefield and Wilmslow - Rated Excellent (Sales). The AllAgents Awards: Best Estate Agency Award, Kennington and Dartford - Gold Award

-- Thomas Morris: Guild of Property Professionals 2019 : Lettings (East Anglia) - Gold Award, Sales (East Anglia) - Gold Award. Fine & Country Awards 2019: Branch of the Year, East of England. The ESTAS: Estate Agency of the Year Awards: Best Local Estate Agency Group- East of England. The AllAgents Awards: Best Estate Agency Award, St.Ives - Gold Award. The Negotiator Awards 2019: Estate Agency of the Year (6-9 branches) - Gold Award. Relocation Agent Network Awards 2019: Best Agent - Eastern Region. Best Estate Agent Guide 2020 (*): Best Estate Agency Guide Award (East of England (Sales & Lettings))

Financial Services

-- TMA: Money Age Mortgage Awards 2019 - Best Mortgage Club of the Year. Precise Mortgage Awards - Residential Mortgage Club of the Year, Mortgage Strategist 2019, Lisa Martin

-- PRIMIS: Financial Reporter Awards 2019 - Best Network. Mortgage Introducer Awards 2019 - Mortgage Network of the Year. The Financial Innovation Awards 2019 - Best Technology Initiative, United Kingdom

   --      LSL Financial Services: Precise Mortgage Awards: Best Distribution Group 2019

Surveying

-- e.surv Chartered Surveyors: Mortgage Finance Gazette Awards 2020: Best Surveying Firm - Winner Equity Release Awards 2019: Best Surveyor - Winner. Employee Benefits Awards 2019: Best Alignment of Benefits to Business Strategy - Winner

(*) As judged and announced in 2019

Our people

The continued success of our business model is attributable to, and underpinned by, our strong brands and excellence in the delivery of high levels of customer services by our colleagues in our Estate Agency, Financial Services and Surveying businesses. I would like to take this opportunity to thank all my colleagues across all our businesses for their professionalism and dedication during 2019. I look forward to working with my colleagues to deliver a successful year in 2020.

Outlook

Ian Crabb

Group Chief Executive Officer

10(th) March 2020

Notes:

1 Following the change to LSL's segment reporting effective from 1st January 2019, the 2018 revenue and Underlying Operating Profit of the Estate Agency and Financial Services Divisions have been restated. The Estate Agency Division also receives a commercially agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison

2 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4 to the Financial Statements)

3 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation on property, plant and equipment (as defined in Note 4 to the Financial Statements)

4 Operational gearing is defined as Net bank Debt divided by Group Adjusted EBITDA(3) . Excluding the impact of IFRS 16, gearing at 1.0x EBITDA

5 Bank of England - House Purchase Approvals and Total Mortgage Approvals

6 LSL estimates and including Land Registry regional data

7 LSL Property Services/ACADATA HPI

8 LSL sources/data analysis

9 UK Finance New mortgages by purpose of loan (excluding product transfers)

10 UK Finance 'New mortgages sold by intermediaries'

11 UK Finance 'Possessions on mortgaged properties'

12 Which-Network - network performance figures

13 The profit per branch methodology has been consistently applied since the profit per branch ambition of GBP80k-GBP100k was first announced by LSL in March 2014. Profit per branch is calculated for Your Move, Reeds Rains and the LSLi owned branches and excludes Marsh & Parsons

14 LSL's market share is calculated using gross mortgage completions excluding product transfers

Business Review - Estate Agency Division

 
                                           2019          2018 
                                                  Restated(1)        % 
Financial                                  GBPm          GBPm   change 
-------------------------------------   -------  ------------  ------- 
  Residential Sales exchange income        57.7          69.9      -17 
  Lettings income                          67.3          76.6      -12 
  Financial Services income                13.6          16.4      -17 
  Asset Management income                   5.3           5.5       -4 
  Other income(2)                          11.1          15.4      -29 
 
  Total Revenue                           154.9         183.8      -16 
  Operating expenditure                 (140.5)       (172.7)      +19 
  Underlying Operating Profit(3)           14.5          11.1      +30 
--------------------------------------  -------  ------------  ------- 
 
                                                                     % 
KPIs                                       2019          2018   change 
-------------------------------------   -------  ------------  ------- 
  Exchange units                         16,707        22,747      -27 
  Underlying Operating Margin (%)           9.3           6.0 
  Fees per unit (GBP)                     3,452         3,071      +12 
--------------------------------------  -------  ------------  ------- 
 
Market data 
-------------------------------------   -------  ------------  ------- 
  House purchase approvals (000s)(4)        789           781       +1 
  Total mortgage approvals (000s)(4)      1,549         1,535       +1 
  UK housing transactions (000s)(5)       1,181         1,191       -1 
  Repossessions(6)                        8,000         6,900      +16

Notes:

1 Following the change to LSL's segment reporting effective from 1(st) January 2019, the 2018 revenue and Underlying Operating Profit of the Estate Agency and Financial Services Divisions have been restated. The Estate Agency Division also receives a commercially agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison

2 'Other income' includes franchising income, conveyancing services, EPCs, Home Reports, utilities and other products and services to clients of the branch network

   3     Refer to Note 4 to the Financial Statements for the calculation 
   4     Bank of England for House Purchase Approvals and Total Mortgage Approvals 
   5     HMRC Monthly property transactions completed in the UK with value of GBP40,000 or above 
   6     UK Finance Possessions on mortgaged properties

Estate Agency Division performance

LSL announced the reshaping of its Your Move and Reeds Rains branch networks on 5(th) February 2019. We are pleased that the implementation of this programme has progressed in-line with our expectations despite the scale and complexity of the project. During Q1 2019, the Your Move and Reeds Rains estate agency branch network was reshaped from 308 owned branches to 144 keystone branches following the closure and merging of 81 neighbouring branches into the keystone branch network, the franchising of 39 branches and the closure of 44 branches.

Including the impact of this reshaping, total Estate Agency Revenue of GBP154.9m (2018: GBP183.8m) decreased by 16%. Adjusting for the closure of the Your Move and Reeds Rains branches during the first quarter of 2019, like-for-like total Revenue decreased by 5% compared to 2018.

The Underlying Operating Profit performance was strong with 30% growth in 2019 to GBP14.5m (2018: GBP11.1m), benefiting materially from the reshaping of the Your Move and Reeds Rains branch networks, with Estate Agency Division Operating Expenditure decreasing by 19%. Underlying Operating Margin improved to 9.3% (2018: 6.0%).

Residential Sales exchange income

Residential Sales exchange income decreased by 17% to GBP57.7m (2018: GBP69.9m), average fees per unit increased by 12% to GBP3,452 (2018: GBP3,071) and Residential Sales exchange volumes fell by 27%. On a like-for-like basis, adjusting for the Your Move and Reeds Rains branch network reshaping, Residential Sales exchange income decreased by 3%, average fee per unit was in line with prior year, and Residential Sales exchange volumes fell by 3%.

Lettings income

Total Lettings income decreased by 12% to GBP67.3m (2018: GBP76.6m). On a like-for-like basis, adjusting for the reshaping of the Your Move and Reeds Rains branch networks, Lettings income was down 4% on the prior year. Lettings income represented 43% of total Estate Agency Division income in 2019 (2018: 42%). Legislation banning tenant fees came into effect on 1(st) June 2019 and LSL implemented the required changes across its Estate Agency brands.

Financial Services income

Following the change to LSL's segment reporting effective from 1(st) January 2019, the Estate Agency Division receives a commercially agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison. Financial Services income was down 17% to GBP13.6m (2018: GBP16.4m) reflecting the planned reshaping of the Your Move and Reeds Rains branch network.

Other income

Other income fell by 29% year-on-year in large part due to a fall in conveyancing income due to lower Residential Sales transaction volumes following the branch network reshaping.

Asset Management

Asset Management maintained its market position in the historically low repossessions market. Other income included in this category was down during the period.

Branch numbers

Breakdown of LSL's Estate Agency branches as at 31(st) December 2019 and 31(st) December 2018:

 
                                      Total  Total 
                  Owned    Franchise   2019   2018 
----------------  -----  -----------  -----  ----- 
Your Move          89        80        169    252 
Reeds Rains        55        50        105    152 
----------------  -----  -----------  -----  ----- 
Sub total          144       130       274    404 
LSLi               57         2        59     59 
Marsh & Parsons    30         0        30     28 
----------------  -----  -----------  -----  ----- 
Total              231       132       363    491 
----------------  -----  -----------  -----  -----

The total number of Estate Agency branches reduced by 128 in 2019, following the changes to the structure of the Your Move and Reeds Rains estate agency branch networks announced on 5(th) February 2019 which reduced the total number of Your Move and Reeds Rains branches from 404 to 279 of which 144 are owned keystone branches and 135 were franchised. Subsequent to these announced changes, there have been closures of five pre-existing franchise branches and the opening of two new branches in Marsh & Parsons.

Business Review - Financial Services Division

 
                                                 2019          2018 
                                                        Restated(1)        % 
Financial                                        GBPm          GBPm   change 
---------------------------------------------  ------  ------------  ------- 
  Revenue                                        69.8          71.0       -2 
  Operating expenditure                        (58.2)        (61.5)       +5 
  Underlying Operating Profit(2)                 11.6           9.5      +23 
---------------------------------------------  ------  ------------  ------- 
 
                                                                           % 
KPIs                                             2019          2018   Change 
---------------------------------------------  ------  ------------  ------- 
  Underlying Operating Margin (%)                16.7          13.3 
  LSL Mortgage completion units (000s)          179.4         166.0       +8 
  LSL Mortgage completion lending(3) (GBPbn)     31.7          29.0       +9 
  Total advisers at 31(st) December             2,392         2,321       +3 
  Number of AR firms at 31(st) December           878           841       +4 
 
  Gross New Mortgage Lending(4) (GBPbn)         267.6         268.7        - 
---------------------------------------------  ------  ------------  -------

Notes:

   2          Refer to Note 4 to the Financial Statements for the calculation 
   3          LSL mortgage completions lending quoted include product transfers 
   4          UK Finance New mortgage lending by type of lender (excludes product transfers)

Financial Services Division performance

Total Financial Services Division revenue including Estate Agency for the year was down by 2% to GBP69.8m (2018: GBP71.0m), reflecting the impact of the planned closure of the Your Move and Reeds Rains branches. Financial Services organic revenue growth was 1% year-on-year, excluding Estate Agency.

The Financial Services Division delivered a strong performance with Underlying Operating Profit(1) up 23% to GBP11.6m (2018: GBP9.5m) reflecting growth in core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018. The Financial Services Division continues to display positive progress across its breadth of products including mortgage products, pure protection products and general insurance products. The integration of PTFS, which was acquired in January 2018, is delivering cost synergy benefits in line with expectations.

In 2019, the roll out of the Toolbox operating system was completed in line with expectations, to the full network of over 2,300 brokers and 500 administrators (part of rationale for acquiring PTFS).

Business Review - Surveying Division

 
                                                2019    2018        % 
Financial                                       GBPm    GBPm   change 
--------------------------------------------  ------  ------  ------- 
  Revenue                                       86.4    69.8      +24 
  Operating expenditure                       (70.0)  (49.4)      -42 
  Underlying Operating Profit(1)                16.3    20.4      -20 
--------------------------------------------  ------  ------  ------- 
 
                                                                    % 
KPIs                                            2019    2018   Change 
--------------------------------------------  ------  ------  ------- 
  Underlying Operating Margin (%)               18.9    29.3 
  Jobs performed (000s)                          508     366      +39 
  Revenue from private surveys (GBPm)            1.8     2.1      -16 
  Income per job (GBP)                           170     191      -11 
  Historic PI Costs provision (balance 
   sheet) at 31(st) December (GBPm)              8.2    12.4      -34 
  Number of operational surveyors at 31(st) 
   December (FTE)(2)                             514     503       +2 
 
  Total mortgage approvals (000s)(3)           1,549   1,535       +1 
--------------------------------------------  ------  ------  -------

Notes:

   1          Refer to Note 4 to the Financial Statements for the calculation 
   2          Full Time Equivalent (FTE) 
   3          Bank of England for House Purchase Approvals and Total Mortgage Approvals

Surveying Division performance

Surveying Division Revenue increased by 24% to GBP86.4m (2018: GBP69.8m), which included a material contribution from the successful commencement of the Lloyds Bank plc surveying and valuation services contract, awarded in May 2018. Total number of jobs performed during the year were 508,061 (2018: 365,504).

Revenue in H1 2019 was up by 37% year-on-year, which included a material contribution from the successful commencement of the Lloyds Bank plc surveying and valuation services relationship awarded in May 2018 and which commenced in the second half of September 2018. Revenue in H2 2019 was up 13% on the same period in 2018, reflecting the commencement of the Lloyds Bank plc contract from September 2018.

The total number of operational surveyors at 31(st) December 2019 was 514 (2018: 503). In 2020 the Surveying Division will continue to focus on its successful graduate programme, which assists in alleviating the impact of capacity constraints in the market.

During the first half of 2019, the Surveying Division was pleased to be awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank.

Work is ongoing to leverage the scale benefits of the Surveying Division with the aim of improving cost efficiency.

The technology roll-out continued during 2019 with further functionality releases designed to enhance quality and drive efficiencies e.g. updated surveyor software application to improve the user experience and surveyor efficiency.

At 31(st) December 2019 the total provision for PI Costs was GBP8.2m (2018: GBP12.4m). In 2019, the Group continued to make positive progress in addressing historic claims and there has been a net GBP2.5m exceptional gain in the year.

Financial Review

Income Statement

Group Revenue

Revenue decreased by 4.2% to GBP311.1m in the year ended 31(st) December 2019 (2018: GBP324.6m).

Other operating income

Other income of GBP887,000 (2018: GBP557,000) for the year ended 31(st) December 2019 increased 59.2% and comprised of rental income. The increase is a result of new leases on properties no longer occupied by the Group.

Gain on sale of property, plant and equipment

There was a gain of GBP148,000 (2018: GBP34,000) in the year ended 31(st) December 2019 resulting from the disposal of commercial property.

Income from joint ventures and associates

Income from joint ventures and associates was GBP441,000 (2018: GBP259,000).

Total operating expenses

Total operating expenses decreased by 4.9% to GBP275.5m (2018: GBP289.6m). The decrease is largely driven by the reshaping of the Your Move and Reeds Rains branch networks, announced on 5(th) February 2019, which was partly offset by an increase in Surveying operating expenses with the full year impact of the transfer to e.surv of the existing Lloyds Bank plc surveyors and back-office employees as part of the contract awarded to e.surv during May 2018, which commenced in September 2018.

Group Underlying Operating Profit

Group Underlying Operating Profit(1) increased by 3.2% to GBP37.0m (2018: GBP35.9m) with an Underlying Operating Margin of 11.9% (2018: 11.1%). Excluding the impact of IFRS 16, Group Underlying Operating Profit of GBP36.2m was 1% ahead of prior year (2018: GBP35.9m).

On a statutory basis, Group operating profit decreased to GBP19.7m (2018: GBP25.4m). This decrease is largely driven by exceptional costs resulting from the reshaping of the Your Move and Reeds Rains branch networks. In 2019 there were net exceptional cost of GBP13.2m compared to the 2018 financial results which included a net exceptional cost of GBP3.0m. Group operating profit was positively impacted in the year by a GBP2m credit relating to contingent consideration, compared to a GBP1.8m cost in 2018.

Group Adjusted EBITDA

Group Adjusted EBITDA(2) increased by 24.8% to GBP51.9m (2018: GBP41.6m), following the adoption by LSL from 1(st) January 2019 of IFRS 16 Leases. Depreciation of GBP10.0m has been recognised in the 2019 financial year against the right of use assets created by leasing contracts. Excluding the impact of IFRS 16 Group Adjusted EBITDA was down 2% to GBP40.9m (2018: GBP41.6m).

Share-based payments

The share-based payment charge of GBP312,000 (2018: GBP349,000) consists of a charge in the period of GBP1.6m offset by the lapse of the 2017 LTIP scheme as well as adjustments for leavers in the period.

Amortisation of intangible assets

The amortisation charge for 2019 was GBP5.8m (2018: GBP5.3m). The increase in 2019 is the result of amortisation on lettings books purchased in the year and software amortised across the Group.

Exceptional items

Total 2019 net exceptional cost of GBP13.2m including a GBP2.5m PI Costs exceptional provision release (H119: GBP0.6m, H219 GBP1.9m) as claims were settled below previous expectations, and GBP15.7m of exceptional costs. The majority of which were in relation to the restructuring of the Estate Agency Division, announced on 5(th) February 2019.

Net financial costs

Net financial costs amounted to GBP3.7m (2018: GBP2.3m). The finance costs related principally to interest and fees on the RCF and the unwinding of discounts on provisions and contingent consideration. Additional finance costs of GBP1.6m in the current year relate to the unwinding of the IFRS 16 lease liability.

Taxation

The UK corporation tax rate reduced to 19% with effect from 1(st) April 2017. A future UK corporation tax of 17% has been enacted and is effective from 1(st) April 2020, and this is the rate at which deferred tax has been provided (2018: 17%). Corporation tax is recognised at the headline UK corporation tax rate of 19% (2018: 19%).

The effective rate of tax for the year was 19.0% (2018: 22.5%). The effective tax rate for 2019 is equal to the headline UK tax rate for a number of reasons, but the most significant is the depreciation of assets which do not qualify for capital allowances, which are offset by non-taxable income in relation to contingent consideration.

Deferred tax credited directly to other comprehensive income is GBP0.1m (2018: GBP0.0m). Income tax credited directly to the share-based payment reserve is GBP0.0m (2018: GBP0.0m).

In 2019 corporation tax payments of GBP5.5m (2018: GBP6.9m) were made which is greater than the current year corporation tax charge of GBP4.0m (2018: GBP5.9m). This is a result of two quarterly payments being made in the year in respect of the year ended 31(st) December 2018 liability, which is higher than the corporation tax charge for the year ended 31(st) December 2019.

Basic Earnings Per Share

The Basic Earnings Per Share was 12.6 pence (2018: 17.4 pence). The Adjusted Basic Earnings Per Share(3) is 28.0 pence (2018: 27.2 pence), an increase of 2.9% which is in line with the increase in Group Underlying Operating Profit(1) .

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 and share-based payments. The Directors consider that the adjustments made to exclude the after tax effect of exceptional items, contingent acquisition consideration and amortisation provides a better and more consistent indicator of the Group's underlying performance.

Balance Sheet

Goodwill

There has been no impairment in 2019 in respect of the carrying amount of goodwill or brand (an indefinite useful life asset) held on the balance sheet. In 2019 goodwill has increased by GBP140k to GBP159.9m (2018: GBP159.7m). The increase is due to lettings book acquisitions in the year.

Other intangible assets and Property, plant and equipment

Total capital expenditure in the year amounted to GBP4.9m (2018: GBP6.0m) which includes expenditure of GBP1.3m (2018: GBP1.1m) for new software which has been treated as an intangible asset. The Group recognised GBP43.2m of lease liabilities on the balance sheet at transition to IFRS 16 on 1(st) January 2019, with corresponding Right of use assets of GBP43.8m. At the year-end the group had GBP37.2m lease liabilities on the balance sheet and GBP36.2m corresponding right of use assets. IFRS 16 lease liabilities are excluded from the Group's Net Bank Debt calculation.

Financial assets

LSL holds financial assets of GBP9.3m (2018: GBP11.6m). The decrease in the year is in part, as a result of the revaluation of LSL's shareholding in Yopa at the half-year, as already reported in the Interim Results for the six months ended 30(th) June 2019. There has been additional downward revaluation at the year-end in Vibrant Energy Matters and as a result of the disposal of LSL's share holdings in eProp Services plc, which were offset in part by the issuance of loan notes to an associate company and the addition of sublease assets on transition to IFRS 16.

LSL has a 8.8% minority shareholding in Yopa. LSL recognised a fair value impairment of GBP1.3m at the half-year 2019 through the Statement of Other Comprehensive Income. The carrying value of the Group's investment in Yopa remains unchanged from the half year and has been assessed as GBP6.5m (June 2019: GBP6.5m and December 2018: GBP7.8m).

Joint ventures, investments and associates

The Group has two joint ventures and one associate: a 33.3% (2018: 33.3%) interest in TM Group, whose principal activity is to provide property searches, a 50% (2018: 50%) interest in LMS whose principal activity is to provide conveyancing panel management services. LMS and TM Group are held in the balance sheet at GBP8.8m and GBP1.5m respectively (2018: GBP8.2m and GBP1.5m).

During 2018, LSL acquired a 34.69% interest in Mortgage Gym, a digital mortgage marketplace, for cash consideration of GBP4.1m. Mortgage Gym is held in the balance sheet at a value of GBP2.7m as at 31(st) December 2019 (2018: GBP3.6m) reflecting the opening carrying amount less losses of GBP0.9m in the period.

Financial Liabilities

Net Bank Debt

As at 31(st) December 2019 Net Bank Debt(4) was GBP41.9m (2018: GBP32.1m) and Shareholders' funds amounted to GBP141.2m (2018: GBP142.6m) with a balance sheet gearing of 29.7% (2018: 22.5%). The increase in Net Debt incorporated total exceptional cash expenditure of GBP8.8m (the majority of which related to the reshaping of the Your Move and Reeds Rains branch networks), GBP9.9m in respect of deferred and contingent for Group First and PTFS and seven lettings books acquisitions during the year. The 2019 gearing level was 0.8 times(5) Group Adjusted EBITDA (2018: 0.8 times). Adjusting for the impact of IFRS16 Leases, 2019 gearing was 1.0 times.

Bank facilities

In January 2018, LSL extended its bank facility until May 2022. The facility includes a GBP100m RCF (2018: GBP100m). During the period under review, the Group complied with all of the financial covenants contained within the facility.

Deferred and contingent consideration

Within financial liabilities, LSL has GBP0.1m (2018: GBP2.1m) of deferred consideration and GBP5.8m (2018: GBP15.0m) of contingent consideration. The contingent consideration relates primarily to Group First (GBP1.5m) and RSC (GBP3.6m).

Provisions for liabilities:

Professional indemnity (PI) claim provision

At 31(st) December 2019, the total provision for historic PI Costs was GBP8.2m (2018: GBP12.4m). In 2019, the Group continued to make positive progress in addressing historic claims and there has been a net GBP2.5m exceptional gain.

Onerous lease

As at 31(st) December 2019 LSL held onerous lease provisions of GBP440,000 (2018: GBP130,000).

Net assets

The Group's net assets as at 31(st) December 2019 were GBP141.2m (2018: GBP142.6m).

Statement of Cash-flows

The Group generated strong cash from operations of GBP38.8m (2018: GBP36.9m) converting 105% of Group Underlying Operating Profit to cash-flow from operations (pre PI and exceptionals) (2018: 103%). The small increase in conversion from 2018 is primarily related to the decrease in trade and other receivables of GBP5.4m (2018: increase of GBP3.8m) offset in part by the decrease in trade and other payables of GBP6.2m (2018: decrease of GBP0.1m, resulting in part from normalised Surveying revenues levels in Q4 2019 in comparison to Q4 2018. Provisions also decreased by GBP3.9m (2018: decrease of GBP3.6m) due to the positive progress in addressing historic PI claims.

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 2019.

International Financial Reporting Standards (IFRS)

The Financial Statements have been prepared under IFRS as adopted by the European Union.

Notes:

2. Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation on property, plant and equipment (as defined in Note 4 to the Financial Statements)

   3.       Refer to Note 6 to the Financial Statements 
   4.       Refer to Note 10 to the Financial Statements for the calculation 
   5.       Operational gearing is defined as Net Bank Debt divided by Group Adjusted EBITDA(2)

Principal Risks and Uncertainties

LSL has an overall framework for the 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 and is supported by the Audit & Risk Committee in discharging this role) on a regular basis identifies, evaluates and manages the principal risks and uncertainties faced by the Group; as well as factors which could adversely affect its business, operating results and financial condition.

This part of the Report describes LSL's risk management and internal controls arrangements during 2019 and includes a summary of the principal risks and uncertainties faced by the Group during 2019.

Management of risk appetite

During 2019, in line with the FRC's Guidance on 'Risk Management, Internal Control and Related Financial and Business Reporting', the Board continued to manage the Group's risk appetite through the risk appetite framework to ensure continued compliance with the Code and related FRC guidance. The Board through its established culture and underlying processes, expresses and reviews the types and level of risk which it is willing to take or accept to achieve LSL's strategy and business plans; and to support consistent, risk-informed decision making across the Group.

LSL's risk appetite framework has developed in accordance with the Board's risk framework policy. This policy defines individual risk appetite statements for LSL's principal risks and uncertainties 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 risk measures and the identification of actions needed to bring any specific outlying areas of risk within target levels.

During 2019, the Group has continued to promote and support the enhancement of risk frameworks within each of the Group's subsidiary businesses, including the maintenance of risk appetite measures by each subsidiary. Each year, each subsidiary business quantifies their highest ranked risk areas and routinely provide the Audit & Risk Committee with graphical management information to facilitate the tracking of risk status versus tolerance by the subsidiary boards and governance committees which operate within each of the three Divisions. The framework continues to improve the visibility of action plans to address any core risk areas considered outside tolerance.

Risk management activities in 2019 included the development of more formalised linkages between subsidiary risk metrics and Group level risk appetite statements, furthermore the Group Risk and Internal Audit team conducted a comprehensive mapping exercise to assess the ownership and effectiveness of second-line oversight across risk-related activities, spread across the three operating Divisions and Group Finance, with actions agreed to strengthen oversight routines where required.

The framework covers 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 2020, LSL will continue to review the framework to ensure it remains in line with emerging best practice and continues to foster the maturity of risk appetite routines at both LSL and its subsidiary businesses. Enhancements will be made where improvements which will improve the Group's risk management arrangements are identified.

The Board has established clear risk parameters, whilst at the same time fostering an environment within which innovation and entrepreneurial activities can thrive. Where there is any proposal to shift the Group significantly closer to or outside agreed risk parameters, it is discussed and is subject to Board approval before the commencement of any activities, to ensure that appropriate mitigation controls measures 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 Audit & Risk Committee and the Board in 2020. Further, the Audit & Risk Committee and the Board will periodically conduct reviews of the Group's risk management framework to ensure it reflects the requirements of the Code and any related guidance (as amended or replaced from time to time).

Developing the financial viability statement

Assessment of prospects

The Group's business model and strategy are central to an understanding of its prospects, and details are included in the Strategy and Business Model sections of the Annual Report & Accounts 2019.

Through organic growth, selective acquisitions and delivery of high quality services to customers, the Group's key objective is to build market leading positions and ultimately deliver long-term Shareholder value.

Prospects of the Group are assessed by the Board throughout the year at its meetings, including a particular focus during the strategic planning process. This process includes an annual review of the on-going plan, led by the Group Chief Executive Officer and Group Chief Financial Officer in addition to the relevant business functions involved.

The Directors participate fully in the annual planning process by means of a Board meeting and part of the Board's role is to consider whether the plan continues to take appropriate account of the changing external environment including macroeconomic, political, regulatory and technical changes.

This process allows the Board to produce strategic objectives and detailed financial forecasts over a three year period. The latest updates to the on-going plan were finalised in December 2019. This considered the Group's current position and its prospect of operating over the three-year period ending 31(st) December 2022, and reaffirmed the Group's stated strategy. The Group's future prospects have been further strengthened with the extension of the RCF which was renewed in January 2018 for a period up to May 2022.

Brexit

Since the 2016 EU referendum result, LSL has been monitoring Brexit developments to assess the impact on LSL. 'Brexit' is a subset entry within the Group's risk appetite framework and in addition LSL has conducted a specific impact assessment in relation to Brexit which was completed in line with FRC guidance.

The impact assessment considered whether LSL will be impacted directly by the eventual outcome of the negotiations between the UK and the EU, for example due to regulatory changes or due to changes that may impact our Group employees or whether the impact would be indirect, i.e. resulting from the broader economic uncertainties. The Group concluded that whilst LSL is not directly impacted by the Brexit trade negotiations, due mainly to its UK based business model, it is indirectly impacted by the impact that the continued economic uncertainty has on the housing market.

This approach has ensured that Brexit developments are being formally monitored, and the risk status regularly reassessed with reactive action plans identified to respond to any market effects of uncertainty that may be caused by the outcome of the negotiations between the UK Government and the EU.

These practices will continue throughout 2020 as the UK's Brexit transition continues and enters the transitional arrangement period involving negotiation of trade terms, along with wider consideration of the likely impacts of other major economic and political events, and their influence on viability assessment modelling.

The Group's principal risks and uncertainties are set out below. The Board reviewed LSL's principal risks and uncertainties when assessing the Group's prospects, and noted that none of these individual risks would, in isolation, compromise the Group's prospects. See the Directors' Report in the Annual Report and Accounts 2019 for details of how Brexit was taken into account in completing the going concern assessment.

COVID-19

Risks relating to COVID-19 and the impact are being assessed and the Group will take into account any guidance issued by the FRC in relation to its assessment and its reporting on the impact of the virus.

The Group's approach will ensure that as COVID-19 develops it will be closely monitored, and the risk status regularly reassessed with action plans identified in response.

Further, the description of the Group's principal risks and uncertainties which are set out below have been reviewed and updated to take into account COVID-19.

Assessment of viability

Although the strategic plan reflects the Directors' best estimate of the prospects of the Group in accordance with provision 31 of the 2018 Code, the Directors have assessed the viability of the Company over a longer period than the 12 months required by the 'going concern' provision.

For the purposes of assessing the viability of the Group, it was determined that a three year period ending on 31(st) December 2022 should be used, as this corresponds with the Board's strategic planning cycle. This assessment has been made with reference to the Group's current position and prospects, the Board's risk appetite and the Group's principal risks and uncertainties.

A number of severe but plausible scenarios were considered and two of these were modelled in detail with input from across a functional group of senior managers, including representatives from the finance teams.

The following scenarios were modelled:

a. severe downturn in the UK housing market close to the level seen in 2008 during the last recession caused by either, or a combination of, Brexit and/or political , economic, or other uncertainties; and

b. combination stress test including a loss of a major contract, a downturn in housing market, a Surveying PI risk event and a one-off regulatory fine following a data breach.

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 income and counter-cyclical businesses, notably Lettings and Asset Management, and the extent to which some activities, such as Lettings, tend to be less affected through the cycle. The modelling and assumptions took account of the broad range of services across a wide geography which allows some protection from the impact of stress scenarios.

The results from the stress testing indicated that the Group would be able to withstand the financial impact of each scenario and therefore continue to operate and meet its liabilities, as they fall due, over the three year period ending 31(st) December 2022.

Furthermore the Board also considered it appropriate to prepare the Financial Statements on the going concern basis, as explained in the Basis of Accounting paragraph in the Principal Accounting Policies section contained within the Financial Statements of the Annual Report and Accounts 2019.

The Audit & Risk Committee oversaw the process by which the Directors reviewed and discussed the assessment undertaken by the Management Team in proposing the viability statement.

The Directors' financial viability statement is contained in the Report of the Directors section of the Annual Report and Accounts 2019.

Risk management and internal controls framework

LSL's risk management and internal controls framework for 2019 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, the 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, including maintenance of detailed risk analyses;

c. the documentation and monitoring of risks are recorded and managed through risk appetite measures which undergo regular reviews and scrutiny by subsidiary boards, divisional governance committees and the Head of Risk and Internal Audit;

d. the Board routinely identifies, reviews and evaluates the principal risks and uncertainties which may impact the Group as part of the planning and reporting cycle to ensure that such risks are identified, monitored and mitigated in addition to carrying out specific risk assessments as part of its decision-making processes;

e. the development and application of LSL's risk appetite statement and associated framework (for further details on steps taken during the year, see the Audit & Risk Committee Report included in the Annual Report and Accounts 2019); and

f. reporting by the Chair of the Audit & Risk Committee to the Board on any matters which have arisen from the Audit & Risk Committee's review of the way in which LSL's risk management and internal control framework has been applied together with any breakdowns in, or exceptions to, these procedures.

The risk framework includes the following:

   a.   a risk framework policy; 
   b.   a boardroom culture which promotes risk assessment and management in decision-making;

c. determination of risk appetite, with management and mitigation of risks in line with risk appetite tolerances;

   d.   assessment of prospects and viability; 
   e.   review of the effectiveness of the risk management and internal control systems; and

f. going concern confirmation (for LSL's going concern disclosure see the Report of the Directors included in the Annual Report and Accounts 2019).

During 2020 areas of focus will include:

a. Further maturing of subsidiary risk measures, with continued ranking of risks and evidential tracking of action plans (for areas outside tolerance) at relevant management and governance committees;

b. Ongoing development of subsidiary data protection and information security related risks as part of established routines at relevant governance committees;

   c.    A revisit by the Group Risk and Internal Audit team of second-line risk management routines.

During 2019, the Directors carried out a robust assessment of the principal risks and uncertainties facing the Group, including those that threaten the Group's business model, future performance, solvency or liquidity. The Directors believe that the assessment which has been completed is appropriate to the complexity, size and circumstances of the Group, which is a matter of judgement of the Board and has been supported by the Management Team.

The Directors also carried out a risk appetite assessment exercise which involved the evaluation of continually evolving aspects of risk management. During 2019, this assessment included the consideration of the following:

   a.     the implementation of new IT systems across the Group's Divisions; 
   b.     the rationalisation of the estate agency branch network and associated cost base;

c. the re-branding the Group's Financial Services network activities as PRIMIS in addition to commencing a process of consolidating and harmonising the networks management and business support operations in addition to planning and implementing the new FCA Senior Managers Certification Regime;

d. responding to an evolving regulatory environment which reflects the priority of the housing sector on the Government's agenda and consideration of major scenarios of further external political and economic change on the UK housing market including the impact of Brexit; and

e. consideration of acquisitions to ensure that they remain in line with the Group's strategies and risk appetite.

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 uncertainties 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 Codes, this Preliminary Results Announcement includes descriptions of principal risks and uncertainties 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 and uncertainties has also contributed to the Group's financial viability statement which is included within the Report of the Directors section of the Annual Report and Accounts 2019. The Directors have also considered the impact if risks coincide, namely a combination of non-principal risks and uncertainties could potentially represent a single compound principal risk or uncertainty.

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 Preliminary Results Announcement or the Annual Report and Accounts 2019. 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 2019 is set out in the Audit & Risk Committee Report (Internal Controls) of the Annual Report and Accounts 2019.

Principal Risks and Uncertainties

 
      Risk                    D escri pti on            Monitoring and m i tig ati 
                                                         on 
 S trateg ic: 
 1   COVID-19 virus           Consumer behaviour and 
                              confidence                   *    Daily management calls to monitor business 
                              may be materially                 arrangements and implement regulatory advice, respond 
                              impacted                          to any immediate business concerns or emerging 
                              by the COVID-19 virus,            situation, assess readiness of plans and any new 
                              which                             responses required, with coordination of the 
                              may as a result have a            distribution of clear communications to employees. 
                              material 
                              impact on the 
                              residential                  *    Daily monitoring of key trading data. 
                              housing market. 
 
                              Risk of infection to         *    Implementation of responsive measures to reduce costs 
                              LSL                               and conserve cash. 
                              employees. 
 
                              There is a risk that         *    Business continuity plans updated for COVID-19 
                              LSL                               including escalation procedures and communications. 
                              offices / branches may            Specific BCP pandemic training arranged for Senior 
                              be                                Management Team. Contingency plans put in place with 
                              shut in the case of               defined levels of escalation leading ultimately to 
                              local                             deep-cleaning at affected sites and extensive remote 
                              COVID-19 infection and            working. 
                              customer-facing 
                              activities would need 
                              to                           *    Local representatives appointed, for example in 
                              switch to less                    Estate Agency branches, to act both as key contacts 
                              efficient                         for communications, and also to support employees on 
                              remote working                    the ground in observing and applying required 
                              arrangements.                     processes and routines. 
 
                              If IT staff were not 
                              able 
                              to maintain and access 
                              key 
                              systems, due to an 
                              inability 
                              to access key 
                              locations, 
                              business critical 
                              infrastructure 
                              and IT systems may be 
                              disrupted 
     ----------------------  ------------------------  --------------------------------------------------------------- 
 
                                                           *    Daily monitoring of any COVID 19 incidents with Group 
                                                                employees and/or customers. Reviewing all site 
                                                                specific business continuity plans, with a particular 
                                                                focus on curtailing non-essential events such as 
                                                                conferences and strengthening home working 
                                                                arrangements across the business, with testing of 
                                                                home working arrangements to build resilience. 
 
 
                                                           *    Implementing business continuity and disaster 
                                                                recovery solutions (encompassing IT, premises, 
                                                                transportation and employees), for example, plans to 
                                                                split key teams across sites including home working 
                                                                to reduce risk of intra- staff transmission and 
                                                                consequential impact on customer service. 
 
 
                                                           *    Inclusion of significant market changes in stress 
                                                                testing scenarios. 
     ----------------------  ------------------------  --------------------------------------------------------------- 
 2    UK housing              G r o u p p er f o 
       market                 rmance                       *    D aily, weekly and mo nthly mo ni t o ring of trad i 
                              is i n t ri n si cal ly           ng and market perfo rmance data, as appropriate. 
                              lin k ed to t he o v e 
                              rall 
                              per f o rmance of the        *    Initiatives to profitably maintain or increase market 
                              UK                                share , enhance pr o duct mix and optimise s egmentat 
                              h o usi ng mar k et               i on. 
                              (includ 
                              i ng s ubsets - e . g. 
                              prime                        *    De vel o pme nt of co unter-cyclical and recurring 
                              C e n t r al Lo ndon).            revenue income streams, including ones less 
                                                                correlated with the number of housing transactions. 
                              The housing market is 
                              also 
                              impacted by changes in       *    Responsive investme nt and cost control measures 
                              national                          during the housing market cycle. 
                              and global political 
                              and 
                              economic environments        *    Budgetary planning and stress test modelling carried 
                              (e.g.                             out on a number of market activity scenarios, 
                              Brexit).                          together with the development of mitigation plans. 
 
                              The housing market is 
                              also                         *    Investment to deliver strategic projects. 
                              impacted by domestic or 
                              international incidents 
                              (including force             *    Balanced UK-wide ge o grap hical s pread to avoid

                              majeure                           over-exposure to local market factors. 
                              events) which may 
                              impact 
                              LSL's stakeholders           *    M o nit o rin g of wi d er macroeco n omic and 
                              (including                        political devel o pmen t s (including domestic and 
                              employees, customers              international developments). 
                              and 
                              suppliers) such as 
                              COVID-19,                    *    Multi base-case scenarios and 'break-it' modelling 
                              which may have a                  for budget setting. 
                              significant 
                              impact on the housing 
                              market.                      *    Monitoring of wider macroeconomic events and 
                                                                political developments (including both domestic and 
                              The impact of this risk           international), with responsive business plans and 
                              can be direct (such as            business continuity arrangements. 
                              changes 
                              in Government policy or 
                              legislation arising 
                              from 
                              a change in Government) 
                              or indirect (such as 
                              changes 
                              in consumer behaviour 
                              or 
                              sentiment arising from 
                              changes 
                              in Government policy or 
                              legislation). 
     ----------------------  ------------------------  --------------------------------------------------------------- 
 3    New UK housing          T r aditi o nal b us i 
       market entrants        ne                           *    Competit o r and in d ustry ben c hmark i ng, 
                              ss mo dels and pricing            including regular view of market developments. 
                              structures 
                              for residential pr o 
                              perty                        *    Development of strategies in response to market 
                              services may be e x p o           disruptors, including options to capitalise on 
                              s ed to n ew bus i ne             digital opportunities. 
                              ss 
                              mo d e ls a nd technol 
                              o                            *    Continued infrastructure investment, including 
                              gical advancemen ts               investment in innovation and technology, with 
                              (e.g.                             upgrading, consolidating and replacing core or legacy 
                              online/hybrid estate ag           operating systems to increase functionality, improve 
                              e nts, aut omated                 customer experience, reduce costs and deliver 
                              valuat                            efficiencies. 
                              i on m o dels and 
                              automated 
                              financial services           *    S er vice d elive ry e n hanceme nts, 
                              operating                         product/services differentiation a nd test and learn 
                              models).                          initiatives. 
 
 
                                                           *    Engagement of specialist ex ternal co n s ultative s 
                                                                u pp o rt as necess a ry. 
 
 
                                                           *    M o nit o rin g of acquisition, investment, associate 
                                                                and jo int ven t ure o pportuni t ies. 
 
 
                                                           *    M arketi ng in i tiative s. 
 
 
                                                           *    Operation of s t aff incen t ive sch emes to mitigate 
                                                                staff attrition. 
 
 
                                                           *    Inclusion of significant market changes in stress 
                                                                testing scenarios. 
     ----------------------  ------------------------  --------------------------------------------------------------- 
 4   Investment,              Realisation of business 
      acquisitions            case in relation to          *    Monitoring of opportunities which support delivery of 
      and                     investment,                       Group strategy. 
      growth initiatives      acquisi t i on and 
                              major 
                              pr oject initiati v es,      *    Engagement of professional advisers to support 
                              incl ud i ng d                    identification and evaluation of strategic investment 
                              evelopment                        and acquisition opportunities. 
                              of business cases, due 
                              d 
                              i li g ence and i n te       *    De fin ed p re and p o st-acqu i sition rep o rti ng 
                              g                                 to the Board and Audit & Risk Committee. 
                              rati o n/imp l eme n 
                              tati 
                              on r e q u iremen t s,       *    Establishment of a uth o rit y l evels for 
                              in                                expenditure. 
                              line with LSL's 
                              strategy 
                              to complete selective        *    Use of risk appetite to reflect approach during 
                              acquisitions.                     different stages of the housing market cycle. 
 
 
                                                           *    Defined due diligence processes completed ahead of 
                                                                all investments and acquisitions. 
 
 
                                                           *    Due diligence is undertaken by in house teams with 
                                                                support from subject specialists as required. 
 
 
                                                           *    Completion of risk assessments including RCF leverage 
                                                                stress testing ahead of all significant investments 
                                                                and acquisitions. 
 
 
                                                           *    Maintenance of resource pool to deliver 
                                                                integration/implementation activities following 
                                                                completion of acquisitions. 
 
 
                                                           *    Establi s hed i nt e grati on/implementation p lan n 
                                                                ing meth o d o l o gy in place. 
 
 
                                                           *    Promotion of Group-wide relationships in business 
                                                                arrangements. 
 
 
                                                           *    Po st-acquisiti on a nd p o st-integration/i m ple m 
                                                                entati on r eview programmes, including detailed 
                                                                presentations to the Board. 
 
 
                                                           *    Incorporation in Risk and Internal Audit plans, 
                                                                including additional e ngag ements where required. 
 
 
                                                           *    Documentation of clear business strategy and risk 
                                                                appetite by the Board, to ensure alignment of new 
                                                                initiatives. 
     ----------------------  ------------------------  --------------------------------------------------------------- 
 S al es/distri buti on: 
 5    Professional            Ex p o sure to PI            Surveying and Valuation Services 
       services               claims                       Division 
                              ar ising fr om laps es        *    Ro bust frame wo rk and mon it o ring r o u t in es 
                              in                                 to maint a in valuati on accuracy. 
                              professional services, 
                              including 
                              s urveyi ng and valuati       *    Dedi cat ed sur v eyi ng risk t eam, providing 2(nd) 
                              on practices, financial            line assurance on the operation of the framework. 
                              services advice, and 
                              estate 
                              agency services.              *    Additional controls in place for potentially higher 
                                                                 risk valuations. 
 
 
                                                            *    T i mely data captu re of all potential claims and

                                                                 ass ociat ed tr e nds with regular scenario modelling 
                                                                 undertaken. 
 
 
                                                            *    Utilis ati on of tech n o l o gy to mo nit or valuati 
                                                                 on t r en ds, trigg er aler t s and 'real time' 
                                                                 checks. 
 
 
                                                            *    Board-level au t h o riti es for PI claims se t tleme 
                                                                 nt paym ents and g overnance of u n derl y i ng clai 
                                                                 ms h a nd l ing and acco unting pr oce s ses. 
 
 
                                                            *    Integration of new business products into existing 
                                                                 valuation controls framework. 
 
 
                                                            *    Lender on-boarding policy with Board oversight to 
                                                                 ensure instructions are within risk appetite. 
 
 
                                                           Financial Services Division 
                                                            *    Defined responsibilities for claims management and 
                                                                 operation of PI insurance together with management of 
                                                                 underlying risk areas. 
 
 
                                                            *    Risk and In t ernal A u dit engagements. 
 
 
                                                            *    Governance arrangements relating to the inclusion of 
                                                                 products included within the Financial Services 
                                                                 Division panel distribution arrangements made 
                                                                 available for network/club members and their 
                                                                 customers. 
 
 
                                                            *    Ex per i enced claims han d li ng p e rs o nnel s u p 
                                                                 p o rted by l egal and compliance e x p erts. 
 
 
                                                            *    Development of dedicated conduct risk MI to ensure 
                                                                 fair treatment of consumers. 
 
 
                                                            *    Cultu re pr omo ting effective sal es co nduct and o 
                                                                 p en l i nes of communicati on with clien t s with a 
                                                                 focus on customer outcomes. 
 
 
                                                           Group-wide 
                                                            *    Robust reporting processes to centralised risk team 
                                                                 to ensure timely and compliant notifications are made 
                                                                 to insurers. 
 
 
                                                            *    PLC Board review of PI insurance arrangements 
     ----------------------  ------------------------  --------------------------------------------------------------- 
 6    Client contracts        T h e perfo rmance of 
                              the                        *    Cust omer o utcomes focused fo r ums and i nitiati v 
                              Estate Agency,                  es. 
                              Financial 
                              Services and S urveying 
                              b us i ne s ses are dep    *    Desi g n at ed s eni or m embe rs of staff with re s 
                              e n d ent on entering           p o nsi b ility for relati o n s hip man a geme nt at 
                              into                            subsidiary and Group levels. 
                              appropriate agreements 
                              and 
                              retai ni ng contracts      *    On-going in ve stme nt in r es o u rces, innovation, 
                              with                            technology and service standards to ens u re L SL has 
                              key clients/customers           t he capacity to meet service l evel demands. 
                              (e.g. 
                              lenders, portfolio 
                              landlords                  *    Development of new products to meet market needs. 
                              and house builders). 
 
                                                         *    Proactive management of third party suppliers to 
                                                              ensure continued compliance with client contract 
                                                              commitments/requirements. 
 
 
                                                         *    Oversight of third party providers to maintain 
                                                              overall service quality. 
 
 
                                                         *    T argeted mark e ti n g and training events for 
                                                              corporate clients. 
 
 
                                                         *    M o nit o rin g of client dependency, service 
                                                              delivery, risk and compliance with co ntractual requ 
                                                              i reme nts. 
 
 
                                                         *    Ro bust co ntr ol framewo rk supp o rti ng the risk 
                                                              profiling of prospective clients, contract renewals 
                                                              (including contract terms) and the quality of 
                                                              professional services. 
 
 
                                                         *    Process to ensure learnings from bids/instructions 
                                                              are identified and actioned. 
 
 
                                                         *    In-h o use l egal s ervi c es and compliance teams, 
                                                              with specialist e x te r nal legal and compliance su 
                                                              p p o rt engagement when necessary, together with 
                                                              dedicat ed claims/customer complaints management t 
                                                              eams within business areas. 
 
 
                                                         *    Risk and Inte r nal A udit reviews. 
     ----------------------  ------------------------  --------------------------------------------------------------- 
 Operations: 
 7    Business                The failure of 
      infrastructure          business                   *    Group-wide internal controls processes and policies 
      (including              critical business               which are subject to regular review to ensure they 
      IT)                     infrastructure                  are in line with best practice. 
                              and business critical 
                              IT 
                              systems could result       *    Group IT g overnance, p o lici es, base standards and 
                              in                              i nitiati v es supported by the Group IT Director and 
                              breakdown in                    with oversight from the Data and Information Security 
                              operational                     Committee. 
                              processes, loss of 
                              data, 
                              and IT outages,            *    Focus on investment and development of innovation and 
                              impacting                       systems within the Group's strategies. 
                              customers and 
                              business 
                              performance.               *    Combination of dedi cat ed in - h o use IT teams and 
                                                              engagement with external IT specialist suppliers to 
                              Gr o u p o perat i o            deliver efficiencies and market leading service. 
                              ns 
                              r e qui re r o bust 
                              internal                   *    M ai n t e nance of business i nfrastruct ure to 
                              controls, resilient             ensure effective ser v ice delive ry with appropriate 
                              infrastructures                 controls. 
                              and business 
                              continuity 
                              arrangements               *    On-g o ing infrastructure invest m ent and phased 
                              (including                      development pr o grammes. 
                              in relation to IT). 
 
                              T h e controls envir       *    Identifying, securing and supporting innovation and 
                              o                               technology opportunities through the Group's

                              nment nee ds to                 investment and acquisition strategies . 
                              remain 
                              a daptab le to s upp 
                              o                          *    Impleme n ting b u si n ess co nti n uity and d i 
                              rt gr owth initiati v           sast er recovery s o luti o ns (encompassing IT 
                              es,                             premises, transportation and employees). 
                              har ne ss tech n o l 
                              o 
                              gical advancemen ts        *    M o nit o rin g of compliance wi th relevant co 
                              and                             ntractual a nd regulat o ry r eq u ireme nts. 
                              co un t er bu s in e 
                              ss 
                              co nt i                    *    Ex ternal co n s ultative s u pp o rt as necess a ry. 
                              nuity/resilience 
                              th r eats, inclu d 
                              ing                        *    Risk and In t ernal A u dit engagements. 
                              in relation to IT 
                              systems, 
                              mal ici o us and cyb       *    Oversight by the Data and Information Security 
                              er-                             Committee, the Audit & Risk Committee and the LSL 
                              r elated attacks.               Board. 
 
                              LSL's strategy 
                              recognises 
                              the importance of 
                              investing 
                              in the Group's 
                              infrastructure 
                              (including IT) to 
                              maintain 
                              both competitive 
                              advantages 
                              and deliver controls 
                              and 
                              system security - all 
                              within 
                              the context of 
                              changing 
                              business models 
                              within 
                              the residential 
                              property 
                              services markets. 
     ----------------------  ----------------------  ----------------------------------------------------------------- 
 8    Information             Gr o u p o perati o 
       security (including    ns                         *    L S L Data and Info rmati on S ecurity Committee 
       data protection)       i nvo lve the p r               established with policy implementation and oversight 
                              ocessing                        responsibilities. 
                              and retention of high 
                              vo 
                              lumes of pers o nal        *    Defined Group-wide base policy standards. 
                              data, 
                              with p o tential for 
                              uni                        *    Dedi cat ed i nfo rmati on s ecur i ty and data 
                              n te n ded data l o             protection pers on nel (including DPOs). 
                              ss 
                              and e x p o s u re to 
                              increas                    *    Regular staff training programmes and awareness 
                              ing levels of e x               assessments undertaken. 
                              tern 
                              al cyber crime, 
                              including                  *    Group cyber insurance cover in place. 
                              Phishing attacks and 
                              identify 
                              theft.                    Data protection 
                                                         *    Gr o u p data pr o tecti on p o lici es and train i 
                                                              ng in place supported by in-house legal and 
                                                              compliance teams. 
 
 
                                                         *    T r acking of data assets/data s h a ring and any 
                                                              breach incidents, in l i ne with au th o rity levels, 
                                                              including monitoring of the storage of sensitive 
                                                              data. 
 
 
                                                         *    Remedial steps taken to address any identified 
                                                              control weaknesses and ensure reporting in-line with 
                                                              regulatory requirements. 
 
 
                                                         *    Implementation of regulatory changes, with 
                                                              post-launch oversight routines embedded as 'business 
                                                              as usual' - (e.g. General Data Protection 
                                                              Regulation). Systems security 
 
 
                                                         *    Penetrati on t est i ng, intrusion scanning p r o 
                                                              gramme, and secure back-ups and encryption of key 
                                                              data 
 
 
                                                         *    Other controls such as password protected computers, 
                                                              clean desk policy, alerts on external emails and 
                                                              automatic password locking of computers left idle 
 
 
                                                         *    Benchmarking against and accreditation by best 
                                                              practice standards - e.g. ISO27001 accreditation for 
                                                              e.surv. 
 
 
                                                         *    S e co nd and thi r d-l i ne r i sk-bas ed thematic r 
                                                              eviews. 
     ----------------------  ----------------------  ----------------------------------------------------------------- 
 9    Regulatory              The Group is required 
       and compliance         to                        *    To p -d own management culture focu s ed on fairne s 
                              comply with various            s, tran spar e ncy and delivery of good cust omer o 
                              legal                          utcomes. 
                              and regulatory 
                              requirements, 
                              whether as an             *    Open d ial o gue wi th r e gulat o rs a nd mo nit o 
                              employer                       ri ng of emer g i ng devel o pme nts and regulatory 
                              or as providers of             reforms. 
                              services. 
 
                              Any compliance            *    Gr o u p r i sk framewo rk p o licy i n c o rp o rati 
                              breaches                       ng where appropriate 't h re e l ines of defence' mo 
                              could result in                del to track compliance with reg u lati o ns. 
                              sanctions 
                              and reputational 
                              damage                    *    Gr o u p p o lici es including ethics ( i.e. wh i 
                              (e.g. prosecutions or          stle b l owing struct u res, anti-fraud and 
                              fines).                        anti-bribery policies) and employee welfare. 
                              This includes 
                              compliance 
                              with existing             *    Subsidiary businesses have in place health and safety 
                              regulations                    arrangements with an associated Group reporting 
                              and implementing new           framework which covers the welfare of employees and 
                              regulations                    visitors to Group premises. 
                              such as The Senior 
                              Managers 
                              Certification Regime.     *    Gr o u p -wide fo rums with r eg u lat o ry focus and 
                                                             oversight (e.g. Financial Services Management 
                              Regulatory and                 Committee, Financial Services Risk Committee, Estate 
                              compliance                     Agency regulatory risk steering group and Data and 
                              risk extends to the            Information Security Committee). 
                              Group 
                              requiring through its 
                              contracts                 *    Dedi cat ed second-line compliance teams in high er 
                              regulatory compliance          risk/r e gulat ed functi o ns. 
                              by 
                              its bus i ne s s 
                              partn                     *    Investment in recruitment of expertise within the 
                              e rs (e . g. franchi           divisional compliance teams to ensure the Group is

                              ses,                           able to maintain appropriate procedures and risk 
                              appointed                      measures for regulatory compliance. 
                              representatives, 
                              joi nt ventu r es, 
                              minority                  *    Harmonisation of best practice compliance standards 
                              investments,                   following acquisitions. 
                              associates 
                              and suppliers). 
                                                        *    Dedicated Group Tax Manager monitors compliance with 
                              The market and                 new tax legislation, e.g. IR 35 and Making Tax 
                              business                       Digital. 
                              operations are also 
                              impacted 
                              by a number of            *    Evo luti on and development of IT systems to streng t 
                              proposed                       hen over s ight r ou ti n es. 
                              regulatory reforms 
                              (e.g. 
                              Government reviews        *    Monitoring of franchise oversight obligations 
                              relating                       continuing. 
                              to the housing 
                              market, 
                              including reforms of      *    Resp o nsive complai nts track i ng of any emerg i ng 
                              lettings                       t hemes. 
                              fees and conveyancing 
                              referral 
                              fees) which impact on     *    In-h o use l egal, with access to specialist e x te r 
                              Group                          nal legal when necessary. 
                              revenue and 
                              expenditure. 
                                                        *    Gr o u p Risk and In t ernal Au d it engagements 
                              Regulatory costs,              including assessments of the effectiveness of 
                              fees                           second-line oversight routines . 
                              and charges continue 
                              to 
                              grow due to the           *    Membership of industry trade bodies and participation 
                              growth                         in Government and regulatory consultations. 
                              of LSL's Financial 
                              Services 
                              businesses and the        *    Responsive business model changes to mitigate and 
                              funding                        address the impact of any regulatory changes. 
                              requirements of the 
                              Financial 
                              Services Compensation 
                              Scheme 
                              (FSCS). 
     ----------------------  ----------------------  ----------------------------------------------------------------- 
 People: 
 10   Employees               There is a risk that 
                              LSL                           *    Oversight by L SL Remune rati on and N ominati o ns 
                              may not be able to                 Committees supported by the Company Secretary and 
                              recruit                            Group HR Director as well as a nominated LSL 
                              or retain sufficient               Non-Executive Director for workforce engagement. 
                              staff 
                              to achieve its 
                              operational                   *    Establishment of Employee Forum with regular 
                              objectives. This may               engagement with the workforce engagement designated 
                              result                             Non Executive Director. 
                              for example, in an 
                              inability 
                              to service customers          *    Gr o u p r emu n erati on p o licies a nd i ncen t 
                              adequately,                        ive s c hemes to retain k ey strat e gic p o p u lati 
                              develop new products or            o ns. 
                              execute the LSL 
                              Strategic 
                              Plan. If staff are            *    Regular benchmar king and apprai sals of Executive 
                              recruited                          Directors and S e ni or Manageme n t. 
                              into roles without the 
                              requisite 
                              experience or training        *    S u cces s i on plan ni ng revi ews and targeted 
                              ,                                  development programmes for high achievers. 
                              the risk of operational 
                              errors increases, which 
                              may impact business           *    Dedi cat ed in - h o use talent acquisition t eams 
                              performance                        within Group HR. 
 
                              To address this risk, 
                              it                            *    Targeted retention and recruitment initiatives. 
                              is important for LSL to 
                              s e cure and ret a in 
                              key                           *    Employee sur ve ys and Gr o up HR i nitiatives to 
                              strat egic staff and               monitor culture, attrition, mo rale, and any ar eas 
                              control                            of pr e s s u re. 
                              attrition in key 
                              business 
                              critical areas, for           *    Gr o u p -wi de HR IT systems. 
                              example, 
                              through e.surv's 
                              graduate                      *    M o nit o rin g of statut o ry reporting r eq u ire m 
                              recruitment programme;             ents and d evel o pme nts (e.g. gender and ethnic pay 
                              as                                 reporting) and impact of new tax regulations, e.g. 
                              well as ensuring the               IR35. 
                              effective 
                              management of personnel 
                              standards and policy          *    Employee policies and monitoring frameworks in place 
                              frameworks                         (e.g. health and safety and lone working arrangements 
                              acr o ss varied Gr o up            to ensure employee welfare). 
                              bus i ne s ses. 
 
                                                            *    Monitoring subsidiary culture, values and ethics and 
                                                                 the development of LSL's culture, values and ethics. 
 
 
                                                            *    Implementation of workforce engagement measures to 
                                                                 ensure employee considerations are included in 
                                                                 decision making. 
 
 
                                                            *    Adoption of reporting arrangements to demonstrate 
                                                                 consideration of key stakeholders, including 
                                                                 employees in decision making. 
 
 
                                                            *    Clear Gr o up p o licies a nd whistl e bl owing pr 
                                                                 oce d ur es to enable employees to co nfidential ly 
                                                                 raise or report co nce r ns. 
     ----------------------  ------------------------  ---------------------------------------------------------------

Group Income Statement

for the year ended 31(st) December 2019

 
                                              Note        2019        2018 
                                                       GBP'000     GBP'000 
                                                    ----------  ---------- 
 
 
 Group Revenue                                         311,073     324,640 
 
 Employee and subcontractor costs                    (194,207)   (203,095) 
 Establishment costs                                  (10,367)    (20,614) 
 Depreciation on property, plant and 
  equipment                                           (14,842)     (5,674) 
 Other operating costs                                (56,098)    (60,211) 
                                                    ----------  ---------- 
 Total operating expenses                            (275,514)   (289,594) 
 
 Other operating income                                    887         557 
 Gain on sale of property, plant and 
  equipment                                                148          34 
 Income from joint ventures and associates                 441         259 
                                                    ----------  ---------- 
 
 Group Underlying Operating Profit             4        37,035      35,896 
 
 Share-based payments                                    (312)       (349)

 Amortisation of intangible assets                     (5,786)     (5,301) 
 Exceptional gains                             5         2,487       2,188 
 Exceptional costs                             5      (15,730)     (5,234) 
 Contingent consideration                                2,054     (1,783) 
 Group operating profit                                 19,748      25,417 
                                                    ----------  ---------- 
 
 Finance costs                                         (3,744)     (2,333) 
 Finance Income                                             10           - 
 Net financial costs                                   (3,734)     (2,333) 
                                                    ----------  ---------- 
 
 Profit before tax                                      16,014      23,084 
 
 Taxation charge                               8       (3,045)     (5,201) 
 
 Profit for the year                                    12,969      17,883 
                                                    ----------  ---------- 
 
 Earnings per share expressed in pence 
  per share: 
 Basic                                         6          12.6        17.4 
 Diluted                                       6          12.6        17.3

Group Statement of Comprehensive Income

for the year ended 31(st) December 2019

 
                                                       2019         2018 
                                           Note     GBP'000      GBP'000 
                                                 ----------  ----------- 
 
 Profit for the year                                 12,969       17,883 
                                                 ----------  ----------- 
 
 Items not to be reclassified to profit 
  and loss in subsequent periods: 
 Revaluation of financial assets not 
  recycled through income statement          8      (3,558)     (12,200) 
                                                 ----------  ----------- 
                                                    (3,558)     (12,200) 
                                                 ----------  ----------- 
 
 Total other comprehensive (loss) for 
  the year, net of tax                              (3,558)     (12,200) 
                                                 ----------  ----------- 
 
 Total comprehensive income for the 
  year, net of tax                                    9,411        5,683 
                                                 ----------  -----------

Group balance sheet Company No. 05114014

as at 31(st) December 2019

 
                                                             2019        2018 
                                                          GBP'000     GBP'000 
                                                 ----------------  ---------- 
 Non-current assets 
 Goodwill                                                 159,863     159,723 
 Other intangible assets                                   30,906      31,960 
 Property, plant and equipment                             49,570      16,866 
 Financial assets                                           9,326      11,566 
 Investments in joint ventures and associates              12,958      13,230 
 Contract assets                                              686         959 
 Total non-current assets                                 263,309     234,304 
                                                 ---------------- 
 
 Current assets 
 Trade and other receivables                               34,391      38,650 
 Contract assets                                              253         262 
 Cash and cash equivalents                                      -       2,405 
 Total current assets                                      34,644      41,317 
                                                 ----------------  ---------- 
 
 Total assets                                             297,953     275,621 
                                                 ----------------  ---------- 
 
 Current liabilities 
                                                         ( 11,113 
 Financial liabilities                                          )    (10,455) 
 Trade and other payables                                (60,007)    (63,980) 
 Current tax liabilities                                  (1,209)     (2,688) 
 Provisions for liabilities                               (3,575)     (6,616) 
                                                 ----------------  ---------- 
                                                         ( 75,904 
 Total current liabilities                                      )    (83,739) 
                                                 ----------------  ---------- 
 
 Non-current liabilities 
 Financial liabilities                                   (73,951)    (41,156) 
 Deferred tax liability                                   (1,805)     (2,189) 
 Provisions for liabilities                               (5,077)     (5,944) 
                                                 ----------------  ---------- 
 Total non-current liabilities                           (80,833)    (49,289) 
                                                 ----------------  ---------- 
 
 Total Liabilities                                      (156,737)   (133,028) 
 
 Net assets                                               141,216     142,593 
                                                 ----------------  ---------- 
 
 Equity 
 Share capital                                                208         208 
 Share premium account                                      5,629       5,629 
 Share-based payment reserve                                4,429       4,129 
 Shares held by EBT                                       (5,224)     (5,261) 
 Fair value reserve                                      (13,584)    (11,727) 
 Retained earnings                                        149,758     149,615 
                                                 ----------------  ---------- 
 Total equity                                             141,216     142,593 
                                                 ----------------  ----------

The Financial Statements were approved by and signed on behalf of the Board by:

Ian Crabb Adam Castleton

Group Chief Executive Officer Group Chief Financial Officer

10(th) March 2020 10(th) March 2020

Group Statement of Cash-Flows

for the year ended 31(st) December 2019

 
                                                      2019       2018 
                                                   GBP'000    GBP'000 
                                                 ---------  --------- 
 
 Profit before tax                                  16,014     23,084 
 Adjustments for: 
 Exceptional operating items and contingent 
  consideration                                     11,189      4,829 
 Depreciation of tangible assets                    14,842      5,674 
 Amortisation of intangible assets                   5,786      5,301 
 Share-based payments                                  312        349 
 (Profit) on disposal of fixed assets                (148)       (34) 
 (Profit) from joint ventures                        (441)      (259) 
 Finance income                                       (10)          - 
 Finance costs                                       3,744      2,333 
 Proceeds received via cash consideration                -      1,529 
 Operating cash-flows before movements 
  in working capital                                51,288     42,806 
                                                 ---------  --------- 
 
 Movements in working capital 
 Decrease/ (increase) in trade and other 
  receivables                                        5,462    (3,815) 
 (Decrease) in trade and other payables            (6,181)      (111) 
 (Decrease) in provisions                          (3,908)    (3,608) 
                                                   (4,627)    (7,534) 
                                                 ---------  --------- 
 
 Cash generated from operations                     46,661     35,272 
 
 Interest paid                                     (3,289)    (1,359) 
 Income taxes paid                                 (5,355)    (6,875) 
  Exceptional costs paid                           (8,799)    (3,310) 
 Net cash generated from operating activities       29,218     23,728 
                                                 ---------  --------- 
 
 Cash-flows used in investing activities 
 Cash acquired on purchase of subsidiary 
  undertaking                                            -      6,944 
 Acquisitions of subsidiaries and other 
  businesses                                       (2,711)    (7,732) 
 Payment of contingent consideration               (7,890)    (1,392) 
 Investment in joint ventures and associates             -    (4,100) 
 Investment in financial assets                    (2,783)       (13) 
 Cash received on sale of financial                  1,765          - 
  assets 
 Purchase of property, plant and equipment 
  and intangible assets                            (4,892)    (5,877) 
 Proceeds from sale of property, plant 
  and equipment                                        367        156 
 Net cash (expended) on investing activities      (16,144)   (12,014) 
                                                 ---------  --------- 
 
 Cash-flows used in financing activities 
 Drawdown of loans                                   7,383      4,521 
 Refinance costs                                         -      (250) 
 Repayment of loan notes                                 -    (2,000) 
 Payment of deferred consideration                 (2,009)          - 
 Payments made for leases                          (9,761)          -

 Receipt of lease income                                76          - 
 Proceeds from exercise of share options                26         20 
 Dividends paid                                   (11,194)   (11,600) 
 Net cash expended in financing activities        (15,479)    (9,309) 
                                                 ---------  --------- 
 
 Net (decrease)/increase in cash and 
  cash equivalents                                 (2,405)      2,405 
                                                 ---------  --------- 
 
 Cash and cash equivalents at the end 
  of the year                                            -      2,405 
                                                 ---------  ---------

Group Statement of Changes in Equity

Year Ended 31(st) December 2019

 
                                                    Share   Share-based     Shares 
                                         Share    premium      payments    held by   Fair value    Retained 
                                       capital    account       reserve        EBT      reserve    earnings      Total 
                                       GBP'000    GBP'000       GBP'000    GBP'000      GBP'000     GBP'000    GBP'000 
                                     ---------  ---------  ------------  ---------  -----------  ----------  --------- 
 At 1(st) January 2019                     208      5,629         4,129    (5,261)     (11,727)     149,615    142,593 
 Adjustment on Initial application 
  of IFRS 16                                 -          -             -          -            -          68         68 
                                     ---------  ---------  ------------  ---------  -----------  ----------  --------- 
 Revised opening balance at 1(st) 
  January 2019                             208      5,629         4,129    (5,261)     (11,727)     149,683    142,661 
                                     ---------  ---------  ------------  ---------  -----------  ----------  --------- 
 
 Revaluation of financial assets             -          -             -          -      (3,558)           -    (3,558) 
 Disposal of financial assets                -          -             -          -        1,701     (1,701)          - 
                                     ---------  ---------  ------------  ---------  -----------  ----------  --------- 
 Profit for the year                                                                                 12,969     12,969 
                                     ---------  ---------  ------------  ---------  -----------  ----------  --------- 
 Total comprehensive income for the 
  year                                       -          -             -          -      (1,857)      11,268      9,411 
                                     ---------  ---------  ------------  ---------  -----------  ----------  --------- 
 
 Exercise of options                         -          -          (12)         37            -           1         26 
 Share - based payments                      -          -           312          -            -           -        312 
 Dividend payment                            -          -             -          -            -    (11,194)   (11,194) 
                                     ---------  ---------  ------------  ---------  -----------  ----------  --------- 
 At 31(st) December 2019                   208      5,629         4,429    (5,224)     (13,584)     149,758    141,216 
                                     ---------  ---------  ------------  ---------  -----------  ----------  ---------

During the year ended 31(st) December 2019, the EBT acquired nil LSL Shares. During the period 10,672 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the EBT. LSL received GBP24,000 on exercise of these options

Group Statement of Changes in Equity

Year Ended 31(st) December 2018

 
                              Share   Share-based    Shares       Fair 
                    Share   premium      payments      held      value   Retained      Total   Non-controlling 
                  capital   account       reserve    by EBT    reserve   earnings     equity          interest      Total 
                  GBP'000   GBP'000       GBP'000   GBP'000    GBP'000    GBP'000    GBP'000           GBP'000    GBP'000 
                 --------  --------  ------------  --------  ---------  ---------  ---------  ----------------  --------- 
 At 1(st) 
  January 2019        208     5,629         3,802   (5,317)        494    143,578    148,394               182    148,576 
 Adjustment on 
  Initial 
  application 
  of IFRS 15            -         -             -         -          -      (434)      (434)                 -      (434) 
 Adjustment on 
  Initial 
  application 
  of IFRS 9             -         -             -         -       (21)         21          -                 -          - 
                 --------  --------  ------------  --------  ---------  ---------  ---------  ----------------  --------- 
 Revised 
  opening 
  balance at 
  1(st) 
  January 2019        208     5,629         3,802   (5,317)        473    143,165    147,960               182    148,142 
                 --------  --------  ------------  --------  ---------  ---------  ---------  ----------------  --------- 
 
 Revaluation of 
  financial 
  assets                -         -             -         -   (12,200)          -   (12,200)                 -   (12,200) 
 Profit for the 
  year                  -         -             -         -          -     17,883     17,883                 -     17,883 
                 --------  --------  ------------  --------  ---------  ---------  ---------  ----------------  --------- 
 Total 
  comprehensive 
  income for 
  the year              -         -             -         -   (12,200)     17,883      5,683                 -      5,683 
                 --------  --------  ------------  --------  ---------  ---------  ---------  ----------------  --------- 
 
 Exercise of 
  options               -         -          (22)        56          -       (15)         19                 -         19 
 Share - based 
  payments              -         -           349         -          -          -        349                 -        349 
 Acquisition of 
  minority 
  interest              -         -             -         -          -        182        182             (182)          - 
 Dividend 
  payment               -         -             -         -          -   (11,600)   (11,600)                 -   (11,600) 
                 --------  --------  ------------  --------  ---------  ---------  ---------  ----------------  --------- 
 At 31(st) 
  December 2019       208     5,629         4,129   (5,261)   (11,727)    149,615    142,593                 -    142,593 
                 --------  --------  ------------  --------  ---------  ---------  ---------  ----------------  ---------

During the year ended 31(st) December 2018, the EBT acquired nil LSL Shares. During the period 15,966 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the EBT. LSL received GBP20,000 on exercise of these options

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 2019 but has been extracted from the Financial Statements included in Annual Report and Accounts 2019 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 2020 AGM. The auditors have reported on these Financial Statements. Their report was unqualified and did not contain a statement under section 498 (2), (3) or (4) 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 of financial information

The Group Financial Statements have been prepared on a going concern basis and on a historical cost basis, except for certain debt and equity financial assets that have been measured at fair value. The accounting policies applied by the Group in these consolidated preliminary results are the same as those applied by the Group in the LSL annual Financial Statements for the year ended 31(st) December 2018 with the exception of IFRS 16 Leases adopted in the current period. The Group's Financial Statements are presented in pound sterling and all values are rounded to the nearest thousand pounds (GBP'000) except when otherwise indicated.

   3.      Segment analysis of revenue and operating profit

To reflect the increased importance of LSL's Financial Services Division, the LSL Board has updated the Group segmental reporting effective from 1(st) January 2019. For the year ended 31(st) December 2019, LSL has reported three segments: Estate Agency; Financial Services; and Surveying and Valuation Services:

Ø The Estate Agency segment provides services related to the sale and letting of residential properties. It operates a network of high street branches. As part of this process, the Estate Agency Division also provides marketing and arranges conveyancing services. In addition, it provides repossession and asset management services to a range of lenders. Following the change to LSL's segment reporting, the Estate Agency Division receives a commercially agreed commission payment from the Financial Services Division (from Embrace Financial Services and First2Protect). This arrangement reflects Financial Services income generated by the Estate Agency Division;

Ø The Financial Services Segment 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, PRIMIS, Embrace Financial Services, First2Protect, Mortgages First, Insurance First Brokers and Linear Financial Services, Personal Touch Financial Services and RSC New Homes. Following the change to LSL's segment reporting, the Financial Services Division makes a commercially agreed commission payment to the Estate Agency Division (from Embrace Financial Services and First2Protect). This arrangement reflects Financial Services income generated by the Estate Agency Division; and

Ø The Surveying and Valuation Services segment provides a valuations and professional survey service of residential properties to various lenders and individual customers.

Each reportable segment has various products and services and the revenue from these products and services are disclosed in the Business Review sections of the Strategic Report of the Annual Report and Accounts 2019.

The Financial Services segment incorporates all LSL's Financial Services businesses. The Estate Agency segment primarily incorporates the results from the Estate Agency branch networks (Your Move, Reeds Rains, LSLi and Marsh & Parsons) and Asset Management. The Surveying and Valuation Services segment is unchanged from the previous segment reporting.

Operating segments

The Management Team monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects, as explained in the table below, is measured differently from operating profit or loss in the Group Financial Statements. Head office costs, Group financing (including finance costs and finance incomes) and income taxes are managed on a Group basis and are not allocated to operating segments.

Reportable segments

The following table presents revenue and profit information regarding the Group's reportable segments for the financial year ended 31(st) December 2019 and financial year ended 31(st) December 2018 respectively.

Year ended 31(st) December 2019

 
                                                                      Surveying 
                                          Estate    Financial     and Valuation 
                                          Agency     Services          Services   Unallocated       Total 
  Income Statement information           GBP'000      GBP'000           GBP'000       GBP'000     GBP'000 
                                      ----------  -----------  ----------------  ------------  ---------- 
 
 Revenue from external 
  customers                              141,362       83,353            86,358             -     311,073 
 Intersegment revenue                     13,552     (13,552)                 -             -           - 
                                      ----------  -----------  ----------------  ------------  ---------- 
 Total revenue                           154,914       69,801            86,358             -     311,073 
                                      ----------  -----------  ----------------  ------------  ---------- 
 
 Segmental result: 
  - before exceptional 
   costs, contingent consideration, 
   amortisation and 
   share-based payments                   14,453       11,642            16,343       (5,403)      37,035 
                                      ----------  -----------  ----------------  ------------  ---------- 
  - after exceptional 
   costs, contingent consideration, 
   amortisation and share-based 
   payments                              (2,206)       10,022            17,450       (5,518)      19,748 
                                      ----------  -----------  ----------------  ------------ 
 
 Finance Income                                                                                        10 
 Finance costs                                                                                    (3,744) 
 Profit before tax                                                                                 16,014 
 Taxation                                                                                         (3,045) 
                                                                                               ---------- 
 Profit for the year                                                                               12,969 
                                                                                               ---------- 
 
 Balance sheet information 
 
 Segment assets - intangible             160,942       18,088            11,739             -     190,769 
 Segment assets - other                   81,934        9,078            14,822         1,350     107,184 
                                      ----------  -----------  ----------------  ------------  ---------- 
 Total Segment assets                    242,876       27,166            26,561         1,350     297,953 
 Total Segment liabilities              (58,771)     (25,895)          (25,020)      (47,051)   (156,737) 
                                      ----------  -----------  ----------------  ------------  ---------- 
 
 Net assets / (liabilities)              184,105        1,271             1,541      (45,701)     141,216 
                                      ----------  -----------  ----------------  ------------  ----------

The joint venture interests of the Group are recorded in the Estate Agency segment, with the associate interest recorded in the Financial Services.

Unallocated net liabilities comprise plant and equipment GBP50,000, other assets GBP1,300,000, lease liabilities GBP(34,000), 12% loan notes GBP(66,000), Bank overdraft GBP(883,000), accruals GBP(1,914,000), deferred and current tax liabilities GBP(3,152,000), and revolving credit facility overdraft GBP(41,000,000).

Year ended 31(st) December 2018

 
                                                 Estate         Financial         Surveying 
                                                 Agency          Services     and Valuation 
                                          (Restated)(1)     (Restated)(1)          Services   Unallocated       Total 
  Income Statement information                  GBP'000           GBP'000           GBP'000       GBP'000     GBP'000 
                                      -----------------  ----------------  ----------------  ------------  ---------- 
 
 Revenue from external 
  customers                                     167,415            87,427            69,798             -     324,640 
 Intersegment revenue                            16,424          (16,424)                 -             -           - 
                                      -----------------  ----------------  ----------------  ------------  ---------- 
 Total revenue                                  183,839            71,003            69,798             -     324,640 
                                      -----------------  ----------------  ----------------  ------------  ---------- 
 
 Segmental result: 
  - before exceptional 
   costs, contingent consideration, 
   amortisation and 
   share-based payments                          11,107             9,461            20,426       (5,098)      35,896 
                                      -----------------  ----------------  ----------------  ------------  ---------- 
  - after exceptional 
   costs, contingent consideration, 
   amortisation and share-based 
   payments                                       3,605             7,996            19,022       (5,206)      25,417 
                                      -----------------  ----------------  ----------------  ------------ 
 
 Finance costs                                                                                                (2,333) 
                                                                                                           ---------- 
 Profit before tax                                                                                             23,084 
 Taxation                                                                                                     (5,201) 
                                                                                                           ---------- 
 Profit for the year                                                                                           17,883 
                                                                                                           ---------- 
 
 Balance sheet information 
 
 Segment assets - intangible                    160,944            18,568            12,171             -     191,683 
 Segment assets - other                          59,014             9,429            11,659         3,836      83,938 
                                      -----------------  ----------------  ----------------  ------------  ---------- 
 Total Segment assets                           219,958            27,997            23,830         3,836     275,621 
 Total Segment liabilities                     (40,100)          (24,789)          (27,828)      (40,311)   (133,028)

                                      -----------------  ----------------  ----------------  ------------  ---------- 
 
 Net assets / (liabilities)                     179,858             3,208           (3,998)      (36,475)     142,593 
                                      -----------------  ----------------  ----------------  ------------  ----------

(1) The prior period has been restated to reflect the current segmental reporting which adjusts the previous Estate Agency and Related Services segment to remove all of LSL's Financial Services businesses to create the current Financial Services segment.

The joint venture interests of the Group are recorded in the Estate Agency segment, with the associate interest recorded in the Financial Services.

Unallocated net liabilities comprise plant and equipment GBP15,000, other assets GBP3,821,000, accruals GBP(921,000), deferred and current tax liabilities GBP(4,890,000), and revolving credit facility overdraft GBP(34,500,000).

   4.      APMs (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 four adjusted measures reported by the Group are:

   --      Group Underlying Operating Profit 
   --      Adjusted Basic EPS 
   --      Adjusted Diluted EPS 
   --      Group Adjusted EBITDA

The amortisation of intangibles assets is not representative of the underlying costs of the business, and is therefore excluded from adjusted earnings.

The Directors consider that these adjusted measures shown above 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 10 to these interim condensed consolidated Group Financial Statements and a reconciliation of Group Underlying Operating Profit is shown below:

 
                                                      2019      2018 
                                                   GBP'000   GBP'000 
                                                  --------  -------- 
 Group operating profit                             19,748    25,417 
 Share-based payments                                  312       349 
 Amortisation of intangible assets                   5,786     5,301 
 Exceptional gains                                 (2,487)   (2,188) 
 Exceptional costs                                  15,730     5,234 
 Contingent consideration charge                   (2,054)     1,783 
                                                  --------  -------- 
 Group Underlying Operating Profit                  37,035    35,896 
 Depreciation on property, plant and equipment      14,482     5,674 
 Group Adjusted EBITDA                              51,877    41,570 
                                                  --------  -------- 
 
   5.      Exceptional items 
 
                                                          2019        2018 
                                                       GBP'000     GBP'000 
                                                    ----------  ---------- 
 Exceptional costs: 
 Branch / centre closures and restructuring 
  costs including redundancy costs                      14,645       1,993 
 Transition costs relating to surveying contracts          516       3,241 
 Other project costs                                       569           - 
                                                    ----------  ---------- 
                                                        15,730       5,234 
                                                    ----------  ---------- 
 
 Exceptional gains: 
 Exceptional gain in relation to historic PI 
  Costs                                                (2,487)     (2,188) 
                                                    ----------  ---------- 
                                                       (2,487)     (2,188) 
                                                    ----------  ----------

Exceptional costs

There were GBP15.7m of exceptional costs in the year (2018: GBP5.2m), of which, GBP0.5m (20 18: GBP3.2m) relate to initial non-recurring transition and integration costs for the contract to supply surveying and valuation services to Lloyds Bank plc.

In the Estate Agency Division there were GBP14.6m (December 2018: GBP2.0m) of non-recurring and material exceptional costs relating to the planned Estate Agency branch/centre closures and restructuring costs. The most significant costs incurred are redundancy costs (GBP4.5m) and leasehold property costs (GBP7.3m) with the balance including non-cash fixed asset write-offs (GBP2.6m). It is expected that further costs will be incurred for leasehold property costs.

Exceptional Gains

Provision for professional indemnity (PI) claims and insurance claim notification

In 2019 the Group has continued to make positive progress in settling historic PI claims resulting in a release of the provision of GBP2.5m (December 2018: GBP2.2m)

   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 Company 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 Company 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.

 
                                                    2019                                2018 
                         Profit       Weighted       Per     Profit       Weighted       Per 
                          after        average     share      after        average     share 
                            tax         number    amount        tax      number of    amount 
                        GBP'000      of shares     Pence    GBP'000         shares     Pence 
 Basic EPS               12,969    102,669,719      12.6     17,883    102,653,447      17.4 
 Effect of dilutive 
  share options               -        425,152                    -        839,935 
 Diluted EPS             12,969    103,094,871      12.6     17,883    103,493,382      17.3 
                      ---------  -------------            ---------  -------------

There have been no other transactions involving Ordinary Shares or potential Ordinary Shares between the reporting date and the date of completion of these Financial Statements.

The Directors consider that the adjusted earnings shown below give a better and more consistent indication of the Group's underlying performance:

 
                                                                  2019       2018 
                                                               GBP'000    GBP'000 
 
 Group operating profit before contingent consideration, 
  exceptional items, share-based payments and amortisation 
  (excluding non-controlling interest):                         37,035     35,896 
 
  Net finance costs (excluding IFRS 16, exceptional 
   and contingent consideration items)                         (1,600)    (1,401) 
  Normalised taxation                                          (6,733)    (6,554) 
                                                             ---------  --------- 
 Adjusted profit after tax(1) before exceptional 
  items, share-based payments and amortisation                  28,702     27,941 
                                                             ---------  ---------

Adjusted basic and diluted EPS

 
                       Adjusted                    2019   Adjusted                    2018 
                         profit      Weighted       Per     profit      Weighted       Per 
                          after       average     share      after       average     share 
                         tax(1)        number    amount     tax(1)     number of    amount 
                        GBP'000     of shares     Pence    GBP'000        shares     Pence 
 
 Adjusted Basic EPS      28,702   102,669,719      28.0     27,941   102,653,447      27.2 
 Effect of dilutive 
  share options               -       425,152                    -       839,935 
                      ---------  ------------            ---------  ------------ 
 Adjusted Diluted 
  EPS                    28,702   103,094,871      27.8     27,941   103,493,382      27.0 
                      ---------  ------------            ---------  ------------

Note

(1) This represents adjusted profit after tax attributable to equity holders of the parent. The normalised tax rate in 2019 is 19% (2018: 19%).

   7.      Dividends paid and proposed 
 
                                                              2019     2018 
                                                           GBP'000  GBP'000 
                                                           -------  ------- 
 Declared and paid during the year: 
 Equity dividends on Ordinary Shares: 
 
 2017 Final: 7.3 pence per share                                      7,493 
 2018 Interim: 4.0 pence per share                                    4,107 
 2018 Final: 6.9 pence per share                             7,086 
 2019 Interim: 4.0 pence per share                           4,108 
                                                           -------  ------- 
                                                            11,194   11,600 
                                                           -------  ------- 
 
   Dividends on Ordinary Shares proposed (not recognised 
   as a liability as at 31(st) December): 
 Equity dividends on Ordinary Shares: 
  Dividend: 7.2 pence per share (2018: 6.9 pence 
   per share)                                                7,392    7,086 
                                                           -------  ------- 
 
   8.      Taxation 
   (a)        Tax on profit on ordinary activities

The major components of income tax charge in the Group Income Statements are:

 
                                                                        2019        2018 
                                                                     GBP'000     GBP'000 
                                                                  ----------  ---------- 
 
 UK corporation tax - current year                                     3,993       5,931 
                         - adjustment in respect of prior years         (56)       (205) 
                                                                              ---------- 
                                                                       3,937       5,726 
 Deferred tax: 
 Origination and reversal of temporary differences                     (588)       (322) 
 Adjustment in respect of prior year                                   (304)       (203) 
                                                                  ----------  ---------- 
 Total deferred tax (credit)                                           (892)       (525) 
                                                                  ----------  ---------- 
 
 Total tax charge in the Income Statement                              3,045       5,201 
                                                                  ----------  ----------

The UK corporation tax rate reduced to 20% with effect from 1(st) April 2015 and 19% with effect from 1(st) April 2017. A future UK corporation tax of 17% has been enacted and is effective from 1(st) April 2020, and this is the rate at which deferred tax has been provided (2018: 17%). Corporation tax is recognised at the headline UK corporation tax rate of 19% (2018: 19%).

Deferred tax credited directly to other comprehensive income is GBP0.1m (2018: GBP0.0m). Income tax credited directly to the share based payment reserve is GBP0.0m (2018: GBP0.0m).

   (b)        Factors affecting tax charge for the year

The tax assessed in the profit and loss account is equal to (2018: higher than) the standard UK corporation tax rate, because of the following factors:

 
                                                           2019       2018 
                                                        GBP'000    GBP'000 
                                                     ----------  --------- 
 
 Profit on ordinary activities before tax                16,014     23,084 
                                                     ----------  --------- 
 
 Tax calculated at UK standard rate of corporation 
  tax rate of 19% (2018 - 19%)                            3,043      4,386 
 Non-deductible expenditure / (non-taxable income) 
  from joint ventures and associates                         52         56 
 Other disallowable expenses                                644        550 
 Impact of movement in contingent consideration 
  charged/( credited) to the Income Statement             (313)        494 
 Share-based payment relief                                (37)         73 
 Brought forward losses not previously recognised          (53)          - 
 Impact of rate change on deferred tax                       69         50 
 Prior period adjustments - current tax                    (56)      (205) 
 Prior period adjustment - deferred tax                   (304)      (203) 
                                                     ----------  --------- 
 Total taxation charge                                    3,045      5,201 
                                                     ----------  ---------

A major component of the disallowable expenditure is a permanent disallowance of depreciation on assets which do not qualify for capital allowances. This is a recurring adjustment and the tax impact in the year is GBP321,000. Another significant adjustment is the impact of exceptional expenditure which is not deductible for tax purposes. The impact of this non-deductible expenditure is GBP508,000.

   9.      Acquisitions during the year

Year ended 31(st) December 2019

The Group acquired the following businesses during the period to 31(st) December 2019:

   --      Lettings books

During the period the Group acquired seven lettings books for a total consideration of GBP3,011,000. The fair value of the identifiable assets and liabilities of these businesses as at the date of acquisition have been provisionally determined as below:

 
                                                                  Fair value 
                                                                  recognised 
                                                              on acquisition 
                                                                     GBP'000 
                                                            ---------------- 
 Intangible Assets                                                     3,459 
 Deferred tax liabilities                                              (588) 
                                                            ---------------- 
 Total identifiable net liabilities acquired                           2,871 
 Purchase consideration                                              (3,011) 
                                                            ---------------- 
 Goodwill                                                              (140) 
                                                            ---------------- 
 
 Purchase consideration discharged by:                               GBP'000 
                                                            ---------------- 
 Cash                                                                  2,711 
 Contingent consideration                                                300 
                                                            ---------------- 
                                                                       3,011 
                                                            ---------------- 
 
 Analysis of cash-flow on acquisition                                GBP'000 
                                                            ---------------- 
 Transaction costs (included in cash-flows from operating                  - 
  activities) 
 Net cash acquired with the subsidiaries and other                         - 
  businesses 
 Purchase consideration discharged in cash (included 
  in cash-flows from investing activities)                             2,711 
                                                            ---------------- 
 Net cash outflow on acquisition                                       2,711 
                                                            ---------------- 
 
   10.    Analysis of Net Bank Debt 
 
 Net Bank Debt is defined as follows:                     2019        2018 
                                                       GBP'000     GBP'000 
                                                    ----------  ---------- 
 Interest-bearing loans and borrowings (including 
  loan notes, overdraft, contingent and deferred 
  consideration) 
 
   *    Current                                         11,113      10,456 
 
   *    Non - current                                   73,951      41,156 
                                                    ----------  ---------- 
                                                        85,064      51,612 
    Less: unsecured loan notes                            (65)           - 
    Less: cash and short-term deposits                       -     (2,405) 
    Less: IFRS16 lessee financial liabilities         (37,232)           - 
    Less: deferred and contingent consideration        (5,884)    (17,112) 
    Net Bank Debt (excluding loan notes)                41,883      32,095 
                                                    ----------  ----------

Forward Looking Statement

This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, LSL undertakes no obligation to update or revise these forward-looking statements. Nothing in this document should be construed as a profit forecast. LSL and its Directors accept no liability to third parties in respect of this document save as would arise under English law. This presentation contains brands that are trademarks and are registered and/or otherwise protected in accordance with applicable law.

Any forward-looking statements in this document speak only at the date of this document and LSL undertakes no obligation to update publicly or review any forward-looking statement to reflect new information or events, circumstances or developments after the date of this document.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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