TIDMLSL
RNS Number : 4768H
LSL Property Services PLC
04 August 2021
4 August 2021
LSL Property Services plc ("LSL" or "The Group")
HALF YEAR RESULTS TO 30 JUNE 2021
STRONG H1 PERFORMANCE AND PROGRESS IN IMPLEMENTING STRATEGY.
OUTLOOK CONFIRMED AND INTERIM DIVID DECLARED
H1 2021 2020 change
------ -------
Group Revenue (GBPm) 166.5 114.9 45%
Group Underlying Operating
Profit(1) (GBPm)
(post COVID-19 costs) 27.3 9.7 180%
Group Underlying Operating
margin (%)
(post COVID-19 costs) 16% 8% +790bps
Exceptional Gains (GBPm) 4.3 - -
Exceptional Costs (GBPm) (1.7) (4.4) 63%
Group operating profit
(GBPm) 26.7 3.6 647%
Profit before tax (GBPm) 25.5 2.0 1166%
-------------------------------- ------ ------- --------
Basic Earnings per share(2)
(pence) 21.8 1.2 1717%
Adjusted Basic Earnings
per share(2) (pence) 20.9 9.4 122%
Net Cash / (Net Bank Debt)(3)
at 30 June (GBPm) 17.0 (12.7) nm
Interim Dividend (pence) 4.0 nil nm
nm: not meaningful
Notes:
1 Group Underlying Operating Profit is before exceptional costs,
contingent consideration, amortisation of intangible assets and
share-based payments (as set out in Note 6 of the financial
statements).
2 Refer to Note 7 of the Financial Statements for the calculation
3 Refer to Note 15 to the Financial Statements for the calculation
HIGHLIGHTS
Record Group H1 Revenue, and Group Underlying Operating Profit
with increasing balance sheet strength, enabling further investment
to deliver the Group's ambitious growth strategy
-- Group Revenue in H1 2021 of GBP166.5m, 45% higher than 2020 (H1 2020: GBP114.9m)
-- Group Underlying Operating Profit(1) of GBP27.3m,
significantly ahead of 2020 (H1 2020: GBP9.7m)
-- In H1 2020 COVID-19 costs of GBP2.8m were recognised in Group
Underlying Operating Profit. Stated before COVID-19 costs, Group
Underlying Operating Profit in H1 2020 was GBP12.5m
-- Profit before tax increased to GBP25.5m (H1 2020: GBP2.0m)
-- Very strong balance sheet, and the first time LSL has
reported a Net Cash position since IPO in 2006, with Net Cash(2) of
GBP17.0m (30 June 2020: Net Debt GBP12.7m)
Group Underlying Operating Profit driven by continuing Financial
Services growth, supported by increasing market share in Estate
Agency and significant increase in Surveying in very strong housing
market
-- Financial Services Division Underlying Operating Profit(1) of
GBP7.8m, increased by 68% with underlying operating margin rising
to 20%. In H1 2020, COVID-19 costs of GBP0.3m were recognised in
the Financial Services Division. Stated before COVID-19 costs,
Underlying Operating Profit in H1 2020 was GBP4.9m and Underlying
Operating Profit growth in H1 2021 was 59%
-- LSL mortgage completion lending increased to GBP19.3bn, representing 9% of market(3)
-- Financial adviser numbers increased 13% year-on-year to 30
June 2021. The pipeline of advisers also grew over the significant
pipeline brought forward at 31 December 2020
-- Surveying and Valuation Services Division Underlying
Operating Profit(1) of GBP11.4m, increased by 179% (H1 2020:
GBP4.1m). In H1 2020, COVID-19 costs of GBP0.7m were recognised in
the Surveying Division. Stated before COVID-19 costs, Underlying
Operating Profit in H1 2020 was GBP4.9m
-- Surveying Underlying Operating Margin strengthened
considerably to 24.7% (H1 2020: 13.1% post COVID-19 costs),
benefiting from operational efficiency and improved income per
job
-- LSL Estate Agency Division increased its residential market
share in its core catchment areas to take full advantage of
favourable market conditions.
-- Estate Agency Underlying Operating Profit(1) was GBP12.5m (H1
2020: GBP2.4m). In H1 2020, COVID-19 costs of GBP1.7m were
recognised in the Estate Agency Division. Stated before COVID-19
costs, Underlying Operating Profit in H1 2020 was GBP4.1m
Continued progress in executing the Group's growth strategy,
supported by strong balance sheet
-- On 8 July 2021 and 26 May 2021 LSL announced the sale of
investments in non-core businesses to simplify the Group structure.
The sales generated GBP41m of capital to deploy into new
opportunities and accelerate the Group's growth strategy, in
particular Financial Services
-- Announcement on 27 April 2021 of agreement to provide
mortgage and protection advice services to The Property Franchise
Group's network of over 400 franchisee estate agency offices
-- On 23 April 2021, LSL announced the creation of GBP200m
Pivotal Growth joint venture with Pollen Street Capital, to create
a "buy-and-build" mortgage broker which is now established and in
position to make its first acquisitions
-- Announcement on 11 February 2021 of the acquisitions of the
business and assets of Mortgage Gym Limited and a 60% stake in
Direct Life Quote Holdings Limited ("Direct Life") as part of LSL's
digital strategy to drive significant growth in mortgage and
protection business
-- Investment being made in Mortgage Gym technology and the
infrastructure required to deliver the strategic partnership with
The Property Franchise Group ("TPFG"). The Board is confident these
initiatives will deliver significant value to shareholders over the
medium term
-- Further senior appointments made to improve management bench strength
July trading in line with the Board's expectations, following
the tapering down of the Stamp Duty holiday on 30 June 2021
-- In line with the Board's expectations, expected activity in
LSL's markets has slowed since the 30 June Stamp Duty deadline,
meaning that LSL's Mortgage and Protection completion volumes,
Surveying Revenue and instructions, and residential exchange
activity have naturally reduced following the record market levels
experienced in June
-- LSL retains a strong Residential Sales exchange pipeline as
at 31 July 2021, at around 20% more than 2020 at the comparable
date, and in-line with the large pipeline reported at 31 December
2020. Fall-throughs are at normal levels
The Board is encouraged by the significant steps taken to
deliver its Financial Services led growth strategy and by the
strong financial performance of its Estate Agency and Surveying
divisions. The Board is confident that the Group will deliver a
full year 2021 Group Underlying Operating Profit in line with its
expectations and declares an interim dividend of 4 pence per
share
-- At the 2020 Prelims, LSL restarted guidance with an improved
growth profile, with Financial Services at the forefront. The Board
confirms that LSL is on track to deliver its short and longer-term
strategic and financial targets
-- Trading in the first half of 2021 was assisted by favourable
housing market conditions. However, the Group's increasingly
diversified revenue streams, and in particular the significant
growth opportunities previously identified and on which management
has started to execute, mean the Group is less dependent on housing
market activity levels to drive medium term growth
-- Following the reinstatement of the dividend policy at the
2020 Prelims, the Board has declared an Interim dividend of 4.0
pence per share (H1 2020: Nil)
Commenting on today's announcement, David Stewart, Group Chief
Executive, said:
"LSL performed strongly in the first half of 2021, as we took
advantage of favourable market conditions whilst making significant
progress in executing our strategy, which places Financial Services
at the forefront, as described at the time of publishing our 2020
results.
"The investments we are making in technology and Financial
Services will deliver tangible benefits from 2022 and we are
confident they will generate substantial value for shareholders in
the medium term. The opportunities for new value-add services in
Surveying and Valuation Services further underpin our future
growth, while we continue to perform well and take market share in
Estate Agency.
"Our strategic progress also included the disposal of our
non-core investments in LMS (May 2021) and TM Group (July 2021),
for a combined GBP41m, as we focus both management time and capital
on activities offering the best long-term return to shareholders.
These successful divestments mean we have a very strong balance
sheet, including cash resources of around GBP43m at 31 July 2021,
positioning us to make further investments to secure our strategy.
We continue to add depth to the management team and have made a
number of senior appointments. This will support our strategic
delivery and our ability to drive performance improvements from the
business.
"The Group's results in the first half position us well for
meeting the Board's expectations for 2021, and we look forward to
delivering further organic and acquisitive growth in the coming
years."
Notes:
1 Group Underlying Operating Profit is before exceptional costs,
contingent consideration, amortisation of intangible assets and
share-based payments (as set out in Note 6 of the financial
statements). Divisional Underlying Operating Profit is stated on
the same basis as Group Underlying Operating profit
2 Refer to Note 15 to the Financial Statements for the calculation
3 Market share excludes Product Transfers - 2021 based on May YTD
4 Refer to Note 7 of the Financial Statements for the calculation
For further information, please contact:
David Stewart, Group Chief Executive
Officer
Adam Castleton, Group Chief Financial
Officer
------------------------------------
LSL Property Services plc investorrelations@lslps.co.uk
------------------------------------
Helen Tarbet
------------------------------------
Sophie Wills
------------------------------------
Buchanan 0207 466 5000 / LSL@buchanan.uk.com
------------------------------------
Notes on LSL
LSL is one of the largest providers of services to mortgage
intermediaries and mortgage and protection advice to estate agency
customers, completing GBP32.6bn of mortgages in 2020. It represents
approximately 9% of the total purchase and remortgage market with
around 2,700 financial advisers. It was named Mortgage Network of
the Year by both Moneyfacts and Mortgage Introducer in their 2020
awards, as well as Best Network 300+ ARs by Mortgage Strategy.
e.surv is one of the UK's largest providers of surveying and
valuation services, supplying seven out of the ten largest lenders
in the UK, employing over 500 operational surveyors, and performing
over 500,000 valuations and surveys per annum for key lender
clients. It was named Best Surveyor/Valuer at the 2020 Mortgage
Strategy awards.
LSL operates a network of 228 owned and 127 franchised estate
agency branches, with brands that include Your Move, Reeds Rains
and Marsh & Parsons. For further information please visit LSL's
website: lslps.co.uk
PRIMIS is the trading style of First Complete Limited, Personal
Touch Financial Services Limited and Advance Mortgage Funding
Limited which are all authorised and regulated by the Financial
Conduct Authority.
Group Chief Executive's Review
I am pleased to report on a period of strong trading and
continued progress in strategic execution. Underlying Operating
Profit increased by 180% to GBP27.3m (H1 2020: GBP9.7m), reflecting
strong growth across all divisions. The implementation of the
strategy we outlined with our 2020 results is on track, with
several important initiatives announced during the first half. We
have achieved these results while continuing to focus on protecting
the health and wellbeing of our colleagues and customers during the
ongoing COVID-19 pandemic.
Financial Services is at the centre of our strategy. PRIMIS's
network of financial advisers grew year-on-year by 13% to 2,744 and
we have a robust pipeline of applications to join us. This growth
contributed to an increase of 68% in the division's Underlying
Operating Profit to GBP7.8m (H1 2020: GBP4.6m).
The strong performance of Surveying and Valuation Services
division is noteworthy. Underlying Operating Profit increased to
GBP11.4m (H1 2020: GBP4.1m). This is a testament to the work put in
to increase surveyor utilisation.
Our Estate Agency colleagues took full advantage of the increase
in housing transactions, benefitting from the steps taken to
improve our operational effectiveness. Pleasingly, this helped us
to increase market share across our core catchment areas. The
lettings market was generally softer, although the level of
recurring income in this business underpinned Lettings revenue
performance, highlighting how Estate Agency is not wholly dependent
on transaction volumes. Underlying Operating Profit for the
division was GBP12.5m, an increase of GBP10.1m from GBP2.4m in H1
2020.
Financial Services was substantially less affected than Estate
Agency and Surveying and Valuation Services by the emergence of the
COVID-19 virus in 2020 and although still significant its
year-on-year growth was therefore less marked.
We continue to see significant long-term growth potential in
Financial Services. We made good progress implementing our plans to
take advantage of some of the opportunities identified, including
announcing the acquisition of Mortgage Gym technology and the
launch of our Pivotal Growth joint venture with Pollen Street
Capital. We also secured an important contract with the UK's
largest estate agency franchisor, The Property Franchise Group
(TPFG), to provide mortgage and protection advice services to its
franchisees.
Each of these initiatives is in the investment phase, as we
build our capability and infrastructure, and we incurred additional
associated costs of around GBP1.7m in the first half, with further
investment planned over the next 12 months. We expect to see the
benefits of these investments in 2022 and beyond and are confident
they will deliver substantial value to shareholders in the
medium-term.
Our strategic progress also included the disposal of our
non-core investments in LMS (May 2021) and TM Group (July 2021),
for a combined GBP41m, as we focus both management time and capital
on activities offering the best long-term return to shareholders.
These businesses contributed GBP1.4m to our Underlying Operating
Profit in 2020. The successful sales mean we have a very strong
balance sheet, including cash resources of around GBP43m at 31 July
2021, positioning us to make further investments to secure our
strategy.
At the same time, we have continued to invest in the management
team, to support delivery of our strategy, provide long-term bench
strength and further improve our operational effectiveness. David
Akinluyi has joined us as Group Chief Operating Officer, to drive
forward our IT strategy and transformation programme.
Tom Adorian is to join the Group in October to lead our
Financial Services Customer Direct operation, including
responsibility for our relationship with TPFG. Tom has significant
experience in the mortgage and protection market, as well as
partnerships, gained over his time at HSBC (UK and Group) and Bank
of Ireland UK.
Stuart Whittle will join the Group as CFO of the Financial
Services division and brings a wealth of senior-level experience in
the sector. Stuart's predecessor, Raj Raichura, will then move to
support our Chief Strategy Officer Andy Deeks, with his remit
including potential M&A activity.
Dividend
Alongside our 2020 results, we announced our intention to resume
dividend payments in 2021 with a policy to pay out 30% of
Underlying Operating Profit after finance and normalised tax
charges, with an approximate 1:2 ratio between the interim and
final dividends. The Board has declared an interim dividend of 4.0
pence per share in line with this policy.
The ex-dividend date for the interim dividend is 12 August 2021,
with a record date of 13 August 2021 and a payment date of 17
September 2021. Shareholders can elect to reinvest their cash
dividend and purchase existing shares in LSL through a dividend
reinvestment plan. The election date is 26 August 2021.
Outlook
July trading was in line with the Board's expectations,
following the tapering down of the Stamp Duty holiday on 30 June
2021.
We have previously noted the difficulty in predicting the level
of housing market activity and this remains the case for the second
half of 2021. Whilst there is a likelihood of a reduction in
activity in H2 below the recent record peaks, performance in the
first half was slightly ahead of our expectations, and t he Board
is encouraged by the strategic progress and financial performance
of the Group's businesses and is confident that the Group will
deliver a full year 2021 Group Underlying Operating Profit in line
with its expectations. The unusual market conditions in H1 mean
that the split of H1:H2 Underlying Operating Profit in 2021 is
expected to be substantially more H1 weighted than in previous
years. We would expect to revert to a more typical split in
2022.
Looking ahead
Given the level of activity so far this year, housing market
transactions in 2022 are expected to be below 2021. Growth in
profits in 2022 will therefore need to come from further underlying
performance improvement. The trajectory in Financial Services and
the opportunities we have identified in Surveying and Valuation
Services will continue to offer opportunities for growth in 2022
and beyond and we remain confident that our plans remain on
track.
David Stewart
Group Chief Executive Officer
3 August 2021
Notes:
1 Intermediary Mortgage Lenders Association's ("IMLA) current
estimate of gross new lending for 2021 - January 2021
Business Reviews
Group Summary
Group Financials Summary H1
2021 2020 Var
P&L (GBPm)
=================================== ====== ====== =======
Revenue 166.5 114.9 45%
Group Underlying Operating
Profit(1)
(post COVID-19 costs) 27.3 9.7 180%
Group Underlying Operating
margin
(post COVID-19 costs) 16% 8% 790bps
Group Underlying Operating
Profit(1)
(pre COVID-19 costs) 27.3 12.5 117%
Group Underlying Operating
margin
(pre COVID-19 costs) 16% 11% 550bps
Divisional Underlying Operating
Profit(1)
(post COVID-19 costs)
=================================== ====== ====== =======
Financial Services 7.8 4.6 68%
Surveying and Valuation Services 11.4 4.1 179%
Estate Agency 12.5 2.4 422%
Unallocated Central Costs (4.5) (1.4) (215)%
Group Underlying Operating
Profit(1)
(post COVID-19 costs) 27.3 9.7 180%
Divisional Underlying Operating
Profit(1)
(pre COVID-19 costs)
=================================== ====== ====== =======
Financial Services 7.8 4.9 59%
Surveying and Valuation Services 11.4 4.9 135%
Estate Agency 12.5 4.1 202%
Unallocated Central Costs (4.5) (1.4) (224)%
Group Underlying Operating
Profit(1)
(pre COVID-19 costs) 27.3 12.5 117%
------ ------ -------
Notes:
1 Group Underlying Operating Profit is before exceptional costs,
contingent consideration, amortisation of intangible assets and
share-based payments (as set out in Note 6 of the Financial
Statements). Divisional Underlying Operating Profit is stated on
the same basis as Group Underlying Operating profit. Group
Underlying Operating Profit for 2020 is shown pre COVID-19
costs
LSL traded well in favourable markets, with Group Revenue in H1
2021 of GBP166.5m, 45% higher than 2020 (H1 2020: GBP114.9m). Group
Underlying Operating Profit of GBP27.3m was significantly greater
than 2020 (H1 2020: GBP9.7m; GBP12.5m excluding GBP2.8m of COVID-19
costs). Group Underlying Operating margin of 16.4% was strong and
grew materially in each Division. Profit before tax increased
significantly to GBP25.5m (H1 2020: GBP2.0m).
LSL's profit turns into cash at a high rate, with cash
conversion of profit to underlying operating cash-flow(1) of 100%
in H1. The Group finished the first half with a very strong balance
sheet, reporting Net Cash for the first time of GBP17.0m (30 June
2020: Net Debt GBP12.7m).
Each of LSL's Operating Divisions reported an Underlying
Operating Profit materially higher than the comparable period in
2020. Whilst the Surveying and Valuation Services and Estate Agency
Divisions' performances are strongly linked to the favourable
housing market, the increase in the Financial Services Division's
Underlying Operating Profit of 68% highlights the consistent growth
in financial adviser numbers in recent years, the Group's focus on
Financial Services and updated commercial arrangements between
Embrace Financial Services ("EFS"), First2Protect and the Estate
Agency Division as set out later. Unallocated Central Costs
increased, as the Group invested in key strategic management hires
and other project costs to support the development of the new
strategy.
Notes:
1 Underlying operating cash-flow is after adjusting for the
payment In H1 2021 of deferred HMRC payments from 2020, and as
converted from Group Underlying Operating Profit
Financial Services Division
Financial Services: Financials
Summary H1
2021 2020 Var
P&L (GBPm)
================================= ====== ====== =======
Total revenue 39.1 28.1 39%
Underlying Operating Profit(1)
(post COVID-19 costs) 7.8 4.6 68%
Underlying Operating margin
(post COVID-19 costs) 20% 17% 350bps
Underlying Operating Profit(1)
(pre COVID-19 costs) 7.8 4.9 59%
Underlying Operating margin
(pre COVID-19 costs) 20% 18% 250bps
KPIs
================================= ====== ====== =======
LSL Mortgage Completion
Lending(2) (GBPbn) 19.3 14.6 32%
LSL Market Share(3) 9% 9% -
Annualised Premium Income
(API) (GBPm) 32.5 25.6 27%
Total advisers 2,744 2,431 13%
Number of AR firms 952 896 6%
FCA capital requirement(4) 5.0 5.2 (4)%
Excess capital(4) 14.6 10.6 38%
Lapse provision 5.0 4.8 3%
------ ------ -------
Notes:
1 Underlying Operating Profit is stated on the same basis as
Group Underlying Operating profit (as set out in Note 6 of the
Financial Statements)
2 LSL mortgage completions lending quoted includes product transfers
3 Market share excludes Product Transfers - 2021 based on May YTD
4 2021 Q1 FCA capital requirement and excess capital
Performance Summary
The Financial Services Division traded well in favourable
markets, with Revenue in H1 2021 of GBP39.1m, 39% higher than H1
2020 (H1 2020: GBP28.1m). Q1 Revenue was up 18% year on year,
whilst Q2 was up 69% against the COVID-19 impacted comparable
period in 2020. Underlying Operating Profit of GBP7.8m was 68% more
than 2020 (H1 2020: GBP4.6m), with an improved Underlying Operating
Margin of 20%, which includes the impact of commercial terms in
2021 with the Estate Agency Division which have been set in line
with market norms, as set out later in this section.
In H1 2020, COVID-19 costs of GBP0.3m were recognised in the
Financial Services Division. Stated before COVID-19 costs,
Underlying Operating Profit in H1 2020 was GBP4.9m and Underlying
Operating Profit growth in H1 2021 was 59%.
LSL is a leading player in the provision of mortgage brokerage.
LSL's total gross purchase and remortgage completions increased by
41% to GBP13.7bn (H1 2020: GBP9.7bn), giving LSL approximately 9%
of the total purchase and remortgage market. These figures do not
include the increasingly important activity of advising customers
switching mortgage schemes with their existing lender (product
transfers). LSL's product transfers increased by 14% to GBP5.5bn
(H1 2020: GBP4.9bn). LSL's total gross mortgage completions
(including product transfers) increased by 32% to GBP19.3bn (H1
2020: GBP14.6bn).
The mix of mortgage applications between purchase and refinance
(including both remortgages and product transfers), has continued
to move towards more typical levels during H1 2021. LSL cases were
heavily skewed to refinance during H1 2020, at c.60%, with a more
normal 50/50 split for most of H2 2020. The proportion of LSL
mortgage refinance applications in H1 2021 has reduced even further
to around 44%, as the market has been focused on new purchase
applications as a result of the market activity levels.
LSL's total Direct-to-Consumer revenue grew by 30%. In the
Estate Agency channel, Revenue grew 37%, benefiting from generally
buoyant market conditions in H1 2021, the phased return of EFS
advisers to the estate agency branches following social distancing
requirements and the updated commercial arrangement with Estate
Agency division. Investments in MortgageGym and Direct Life are
also now included in the results following acquisition in H1 2021.
Revenue in the New Build Home channel increased by 12%
year-on-year, recovering more slowly, as builders returned to sites
and the mortgage market went through a period of considerable
change, with the conclusion of the previous Help-to-Buy scheme and
its replacement with new initiatives to support purchasers with
smaller deposits.
LSL is a leading player in the provision of general and
protection insurance, generating an increase of 27% of annualised
premiums to GBP32.5m in H1 2021 (H1 2020: GBP25.6m).
The Division's revenue mix by product highlights the
significance of LSL's insurance business and its success in
arranging protection products, both on a standalone basis as well
as when needed at the time of a mortgage being arranged.
The split of revenue by type is as follows:
Total Group Financial
Services Revenue Mix
by Type (%) - H1
2021 2020
Mortgage Fees 39% 41%
Life & General
Insurance fees 46% 46%
Other fees 15% 13%
Total Revenue 100% 100%
----------------- ----- -----
Strategic and operational developments to support growth
The importance of Financial Services to the Group continues to
increase, reflecting the Board's strategy to develop broader and
less volatile income streams in sectors in which it has significant
experience. The Financial Services Division has enhanced its profit
consistently over recent years, demonstrating resilience and the
capacity to grow across a wide range of market conditions.
During the first half, several significant strategic
developments were announced, and LSL further increased its
investment in technology and business development. The Financial
Services Division will be strengthened with key senior hires to
join in H2, to support the Group's significant growth
ambitions.
During H1 2021, a strategic partnership was announced with TPFG,
to provide mortgage and insurance advice to the customers of TPFG
and their franchisees. Franchisees can choose to refer customers to
EFS, LSL's in-house mortgage advice team or become an Appointed
Representative (AR) of PRIMIS and take on their own adviser. Since
launch, LSL has been working with TPFG to engage with each
franchisee and determine the best solution for each business. The
first mortgage leads were received at the end of June, in line with
plan.
The acquisition of 60% of Direct Life completed in H1 2021. The
integration of this business post acquisition has been effective,
and the Direct Life proposition will be promoted to PRIMIS and TMA
firms during H2.
The technology assets of Mortgage Gym were acquired in H1 2021,
and work is underway to develop further and deploy this software to
LSL's direct distribution, both in the New Homes mortgage channel
and in EFS.
PRIMIS has continued to invest in the Toolbox platform during
H1, to deliver benefits to advisers and create further efficiencies
and in training, support and coaching for advisers. High levels of
engagement are a key feature of the PRIMIS culture, and this
continued throughout lockdown and the COVID-19 restrictions. A new,
updated Training & Competence scheme was launched in H1, to
help ensure that advisers are fully able to provide the most
appropriate advice to customers.
As part of LSL's focus on the growth of Financial Services, the
management of LSL's Home Insurance brokerage business,
First2Protect, transferred into the Financial Services Division on
1 January 2021. We expect this to increase the Home Insurance
cross-sale opportunities for Group customers and to leverage the
size of the PRIMIS/TMA distribution by increasing referrals to
First2Protect.
A full strategic and operational review of EFS took place in H1,
which led to the strengthening of the management team,
identification of further technology enhancements and planned
improvement of the customer journey for specific customer segments.
These new processes will be embedded during H2 alongside further
technology enhancements and are expected to deliver an improvement
in EFS adviser productivity and profitability in future years.
Focus on network growth
LSL continued to be successful in attracting new appointed
representative firms to its PRIMIS network. In the year to 30 June
2021, the number of appointed representative firms increased by 6%
to 952, and the number of advisers by 13% to 2,744. The pipeline of
advisers has also increased further over the significant pipeline
at 31 December 2021. Further recruitment of new firms and advisers
is expected to support ongoing profitable growth for PRIMIS.
The launch of Pivotal Growth and the further expansion of the
Group's mortgage and protection advice service to estate agency
customers provide additional opportunities for growth in the number
of PRIMIS advisers, underpinning the Group's leading position in
this sector.
Intra Group commercial terms
Total Financial Services Revenue reported by the Group in H1
2021 was GBP42.3m, with GBP39.1m being reported in the Financial
Services Division and GBP3.2m in the Estate Agency Division. The
latter represents a variable commission payment from Embrace
Financial Services Ltd (EFS), a subsidiary within LSL's Financial
Services Division, reflecting the Estate Agency Division's role in
introducing customers to Embrace advisers. LSL accounts for its
revenue in its Intermediary Network on a net revenue basis, which
reflects the commission retained by PRIMIS.
As communicated at the 2020 Preliminary Results, the
arrangements between the Estate Agency Division and Embrace have
been reviewed to align them more closely with market rates, based
on an arm's length relationship. This has resulted in lower
payments from Embrace to Estate Agency, and a move in profits from
the Estate Agency Division to the Financial Services Division.
Around GBP1m of profit in H1 2021 has been recognised in the
Financial Services Division, which would have been recognised in
the Estate Agency Division under the previous commercial
arrangement. A review of commercial terms will be made at the end
of each financial year, to ensure terms reflect market norms. Not
including the benefit of the new commercials, Underlying Operating
Profit increased by c.48%.
Surveying and Valuation Services Division
Surveying and Valuation
Services:
Financials Summary H1
2021 2020 Var
P&L (GBPm)
========================= ====== ====== ========
Total revenue 46.2 31.1 48%
Underlying Operating
Profit (1)
(post COVID-19 costs) 11.4 4.1 179%
Underlying Operating
margin
(post COVID-19 costs) 25% 13% 1160bps
Underlying Operating
Profit (1)
(pre COVID-19 costs) 11.4 4.9 135%
Underlying Operating
margin
(pre COVID-19 costs) 25% 16% 910bps
KPIs
========================= ====== ====== ========
Jobs performed (000's) 267 197 36%
Revenue from Private
Surveys (GBPm) 1.1 0.5 130%
Income per job (GBP) 173 158 9%
Operational Surveyors
Employed (FTE(2) ) 497 507 (2)%
Balance Sheet (GBPm)
========================= ====== ====== ========
PI Costs Provision (5.5) (7.6) 28%
------------------------- ------ ------ --------
Notes:
1 Underlying Operating Profit is stated on the same basis as
Group Underlying Operating profit (as set out in Note 6 of the
Financial Statements)
2 Full Time Equivalent (FTE)
Financial summary
The Surveying and Valuation Services Division's strong
performance in H1 2021 was built on a core capability to deliver
high-quality, large volume valuation and survey work to the UK's
leading banks, building societies and specialist lenders. In H1
2021, LSL estimates that it increased its market share while
maintaining operational resilience and providing high-quality of
service in a very busy market.
Surveying and Valuation Services Division Revenue in H1 2021 of
GBP46.2m was 48% higher than H1 2020 (H1 2020: GBP31.1m). Q1
Revenue was up 5% year on year, whilst Q2 increased 132% against
the same period in 2020, which was significantly impacted by
COVID-19. Underlying Operating Profit of GBP11.4m was 179% more
than 2020 (H1 2020: GBP4.1m). In H1 2020, COVID-19 costs of GBP0.7m
were recognised in the Surveying and Valuation Services Division.
Stated before COVID-19 costs, Underlying Operating Profit in H1
2020 was GBP4.9m.
The Surveying and Valuation Services Division's underlying
operating margin of 25% was strong, benefiting from improved
utilisation, higher income per job and cost restructuring
undertaken in Q1 2020.
Income per job in H1 2021 increased to GBP173 (H1 2020: GBP158),
reflecting an improved lender mix and a slightly lower proportion
of remote valuations in H1 2021 of 20%, compared to the COVID-19
impacted period in 2020 during which remote valuations made up 22%
of the total. Remote valuations take less surveyor time to complete
than physical valuations, bringing capacity advantages to mitigate
the lower income per job.
During H1 2021, just over 71% of the Surveying and Valuation
Services Division's revenues derived from its top five customers.
This is broadly consistent with the concentration of mortgage
lending in the UK, where it is estimated that the six largest
lenders collectively account for around 70% of the market. The
total number of jobs performed during the period was 267k, which
was 36% greater than H1 2020.
At 30 June 2021, the total provision for professional indemnity
(PI) costs was GBP5.5m (31 December 2020: GBP7.0m). In H1 2021, the
Group continued to make positive progress in addressing historic PI
claims and there was a net GBP1.1m exceptional gain in the
period.
Strategic and operational developments to support growth
The recruitment, development and retention of surveyors remains
a high priority. In a competitive recruitment market, the number of
operational surveyors employed (FTE) at 30 June 2021 remained
broadly flat at 497 (30 June 2020: 507). The Division is continuing
to focus on its recognised and successful graduate programme, to
alleviate the impact of capacity constraints in the market. In
addition, the business continues to recognise other industry bodies
to increase the pool of surveyors, supporting trainees with its
established mentoring programme.
The Surveying and Valuation Services Division plans to continue
to supplement its contractually secured valuation work over the
next two years with the introduction of margin-enhancing specialist
services, including the opportunity to commercialise valuable data
gathered as part of the valuation process. The response from
lenders has been encouraging.
Estate Agency Division
Estate Agency: Financials
Summary H1
2021 2020 vs 2020
P&L (GBPm)
=============================== ======= ======= ========
Residential Sales Exchange
Income 40.4 18.6 117%
Lettings Income 30.1 27.4 9%
Financial Services Income 3.2 4.5 (29)%
Franchise income 1.4 0.7 93%
Conveyancing & Other(1) 4.4 2.5 79%
Asset Management 1.7 2.0 (15)%
Total revenue 81.2 55.7 46%
Underlying Operating Profit
(2)
(post COVID-19 costs) 12.5 2.4 422%
Underlying Operating margin
(post COVID-19 costs) 15% 4% 1110bps
Underlying Operating Profit
(2)
(pre COVID-19 costs) 12.5 4.1 202%
Underlying Operating margin
(pre COVID-19 costs) 15% 7% 800bps
KPIs
=============================== ======= ======= ========
Exchange units 10,158 4,985 104%
Managed Properties 24,474 24,815 (1)%
Average Residential Sales
Exchange Fee per unit (GBP) 3,980 3,730 7%
------------------------------- ------- ------- --------
Notes:
1 'Other income' includes conveyancing services, EPCs, Home
Reports, utilities and other products and services to clients of
the branch network.
2 Underlying Operating Profit is stated on the same basis as
Group Underlying Operating profit (as set out in Note 6 of the
Financial Statements)
Financial summary
Total Estate Agency Division revenue in H1 was GBP81.2m, 46%
higher than the COVID-19 impacted H1 2020. The strong sales
pipelines coming into 2021 and favourable market conditions
contributed to the strong residential sales exchange income
performance in H1 2021. H1 2021 Underlying Operating Profit of
GBP12.5m was very significantly higher than H1 2020 (H1 2020:
GBP2.4m), benefiting from good trading in favourable markets, with
market share gains achieved by LSL.
In H1 2020, COVID-19 costs of GBP1.7m were recognised in the
Estate Agency Division. Stated before COVID-19 costs, Underlying
Operating Profit in H1 2020 was GBP4.1m with Underlying Operating
Profit growth in H1 2021 of 202%.
Strategic and operational developments to support growth
The LSL brands have invested in additional marketing and in lead
management systems to capture new instructions more effectively and
take advantage of the more favourable market. In H1 2021 the
Division grew market share versus 2020 in the catchments in which
we compete. LSL has also expanded the Homefast Property Services
conveyancing proposition to franchisees.
H1 market
Residential sales exchanges started strongly in Q1 2021, as very
strong pipelines converted. The number of new sales instructions
coming to market at the start of the year was below 2020, when the
market was buoyed by greater buyer confidence post the Brexit deal
being agreed and before the impact of the pandemic at the end of Q1
2020. However, the announcement on 3 March 2021 of the Stamp Duty
holiday extension, combined with improved availability of higher
LTV mortgages, gave the market a boost. The number of instructions
coming to market then slowed in the latter part of H1.
It is common in a fast-moving sales market for available stock
to be constrained, and this was the case in H1. From March to June,
properties sold quickly, and June, LSL saw record activity across
its estate agency brands.
The substantial increase in the number of house sales over the
last 12 months gave rise to sizeable pressures throughout the
housing chain, notably a market-wide shortage in conveyancing
capacity. This resulted in the average time taken to exchange and
complete on agreed sales being higher than previous years during H2
2020 and generally throughout H1 2021, with a notable increase in
pipeline conversion in June 2021, ahead of the tapering of Stamp
Duty relief on 30 June 2021.
The lettings market exhibited differences between London and the
rest of the UK. In London, the market has suffered from a lack of
demand from overseas tenants (students and workers) and an increase
in supply, as short-term lets entered the long-term rental market
due to the decline in tourism, impacting the average value of each
rental transaction.
Residential Sales
Residential Sales exchange income increased by 117% to GBP40.4m
(H1 2020: GBP18.6m). The number of exchange units increased by 104%
on the prior year. This is ahead of the overall market trend on a
national level, reflecting the increase in market share in the
locations traded by LSL.
Residential Sales exchange income was up by 66% in Q1 2021, with
high exchange volumes in the lead up to the anticipated Stamp Duty
holiday ending in March. The subsequent Stamp Duty extension,
combined with a low base in 2020, saw Q2 2021 up 198% against Q2
2020.
Notwithstanding the high level of exchanges in June, the
Residential Sales pipeline at 30 June 2021 is 41% up compared to
the same date in 2020. There has been no evidence of any material
increase in Residential Sales fall-through trends due to
transactions not completing before the Stamp Duty deadline.
Average residential sales exchange fees per unit increased by 7%
to GBP3,980 (H1 2020: GBP3,730), reflecting house price increases,
and sales skewed to higher value properties towards the end of the
higher Stamp Duty tapering at 30 June 2021.
Lettings
Total Lettings income of GBP30.1m increased by 9% over 2020
which was affected in Q2 by the severity of the first national
lockdown and social distancing restrictions. The total number of
managed properties at 30 June 2021 was 24,474, maintained broadly
in line with the same date in 2020.
Financial Services Income
The Estate Agency Division receives an arm's length variable
commission payment from EFS and First2Protect, subsidiaries within
LSL's Financial Services Division, reflecting its role in
introducing customers to EFS and First2Protect advisers. Financial
Services income of GBP3.2m was down compared to 2020 (H1 2020:
GBP4.5m), reflecting a review of the commercial arrangements, to
align them more closely with market rates, based on an arm's length
relationship and objective market data.
Around GBP1m of profit in H1 2021 has been recognised in the
Financial Services Division, which would have been recognised in
the Estate Agency Division under the previous commercial
arrangement. We will review commercial terms annually at the end of
each financial year to ensure terms reflect market norms.
Franchise income
Franchise income of GBP1.4m was 93% higher than 2020. This
reflects LSL's share of increased franchisee revenues, which
benefited from the more favourable market activity in H1 2021.
Conveyancing and other income
Conveyancing and other income of GBP3.2m was 48% more than the
comparable period in 2020, with the increased residential exchange
activity resulting in more demand for conveyancing services.
Asset Management
Asset Management revenues of GBP1.7m reduced by 15% compared to
2020, as lenders exercised forbearance to protect customers whose
personal and financial situation was impacted by COVID-19. This was
reinforced strongly in the FCA's COVID-19 guidance, in effect since
19 March 2020, that lenders should not enforce repossessions before
1 April 2021, except in exceptional circumstances.
Marsh & Parsons
H1 2021 Total revenue of GBP17.7m increased by 46% compared to
the same period last year (H1 2020 GBP12.1m) and H1 2021 Underlying
Operating Profit increasing significantly compared to the same
period last year.
Branch numbers
LSL owns one of the largest combined estate agencies in the UK.
It operates a network of 228 owned and 127 franchised estate agency
branches, with brands that include Your Move, Reeds Rains and Marsh
& Parsons. The total number of Estate Agency branches reduced
by one in H1 2021, following two new office openings in Marsh &
Parsons, and the closure of three franchise branches in the Your
Move and LSLi estates to address less-productive branches.
Breakdown of LSL's Estate Agency branches as at 30 June 2021 and
31 December 2020:
Total: Total:
30 June 31 Dec
Owned Franchise 2021 2020
---------------- ----- ----------- -------- -------
Your Move 89 77 166 168
Reeds Rains 56 49 105 105
---------------- ----- ----------- -------- -------
Sub total 145 128 273 273
LSLi 51 1 52 53
Marsh & Parsons 32 0 32 30
---------------- ----- ----------- -------- -------
Total 228 127 355 356
---------------- ----- ----------- -------- -------
Financial Review
Income Statement
Group Operating Profit
On a statutory basis, Group operating profit increased 647% to
GBP26.7m (H1 2020: GBP3.6m).
Group Underlying Operating Profit(1)
Group Underlying Operating Profit of GBP27.3m was 181% above
2020 (GBP9.7m). In H1 2020, COVID-19 costs of GBP2.8m were
recognised in Group Underlying Operating Profit. Stated before
these COVID-19 costs, Group Underlying Operating Profit in H1 2020
was GBP12.5m. The Group has not claimed any Coronavirus Job
Retention Scheme Funds in 2021.
Other operating income
Other operating income, relating to rental income, was GBP0.5m
(H1 2020: GBP0.3m).
Gain on sale of property, plant, and equipment
A gain on sale of GBP0.3m (H1 2020: GBP0.02m) resulted from the
disposal of two commercial properties, for consideration of
GBP0.4m.
Income from joint ventures and associates
Income from joint ventures and associates was GBP0.9m, an
improved performance compared to H1 2020 (H1 2020: loss GBP0.2m),
as a result of stronger performances by LMS and TM Group in
favourable markets, and LSL's share of losses in the Mortgage Gym
associate in H1 2020.
Share-based payments
The share-based payment charge of GBP0.5m (H1 2020: GBP0.7m
credit, as a result of scheme lapses) consists of a charge in the
period of GBP0.8m, offset by the lapse of the 2017 SAYE scheme and
adjustments for leavers and options exercised in the period.
Amortisation of intangible assets
The amortisation charge for H1 2021 was GBP2.7m (H1 2020:
GBP2.9m). The year-on-year decrease was the result, of lettings
books, reaching full amortisation during 2020.
Exceptional items
The exceptional gain of GBP4.3m (H1 2020: GBPnil) relates to the
gain on disposal of the Group's joint venture holding in LMS of
GBP3.2m and a release in the PI Costs provision of GBP1.1m.
The exceptional cost of GBP1.65m (H1 2020: GBP4.4m) relates to a
Shareholder circular published on 5 July 2021 and general meeting
held on 22 July 2021 (GBP0.9m) and restructuring costs in EFS
(GBP0.7m).
Contingent consideration
The charge to the income statement in H1 2021 of GBP0.04m (H1
2020: credit GBP0.5m), mainly relates to reassessment of the
contingent consideration liability for RSC, due to be paid in
2023.
Net financial costs
Net financial costs amounted to GBP1.3m (H1 2020: GBP1.6m) and
related principally to unwinding of the IFRS 16 lease liability of
GBP0.7m (H1 2020: GBP0.8m) and interest and fees on the RCF of
GBP0.5m (H1 2020: GBP0.6m)
Profit before tax
Profit before tax increased to GBP25.5m (H1 2020: GBP2.0m). This
increase was largely driven by the increase in Group Operating
Profit and gain on the sale of the investment in the LMS joint
venture.
Taxation
The tax charge of GBP2.9m (H1 2020: GBP0.8m credit) gives an
effective tax rate of 11.5%, lower than the headline UK tax rate of
19%, mainly due to profits on the sale of joint venture investments
not being subject to corporation tax. Deferred tax assets and
liabilities are revalued to 25% (H1 2020: 19%), the tax rate
effective from 1 April 2023.
Basic and Adjusted Basic Earnings Per Share(2)
The Basic Earnings Per Share was 21.8 pence (H1 2020: 1.2
pence). The Adjusted Basic Earnings Per Share was 20.9 pence (H1
2020: 9.4 pence), an increase of 122%.
Balance sheet
Goodwill
The carrying value of goodwill is GBP160.9m (31 December 2020:
GBP159.9m), with GBP1.0m added due to the acquisition of Direct
Life. No indicators of impairment have been identified at 30 June
2021.
Mortgage Gym
In February 2021, the Group acquired the trade and assets of
Mortgage Gym Limited, a former associate of the Group, for GBP2.4m.
The loan notes valued at GBP2.24m at 31 December 2020 were offset
against the consideration for the purchase from the administrators,
reducing the balance of these loan notes to nil.
Financial assets
LSL holds financial assets of GBP7.7m (31 December 2020:
GBP9.6m) comprising investment in equity instruments. The decrease
in the year was substantially due to the impact of the settlement
of secured loan notes, as consideration for the purchase of the
trade and assets of Mortgage Gym Limited.
LSL holds a small number of investments in unlisted companies.
The largest investment is an 8.8% shareholding in Yopa Property
Limited, a UK-based online hybrid estate agent. The carrying value
of this investment has been assessed, including a review of its
latest financial performance, which is positive, with the valuation
remaining unchanged from 31 December 2020 at GBP6.5m.
Joint ventures
The Group had two joint ventures at 30 June 2021: 32.3% (31
December 2020: 33.3%) interest in TM Group, whose principal
activity is to provide property searches, and a 47.8% (31 December
2020: Nil) interest in Pivotal Growth which is equity accounted and
is held on the balance sheet at GBP0.3m at 30 June 2021,
representing initial equity investment less LSL's share of costs
for the period.
In July 2021, the Group disposed of its entire holding in TM
Group for proceeds of GBP29.3m. At 30 June 2021, the equity
accounted carrying value of TM Group of GBP3.0m has been classified
as held for sale.
Deferred and contingent consideration
At 30 June 2021, LSL reports GBPNil (31 December 2020: GBP0.1m)
deferred consideration and GBP5.8m (31 December 2020: GBP5.4m) of
contingent consideration. The contingent consideration relates
primarily to the cost of acquiring the remaining shares in Group
First (GBP1.5m for the remaining 5%) and RSC (GBP3.8m for the
remaining 40%, with an increase reflecting an update to RSC
forecasts), with additions in the period due to the acquisition of
Direct Life (GBP0.6m).
Professional indemnity (PI) claim provision
At 30 June 2021, the total provision for historic PI Costs was
GBP5.5m (31 December 2020: GBP7.0m). In 2021, the Group continued
to make progress in addressing historic claims with a GBP1.1m
exceptional release in the period.
Regulatory Capital
LSL has a regulatory capital requirement amounting to 2.5% of
regulated financial services revenue. At 31 March 2021, this
regulatory capital requirement was GBP5.0m (31 March 2020:
GBP5.2m). LSL held a surplus of GBP14.6m over this requirement (31
March 2020: GBP10.6m).
Statement of Cash-flows
The Group generated cash from operations of GBP20.3m (H1 2020:
GBP39.1m) After adjusting for payments made in H1 2021 for tax
payment deferrals agreed with HMRC relating to 2020, the cash-flow
conversion rate(3) in H1 2021 was 100% (H1 2020: 50%). Before this
adjustment, the cash-flow conversion rate was 68%.
International Financial Reporting Standards (IFRS)
The Interim Condensed Consolidated Group Financial Statements
for the period ended 30 June 2021 have been prepared in accordance
with UK-adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the UK's Financial
Conduct Authority.
1 Group Underlying Operating Profit is before exceptional costs,
contingent consideration, amortisation of intangible assets and
share-based payments (as set out in Note 6 of the financial
statements
2 Refer to Note 7 of the Financial Statements for the calculation
3 Cash-flow conversion defined as cash-flow from operations (pre
PI and exceptionals) divided by Group Underlying Operating
Profit
Principal Risks and Uncertainties
The principal risks and uncertainties relating to the Group's
operations remain consistent with those disclosed on pages 37 to 41
of the Group's Annual Report and Accounts 2020. The Annual Report
and Accounts 2020 can be accessed on the Group's website:
www.lslps.co.uk. Having reconsidered these principal risks and
uncertainties which are summarised below, the Board has concluded
that the principal risks and uncertainties of the Group remain the
same as those included within the Annual Report and Accounts
2020.
-- COVID-19 virus
-- UK housing market and mortgage lending
-- Market disruption
-- Execution of growth strategy
-- Professional services
-- Client contracts
-- Business infrastructure (including technology)
-- Information security (including data protection)
-- Regulatory and compliance
-- Environmental, social and governance (ESG)
-- Employee resources and talent
Forward-Looking Statements
This announcement contains certain statements that are
forward-looking statements. They appear in a number of places
throughout this announcement and include statements regarding LSL's
intentions, beliefs or current expectations and those of its
officers, directors and employees concerning, amongst other things,
LSL's results of operations, financial condition, liquidity,
prospects, growth, strategies and the business it operates. 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 update and, unless otherwise required by
applicable law, LSL undertakes no obligation to update or revise
these forward-looking statements. Nothing in this update should be
construed as a profit forecast. LSL and its Directors accept no
liability to third parties in respect of this update save as would
arise under English law.
Any forward-looking statements in this update 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.
Definitions
Definitions for words and expressions referred to and included
in this statement which are not expressly defined within, can be
found in LSL's Annual Report and Accounts 2020 (a copy of which is
available on LSL's website at: www.lslps.co.uk). All references to
'note(s)' in this statement are, unless expressly stated otherwise,
references to the 'Notes to the Interim Condensed Group Financial
Statements' included in this statement.
Responsibility statement of the Directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- The Interim Condensed Consolidated Group Financial Statements
for the period ended 30 June 2021 have been prepared in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the UK's Financial
Conduct Authority;
-- The interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related-party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related-party transactions
described in the last annual report that could do so.
By order of the Board
David Stewart Adam Castleton
Director, Group Chief Executive Officer Director, Group Chief
Financial Officer
3 August 2021 3 August 2021
Interim Group Income Statement
for the six months ended 30 June 2021
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2021 2020 2020
Continuing Operations Note GBP'000 GBP'000 GBP'000
--------- --------- ------------
Revenue 4,5 166,456 114,921 266,742
Operating expenses:
Employee and subcontractor costs (100,493) (71,113) (162,455)
Establishment costs (4,684) (4,036) (9,528)
Depreciation on property, plant and
equipment (6,303) (7,184) (13,929)
Other operating costs (29,418) (22,929) (46,938)
--------- --------- ------------
(140,898) (105,262) (232,850)
Other operating income 496 274 783
Gain on sale of property, plant and
equipment 280 16 15
Income / (loss) from joint ventures
and associates 934 (224) 493
Share-based payments (454) 673 (18)
Amortisation of intangible assets (2,677) (2,899) (5,395)
Exceptional gains 8 4,311 - 674
Exceptional costs 8 (1,656) (4,422) (7,076)
Contingent consideration (44) 504 544
------------
Group operating profit 26,748 3,581 23,912
Finance income - 9 144
Finance costs (1,286) (1,579) (3,134)
Net finance costs (1,286) (1,570) (2,990)
Profit before tax 25,462 2,011 20,922
Taxation charge 10 (2,917) (764) (4,596)
Profit for the period/year 22,545 1,247 16,326
--------- --------- ------------
Attributable to:
Owners of the parent 22,566 1,247 16,326
Non-controlling interest (21) - -
Earnings per share expressed in pence
per share:
Basic 7 21.8 1.2 15.9
Diluted 7 21.4 1.2 15.7
--------- --------- ------------
Interim Group Statement of Comprehensive Income
for the six months ended 30 June 2021
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
----------- ----------- -----------
Profit for the period 22,545 1,247 16,326
Items not to be reclassified to profit
and loss in subsequent periods:
Revaluation of financial assets not
recycled through income statement 11 443 - -
Income tax effect (119) - -
----------- ----------- -----------
Net other comprehensive income 324 - -
----------- ----------- -----------
Total comprehensive income, net of
tax 22,869 1,247 16,326
----------- ----------- -----------
Interim Group Balance Sheet
as at 30 June 2021
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2021 2020 2020
Note GBP'000 GBP'000 GBP'000
---------- ---------- ------------
Non-current assets
Goodwill 3 160,865 159,863 159,863
Other intangible assets 29,908 28,584 27,894
Property, plant and equipment 40,551 44,944 42,741
Financial assets 11 7,737 9,324 9,561
Investments in joint ventures and
associates 16 268 12,521 11,406
Contract assets 836 559 433
---------- ---------- ------------
Total non-current assets 240,165 255,795 251,898
---------- ---------- ------------
Current assets
Trade and other receivables 38,449 30,024 28,438
Contract assets 424 253 253
Current tax asset 1,673 - 184
Cash and cash equivalents 17,039 19,263 11,443
------------
Total current assets 57,585 49,540 40,318
---------- ---------- ------------
Non current assets held for sale 16 3,016 - -
---------- ---------- ------------
Total assets 300,766 305,335 292,216
---------- ---------- ------------
Current liabilities
Financial liabilities 13 (11,083) (13,699) (12,466)
Trade and other payables (73,918) (79,705) (72,936)
Current tax liabilities - (1,097) -
Provisions for liabilities 14 (2,908) (2,721) (2,998)
---------- ---------- ------------
Total current liabilities (87,909) (97,222) (88,400)
---------- ---------- ------------
Non-current liabilities
Financial liabilities 13 (25,678) (59,147) (40,060)
Deferred tax liability (1,916) (1,834) (1,822)
Provisions for liabilities 14 (2,694) (5,195) (4,180)
---------- ---------- ------------
Total non-current liabilities (30,288) (66,176) (46,062)
---------- ---------- ------------
Total Liabilities (118,197) (163,398) (134,462)
---------- ---------- ------------
Net assets 182,569 141,937 157,754
---------- ---------- ------------
Equity
Share capital 210 208 210
Share premium account 5,629 5,629 5,629
Share-based payment reserve 4,483 3,369 3,942
Shares held by EBT (4,165) (5,021) (5,012)
Fair value reserve (13,260) (13,584) (13,584)
Retained earnings 189,135 151,336 166,569
---------- ---------- ------------
Equity attributable to the owners
of the parent 182,032 141,937 157,754
---------- ---------- ------------
Non-controlling interest 537 - -
---------- ---------- ------------
Total Equity 182,569 141,937 157,754
---------- ---------- ------------
Interim Group Cash Flow Statement
for the six months ended 30 June 2021
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2021 2020 2020
Note GBP'000 GBP'000 GBP'000
--------- --------- ------------
Profit before tax 25,462 2,011 20,922
Adjustments for:
Exceptional operating items and contingent
consideration (2,612) 3,918 5,857
Depreciation of tangible assets 6,303 7,184 13,929
Amortisation of intangible assets 2,677 2,899 5,395
Share-based payments 454 (673) 18
(Profit) on disposal of fixed assets (280) (16) (15)
(Profit) / loss from joint ventures (934) 224 (493)
Finance income - (9) (144)
Finance costs 1,286 1,579 3,134
Operating cash flows before movements in
working capital 32,356 17,117 48,603
--------- --------- ------------
Movements in working capital
(Increase) / decrease in trade and
other receivables (9,779) 4,708 8,553
Increase in trade and other payables 1,327 19,080 13,606
Decrease in provisions (1,576) (737) (1,474)
(10,028) 23,051 20,685
--------- --------- ------------
Cash generated from operations 22,328 40,168 69,288
Interest paid (1,215) (1,411) (2,581)
Income taxes paid (4,451) (937) (6,093)
Exceptional costs paid (2,466) (3,952) (7,311)
Net cash generated from operating activities 14,196 33,868 53,303
--------- --------- ------------
Cash flows used in investing activities
Cash acquired on acquisition of subsidiary 1,070 - -
Acquisitions of subsidiaries and other
businesses (1,800) (212) (293)
Payment of contingent consideration 13 (302) (55) (169)
Investment in joint venture (765) - -
Investment in financial assets 11 (4) (8) (418)
Dividend received from joint venture 1,178 - -
Cash received on sale of joint venture 12,000 - -
Purchase of property, plant and equipment
and intangible assets (2,957) (1,656) (4,050)
Proceeds from sale of property, plant
and equipment 431 130 138
Net cash generated / (expended) on
investing activities 8,851 (1,801) (4,792)
--------- --------- ------------
Repayment of loans 15 (13,000) (9,883) (28,883)
Payment of deferred consideration (92) - (80)
Receipt of lease Income 26 19 23
Proceeds from the exercise of share
options 429 147 176
Payments of lease liabilities (4,814) (3,087) (8,304)
Dividends paid - - -
Net cash expended in financing activities (17,451) (12,804) (37,068)
--------- --------- ------------
Net increase in cash and cash equivalents 5,596 19,263 11,443
--------- --------- ------------
Cash and cash equivalents at the end
of the period / year 17,039 19,263 11,443
--------- --------- ------------
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June 2021
Share-
Share based Shares Fair Non-
Share premium payment held by value Retained controlling
capital account reserve EBT Reserve earnings interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------- ---------- ---------- ----------- ----------- ------------- --------
At 1 January 2021 210 5,629 3,942 (5,012) (13,584) 166,569 - 157,754
----------- ---------- ---------- ---------- ----------- ----------- ------------- --------
Other
comprehensive
income for the
period
Revaluation of
financial assets - - - - 324 - - 324
Profit for the
period - - - - - 22,566 (21) 22,545
Total
comprehensive
income for
the period - - - - 324 22,566 (21) 22,869
Acquisition of
subsidiary - - - - - - 558 558
Exercise of
options - - (418) 847 - - - 429
Share-based
payments - - 454 - - - - 454
Tax on share
based
payments - - 505 - - - - 505
At 30 June 2021 210 5,629 4,483 (4,165) (13,260) 189,135 537 182,569
----------- ---------- ---------- ---------- ----------- ----------- ------------- --------
During the six month period to 30 June 2021 a total of 241,476
share options were exercised relating to LSL's various share option
schemes resulting in the shares being sold by the
Trust. LSL received GBP429,000 on exercise of these options.
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June 2020
Share Share- based
Share premium payment Shares held Fair value Retained
capital account reserve by EBT Reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------- ------------- ------------- ------------- ------------- --------
At 1 January 2020 208 5,629 4,429 (5,224) (13,584) 149,758 141,216
------------- ------------- ------------- ------------- ------------- ------------- --------
Profit for the
period - - - - - 1,247 1,247
Total
comprehensive
income for
the period - - - - - 1,247 1,247
Exercise of
options - - (77) 203 - 21 147
Share-based
payments - - (983) - - 310 (673)
At 30 June 2020 208 5,629 3,369 (5,021) (13,584) 151,336 141,937
------------- ------------- ------------- ------------- ------------- ------------- --------
During the six month period to 30 June 2020 a total of 57,649
share options were exercised relating to LSL's various share option
schemes resulting in the shares being sold by the
Trust. LSL received GBP147,000 on exercise of these options.
Interim Group Statement of changes in equity
Audited - for the year ended 31 December 2020
Share Share- based
Share premium payment Shares held Fair value Retained Total
capital account reserve by EBT reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2020 208 5,629 4,429 (5,224) (13,584) 149,758 141,216
Profit for the
year - - - - - 16,326 16,326
Total
comprehensive
income for
the year - - - - - 16,326 16,326
Issued share
capital in
the year 2 - - - - - 2
Exercise of
options - - (80) 212 - 44 176
Share-based
payments - - (423) - - 441 18
Tax on share
based
payments - - 16 - - - 16
At 31 December
2020 210 5,629 3,942 (5,012) (13,584) 166,569 157,754
During the year ended 31 December 2020, the Trust acquired
167,083 LSL Shares. During the period, 60,565 share options were
exercised relating to LSL's various share option schemes resulting
in the Shares being sold by the Trust. LSL received GBP176,000 on
exercise of these options.
Notes to the Interim Condensed Consolidated Group Financial
Statements
The Interim Condensed Consolidated Group Financial Statements
for the period ended 30 June 2021 were approved by the LSL Board on
3 August 2021. The interim Financial Statements are not the
statutory accounts. The financial information for the year ended 31
December 2020 is extracted from the audited statutory accounts for
the year ended 31 December 2020, which have been filed with the
Registrar of Companies. The auditor's report was unqualified and
did not contain an emphasis of matter paragraph, and did not make a
statement under section 498 (2) or (3) of the Companies Act
2006.
1. Basis of preparation
The Interim Condensed Consolidated Group Financial Statements
for the period ended 30 June 2021 have been prepared in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority, and should be read in conjunction with
the Group's annual Financial Statements as at 31 December 2020
which are included in LSL's Annual Report and Accounts 2020. The
Group's annual Financial Statements for the year ending 31 December
2021 will be prepared in accordance with UK adopted IFRSs.
The Interim Condensed Consolidated Group Financial Statements do
not include all the information and disclosures required for a
complete set of IFRS Financial Statements. However, selected
explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in the
Group's financial position and performance since the last annual
Financial Statements.
Going Concern
The UK Corporate Governance Code requires the Board to assess
and report on the prospects of the Group and whether the business
is a Going Concern. In considering this requirement, the Directors
have taken into account the Group's forecast cash flows, liquidity,
borrowing facilities and related covenant requirements and the
expected operational activities of the Group.
The Group expects to continue to meet its day to day working
capital requirements through a revolving credit facility. The Group
announced a new banking facility in February 2021, a GBP90 million
committed revolving credit facility with a maturity date of May
2024. As shown in Note 15 to these interim condensed consolidated
Group Financial Statements, the Group has not currently utilised
the facility leaving GBP90 million of available undrawn committed
borrowing facilities in respect of which all conditions precedent
had been met.
LSL has continued to run a variety of scenario models throughout
H1 to help the ongoing assessment of risks and opportunities. A
severe downside scenario has been modelled as part of the Going
Concern assessment, which includes the pessimistic assumption that
there is a significant reduction in market transaction volumes
reducing close to the low point experienced during the Global
Financial Crisis. The scenario modelling includes further prudent
assumptions, for example, such as cost mitigations that could be
applied in a severe scenario and we have not applied them in this
model. Underpinned by LSL's strong balance sheet and diverse
business revenue streams, the severe downside financial scenario
modelling confirmed that the Group's current liquidity position
would enable the Group to operate under this scenario to 31
December 2022 within the terms of its current facilities with no
breach of banking covenants and therefore it is appropriate to use
the Going Concern basis of preparation for this financial
information.
Having due regard to these matters and after making appropriate
enquiries, the Directors have a reasonable expectation that the
Group and the Company have adequate resources to remain in
operation to 31 December 2022. The Board have therefore continued
to adopt the Going Concern basis in preparing the Interim Condensed
consolidated Financial Statements.
2. Changes in significant accounting policies
The accounting policies adopted in the preparation of the
Interim Condensed Consolidated Group Financial Statements are
consistent with those followed in the preparation of the Group's
annual Financial Statements for the year ended 31 December
2020.
3. Judgements and estimates
The preparation of financial information in conformity with UK
adopted IFRS and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority requires
management to make judgements, estimates and assumptions that
affect the application of policies and reporting amounts of assets
and liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next six months are
the same as those as at 31 December 2020, with the exception of
valuations in acquisitions, which is a key assumption for 2021. The
assumptions are discussed in detail in the Group's Annual Report
and Accounts 2020. The assumptions discussed are as follows:
Judgements
Areas of judgement that have the most significant effect on the
amounts recognised in the consolidated Financial Statements
are:
-- Deferred tax
-- Exceptional items
Estimates
The key assumptions affected by future uncertainty that have
significant risks of causing material adjustment to the carrying
value of assets and liabilities within the next financial year
are:
-- Professional Indemnity (PI) claims
-- Lapse Provision
-- Valuation of financial assets
-- Impairment of intangible assets
-- Contingent consideration
-- Income tax
Valuations in acquisitions
The measurement of intangible assets other than goodwill on a
business combination involves the estimation of future cash-flows
and other inputs relevant to the valuation model being applied.
Brands are valued using the royalty relief method. The internally
generated software from the acquisitions of Direct Life and Pension
Services and Mortgage Gym were valued using a discounted cash-flow
model.
Goodwill
At the year ended 31 December 2020 the Management Team undertook
sensitivity analysis to determine the effect of changes in
assumptions on the 2020 impairment reviews. Marsh & Parsons had
headroom of GBP12.8m and in this instance a reasonable possible
change in either the financial budgets in the three year plan or
the discount rate applied could lead to impairment. A reduction in
each of the 3 years of cash-flow forecast by 15%, or an increase to
the discount factor applied from 11.68% to 13.39% would lead to an
impairment. Although a reasonably possible change in assumptions
used in the 2020 impairment review would lead to an impairment for
Marsh & Parsons, management do not consider there to be any
impairment indicators for the Marsh & Parsons goodwill at 30
June 2021.
4. Revenue
The Group's operations and main revenue streams are those
described in the latest Annual Financial Statements.
Disaggregation of Revenue
Set out below is the disaggregation of the Group's revenue from
contracts with customers:
Unaudited - Six Months ended 30 June 2021
Surveying
and Residential
Financial Valuation Sales Asset
Services Services exchange Lettings Management Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Timing of
revenue
recognition
Services
transferred
at a point
in
time 42,340 46,159 40,425 16,132 1,071 5,792 151,919
Services
transferred
over time - - - 13,948 589 - 14,537
------------- ------------- --------------- ------------ -------------- ----------- -------------
Total
revenue
from
contracts
with
customers 42,340 46,159 40,425 30,080 1,660 5,792 166,456
------------- ------------- --------------- ------------ -------------- ----------- -------------
Unaudited - Six Months ended 30 June 2020
Surveying
and Residential
Financial Valuation Sales Asset
Services Services exchange Lettings Management Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Timing of
revenue
recognition
Services
transferred
at a point
in
time 32,611 31,095 18,595 12,640 1,463 3,151 99,555
Services
transferred
over time - - - 14,874 492 - 15,366
------------- ------------- --------------- ------------ -------------- ----------- -------------
Total
revenue
from
contracts
with
customers 32,611 31,095 18,595 27,514 1,955 3,151 114,921
------------- ------------- --------------- ------------ -------------- ----------- -------------
Audited - Year ended 31 December 2020
Surveying
and Residential
Financial Valuation Sales Asset
Services Services exchange Lettings Management Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Timing of
revenue
recognition
Services
transferred
at a point
in
time 70,845 77,125 48,821 29,211 2,602 7,592 236,196
Services
transferred
over time - - - 29,390 1,156 - 30,546
------------- ------------- ---------------- ------------- --------------- ------------ ------------
Total
revenue
from
contracts
with
customers 70,845 77,125 48,821 58,601 3,758 7,592 266,742
------------- ------------- ---------------- ------------- --------------- ------------ ------------
5 . Segment analysis of revenue and operating profit
LSL reports three segments: Financial Services, Surveying and
Valuation Services, and Estate Agency:
-- 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. Embrace
Financial Services and First2Protect, subsidiaries within the
Financial Services Division, make a commercially agreed introducers
fee to the Estate Agency Division;
-- The Surveying and Valuation Services segment provides a
valuations and professional surveying service of residential
properties to various lenders and individual customers;
-- 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. Embrace Financial
Services and First2Protect, subsidiaries within the Financial
Services Division, make a commercially agreed introducers fee to
the Estate Agency Division.
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 income) and income taxes are managed on a Group basis and
are not allocated to operating segments.
Operating segments
The following tables presents revenue and profit information
regarding the Group's operating segments for the six months ended
30 June 2021, for the six months ended 30 June 2020 and for the
year ended 31 December 2020.
Unaudited - Six months ended 30 June 2021
Surveying
Financial and Valuation
Services Services Estate Agency Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------------- ----------------- ------------- -----------
Revenue from external
customers 42,340 46,159 77,957 - 166,456
Introducers fee (3,232) - 3,232 - -
------------- ---------------- ----------------- ------------- -----------
Total revenue 39,108 46,159 81,189 - 166,456
------------- ---------------- ----------------- ------------- -----------
Segmental result:
Group Underlying Operating
Profit 7,823 11,419 12,527 (4,501) 27,268
------------- ---------------- ----------------- ------------- -----------
Operating profit 3,928 12,352 15,504 (5,036) 26,748
------------- ---------------- ----------------- -------------
Finance income -
Finance costs (1,286)
-----------
Profit before tax 25,462
Taxation (2,917)
Profit for the period 22,545
-----------
Group Underlying Operating Profit is as defined in note 6 to
these condensed financial statements
Surveying
Financial and Valuation
Services Services Estate Agency Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------------- ------------- ----------- ---------
Balance sheet information
Segment assets - intangible 18,834 11,051 158,634 2,254 190,773
Segment assets - other 10,890 14,956 59,275 24,872 109,993
----------- ----------------- ------------- ----------- ---------
Total Segment assets 29,724 26,007 217,909 27,126 300,766
Total Segment liabilities (25,513) (24,489) (62,131) (6,064) (118,197)
----------- ----------------- ------------- ----------- ---------
Net assets 4,211 1,518 155,778 21,062 182,569
----------- ----------------- ------------- ----------- ---------
The joint venture interests of the Group are recorded in the
Financial Services and Estate Agency segments.
Unallocated net assets comprise other intangibles GBP2,253,000,
assets held for sale GBP3,016,000, cash GBP17,039,000, other assets
GBP3,138,000, other taxes GBP(182,000), accruals GBP(3,912,000),
payables GBP(266,000), deferred and current tax GBP(24,000).
Unaudited - Six months ended 30 June 2020
Surveying
Financial and Valuation
Services Services Estate Agency Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------------- ----------------- ------------- -----------
Revenue from external
customers 32,611 31,095 51,215 - 114,921
Intersegment revenue (4,533) - 4,533 - -
------------- ---------------- ----------------- ------------- -----------
Total revenue 28,078 31,095 55,748 - 114,921
------------- ---------------- ----------------- ------------- -----------
Segmental result:
Group Underlying Operating
Profit 4,932 4,850 4,147 (1,385) 12,544
------------- ---------------- ----------------- ------------- -----------
Operating profit / (loss) 3,953 2,468 (1,567) (1,273) 3,581
------------- ---------------- ----------------- -------------
Finance income 9
Finance costs (1,579)
-----------
Profit before tax 2,011
Taxation (764)
Profit for the period 1,247
-----------
Surveying
Financial and Valuation
Services Services Estate Agency Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- -------------- --------------- ----------- ---------
Balance sheet information
Segment assets - intangible 17,671 11,509 159,267 188,447
Segment assets - other 9,361 11,752 73,695 22,080 116,888
----------- -------------- --------------- ----------- ---------
Total Segment assets 27,032 23,261 232,962 22,080 305,335
Total Segment liabilities (28,252) (28,311) (69,066) (37,769) (163,398)
----------- -------------- --------------- ----------- ---------
Net assets/(liabilities) (1,220) (5,050) 163,896 (15,689) 141,937
----------- -------------- --------------- ----------- ---------
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
GBP14,000, IFRS 16 plant and equipment GBP5,000, other assets
GBP2,802,000, cash GBP19,263,000 other taxes GBP118,000, accruals
GBP(2,376,000), Other payables GBP(499,000), IFRS 16 financial
liabilities GBP(2,000), deferred and current tax GBP(3,014,000),
and revolving credit facility overdraft GBP(32,000,000).
Audited - Year ended 31 December 2020
Surveying
Financial and Valuation
Services Services Estate Agency Unallocated Total
Income Statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------------- --------------- ------------- ----------
Revenue from external
customers 70,845 77,125 118,772 - 266,742
Introducers fee (9,889) - 9,889 - -
----------- ---------------- --------------- ------------- ----------
Total revenue 60,956 77,125 128,661 - 266,742
----------- ---------------- --------------- ------------- ----------
Segmental result:
Group Underlying Operating
Profit - pre COVID -19
costs 13,451 17,871 15,554 (5,335) 41,541
Group Underlying Operating
Profit - post COVID -19
costs 12,287 16,193 12,071 (5,368) 35,183
----------- ---------------- --------------- ------------- ----------
Operating profit / (loss) 10,679 14,680 3,802 (5,249) 23,912
----------- ---------------- --------------- -------------
Finance Income 144
Finance costs (3,134)
----------
Profit before tax 20,922
Taxation (4,596)
----------
Profit for the year 16,326
----------
Balance sheet information
Segment assets - intangible 17,109 11,280 159,367 - 187,756
Segment assets - other 7,935 13,571 68,993 13,961 104,460
----------- ---------------- --------------- ------------- ----------
Total Segment assets 25,044 24,851 228,360 13,961 292,216
Total Segment liabilities (26,010) (27,398) (63,640) (17,414) (134,462)
----------- ---------------- --------------- ------------- ----------
Net assets / (liabilities) (966) (2,547) 164,720 (3,453) 157,754
----------- ---------------- --------------- ------------- ----------
The joint venture interests of the Group are recorded in the
Estate Agency and Related Services segment, with the associate
interest recorded in the Financial Services.
Unallocated net liabilities comprise plant and equipment
GBP13,000, other assets GBP2,505,000, cash GBP11,443,000, accruals
and other payables GBP(2,532,000), current and deferred tax
liabilities GBP(1,882,000), and revolving credit facility overdraft
GBP(13,000,000). Unallocated result comprises costs relating to the
Parent Company.
6. 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.
In the prior year, costs relating to COVID-19 were separately
identified and excluded from Group Underlying Operating Profit as
the Directors considered that these adjusted measures shown give a
better and more consistent indication of the Group's underlying
performance. The most significant areas of costs relating to
COVID-19 were employee costs and property and related asset costs.
In 2021, the group has not incurred separately identifiable costs
related to COVID-19 and has not excluded any from Group underlying
operating profit.
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 intangible 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 7 to these Interim Condensed Consolidated Group
Financial Statements and a reconciliation of Group Underlying
Operating Profit is shown below:
Unaudited Audited
Six months ended Year ended
30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
--------- --------- -------------
Group operating profit 26,748 3,581 23,912
Share-based payments 454 (673) 18
Amortisation of intangible assets 2,677 2,899 5,395
Exceptional gains (4,311) - (674)
Exceptional costs 1,656 4,422 7,076
Contingent consideration charge / (credit) 44 (504) (544)
Total COVID-19 related costs - 2,819 6,358
--------- --------- -------------
Group Underlying Operating Profit 27,268 12,544 41,541
--------- --------- -------------
Depreciation on property, plant and
equipment 6,303 5,538 7,571
--------- --------- -------------
Group Adjusted EBITDA 33,571 18,082 49,112
--------- --------- -------------
7. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the
period attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
period.
Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
Unaudited - Six months ended 30 June
Weighted 2021 Weighted 2020
Profit average Per share Profit average Per
after number of amount after number share
tax shares Pence tax of shares amount
GBP'000 GBP'000 Pence
Basic EPS 22,566 103,691,129 21.8 1,247 102,726,654 1.2
Effect of dilutive
share options 1,737,509 363,335
Diluted EPS 22,566 105,428,638 21.4 1,247 103,089,989 1.2
---------- ------------ ---------- ------------
Audited - Year ended 31 December 2020
Weighted 2020
Profit average Per share
after tax number of amount
GBP'000 shares Pence
---------- ----------- ------------
Basic EPS 16,326 102,939,680 15.9
Effect of dilutive
share options 947,704
Diluted EPS 16,326 103,887,384 15.7
---------- -----------
Adjusted basic and diluted EPS
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
Unaudited Audited
Six months ended Year Ended
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
Group underlying operating profit 27,268 12,544 41,541
Loss attributable to non controlling interest 21 - -
Net finance costs (excluding exceptional
items, contingent consideration items and
discounting on lease liabilities) (511) (625) (1,062)
Normalised taxation (tax rate 19%) (5,084) (2,265) (7,691)
Adjusted profit after tax before exceptional
items, share-based payments and amortisation 21,694 9,654 32,788
------------ ------------ ---------------
Unaudited - Six months ended 30 June
Adjusted Adjusted
profit Weighted 2021 profit Weighted 2020
after average Per share after average Per share
tax number amount tax number amount
GBP'000 of shares Pence GBP'000 of shares Pence
Adjusted basic EPS 21,694 103,691,129 20.9 9,654 102,726,654 9.4
Effect of dilutive
share options 1,737,509 363,335
Adjusted diluted
EPS 21,694 105,428,638 20.6 9,654 103,089,989 9.4
--------- ------------ --------- ------------
Audited - Year ended 31 December 2020
Adjusted
profit Weighted 2020
after average Per share
tax number amount
GBP'000 of shares Pence
Adjusted basic EPS 32,788 102,939,680 31.9
Effect of dilutive
share options 947,704
--------- -------------
Adjusted diluted EPS 32,788 103,887,384 31.6
--------- -------------
This represents adjusted profit after tax attributable to equity
holders of the parent. Tax has been adjusted to exclude the prior
year tax adjustments, and the tax impact of exceptional items,
amortisation, share-based payments and costs related to COVID 19.
The effective tax rate used is 19.00% (30 June 2020: 19.00% and 31
December 2020: 19.00%)
8. Exceptional items
Unaudited Audited
Six months ended Year Ended
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
--------- --------- -------------
Exceptional costs:
Shareholder circular and general meeting 943 - -
Embrace Financial Services Limited restructuring 713 - -
project
Branch / centre closure and restructuring
costs including redundancy costs - 1,667 2,312
Aborted merger deal costs - 2,403 2,350
Impairment of investment in associate - - 1,992
Other - 352 422
--------- --------- -------------
1,656 4,422 7,076
--------- --------- -------------
Exceptional gains:
Exceptional gain in relation to historic
PI costs (1,131) - (674)
Exceptional gain in relation to sale of (3,180) - -
joint venture
--------- --------- -------------
(4,311) - (674)
--------- --------- -------------
Exceptional costs
Shareholder circular and general meeting
There were GBP0.9m (2020: nil) of non recurring and material
exceptional costs relating to the shareholder circular published on
5 July 2021 and the general meeting held on 22 July 2021.
Embrace Financial Services Limited restructuring project
There were GBP0.7m (2020: nil) of non recurring and material
exceptional costs relating to the planned restructure of Embrace
Financial Services Limited. No further costs are expected in
relation to this.
Exceptional Gains
Provision for professional indemnity (PI) claims and insurance
claim notification
Previous exceptional gains relate to the settling of historic PI
claims. There has been a gain of GBP1.1m in the first half of 2021
(June 2020: GBPnil and December 2020: GBP0.7m).
Disposal of interest in associate
In May 2021, the Group disposed of its 49.6% interest in Cybele
Solutions Holdings Limited ("LMS") for consideration of GBP12m. The
net gain recognised on sale of LMS was GBP3.2m.
9. Dividends paid and declared
No final dividend in respect of the year ended 31 December 2020
(December 2019: GBPNil) was paid in the period ended 30 June 2021.
An interim dividend has been announced amounting to 4.0 pence per
share (June 2020: GBPNil). Interim dividends are recognised when
paid.
10. Taxation
The major components of income tax charge in the interim Group
income statements are:
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
--------- -------- -----------
UK corporation tax:
- current year credit / (charge) 3,008 802 5,111
- adjustment in respect of prior
years (1) - (409)
--------- -------- -----------
3,007 802 4,702
Deferred tax:
Origination and reversal of temporary
differences (214) 38 (597)
Adjustment in respect of prior year 1 - 248
Changes in tax rates 123 - 243
--------- -------- -----------
(90) 38 (106)
Total tax charge in the income statement 2,917 764 4,596
--------- -------- -----------
In March 2021, the 2021 Budget included an announcement to
increase the standard rate of corporation tax rate from 19% to 25%
from 1 April 2023. This was substantively enacted during Summer
2021
The headline UK rate of corporation tax for the period is
therefore 19% (2020: 19%), and the rate at which deferred tax has
been provided is 25% (2020: 19%). The expected impact on deferred
tax balances of the rate increase is estimated to be GBP246,000
Deferred tax charged directly to other comprehensive income
relating to the revaluation of financial assets is GBP119,000. In
the six months ended 30 June 2020 GBPNil and year ended 31 December
2020 GBPNil.
11. Financial assets
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Convertible loan notes - at fair value
Secured convertible loan notes - 5% - 2,000 2,240
Secured convertible loan notes - interest
free - - 10
--------- -------- -----------
- 2,000 2,250
--------- -------- -----------
Investment in equity instruments - at fair
value
--------- -------- -----------
Unquoted shares at fair value 7,417 6,960 6,961
--------- -------- -----------
IFRS 16 lessor financial assets 320 364 350
--------- -------- -----------
Total Financial Assets 7,737 9,324 9,561
Opening balance 9,561 9,326 9,326
Additions 14 8 418
Fair value adjustment 443 - -
Disposals (2,281) (10) (183)
Closing balance 7,737 9,324 9,561
--------- -------- -----------
Non-current assets 7,737 9,324 9,561
Current assets - - -
--------- -------- -----------
7,737 9,324 9,561
--------- -------- -----------
Convertible loan notes at fair value
In 2020 LSL held secured loan notes of GBP2,240,000 with
Mortgage Gym Limited, in February 2021 these loan notes were
settled as consideration for the acquisition of the trade and
assets of Mortgage Gym.
Investment in equity instruments
The financial assets include unlisted equity instruments which
are carried at fair value. Fair value is judgemental given the
assumptions required and have been valued using a level 3 valuation
techniques (see Note 32 to the December 2020 Group Financial
Statements).
Vibrant Energy Matters Limited (VEM)
The carrying value of the Group's investment in VEM at 30 June
2021 has been assessed as GBP729,000 (June 2020: GBP287,000 and
December 2020: GBP287,000), following a share transaction between
third party share holders which valued LSLs holding at
GBP729,000.
NBC Property Master Limited
The carrying value of the Group's investment at 30 June 2021 has
been assessed as GBP78,000 (June 2020: GBP78,000 and December 2020:
GBP78,000).
Global Property Ventures Limited
On 6 January 2020, LSL acquired 76,000 additional shares in
Global Property Ventures Limited, for a consideration of
GBP8,275.
The carrying value of the Group's investment in Global Property
Ventures Limited at 30 June 2021 has been assessed as GBP115,000
(June 2020: GBP101,000 and December 2020: GBP101,000).
Yopa Property Limited
The carrying value of the Group's investment in Yopa at 30 June
2021 has been assessed as GBP6,495,000 (June 2020: GBP6,495,000 and
December 2020: GBP6,495,000).
12. Trade and other payables
Unaudited
Six Months Ended
Audited
Year Ended
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
--------- --------- -------------
Current
Trade payables 9,568 12,388 11,733
Other taxes and social security payable 19,664 33,662 24,971
Other payables 3,852 2,890 2,291
Accruals 35,873 25,969 29,412
Lapse provision 4,961 4,796 4,529
---------
73,918 79,705 72,936
--------- --------- -------------
Lapse Provision
Certain subsidiaries sell life assurance products which are
cancellable without a notice period, and if cancelled within a set
period require that a portion of the commission earned must be
repaid. The lapse provision is recognised as a reduction in revenue
which is based on historic lapses which have occurred. The
provision is managements best estimate of future clawed back
commission on life assurance policies, taking into account historic
lapse rates in each subsidiary.
13. Financial liabilities
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Current
IFRS 16 lessee financial liabilities 9,583 11,621 10,550
Deferred consideration 30 80 122
Contingent consideration 1,470 1,998 1,794
11,083 13,699 12,466
--------- -------- -----------
Non-current
Bank loans - revolving credit facility (RCF) - 32,000 13,000
IFRS 16 lessee financial liabilities 21,313 23,710 23,407
Contingent consideration 4,365 3,437 3,653
25,678 59,147 40,060
--------- -------- -----------
Bank loans - RCF and overdraft
The bank loan totalling GBPnil (June 2020: GBP32.0m and December
2020: GBP13.0m) is secured via cross guarantees issued from the
following Group companies: LSL Property Services plc,
Your-move.co.uk Limited, Reeds Rains Limited, e.surv Limited,
Lending Solutions Holdings Limited, First Complete Limited, New
Daffodil Limited, St Trinity Limited, LSL Corporate Client Services
Limited, Advance Mortgage Funding Limited, Marsh & Parsons
Limited, Marsh & Parsons (Holdings) Limited, LSLi Limited,
Davis Tate Limited, Lauristons Limited, David Frosts Estate Agents
Limited, ICIEA Limited, GFEA Limited, JNP Estate Agents Limited,
Vitalhandy Enterprises Limited, Mortgages First Limited, Insurance
First Brokers Limited, Group First Limited, Personal Touch
Financial Services Limited, Personal Touch Administration Services
Limited, Embrace Financial Services Limited.
The utilisation of the RCF may vary each month as long as this
does not exceed the maximum GBP90.0m facility (2020: GBP100.0m).
The Group's overdraft is also secured on the same facility, and the
combined overdraft and RCF cannot exceed GBP90.0m (2020:
GBP100.0m). The banking facility is repayable when funds permit or
by May 2024.
Interest and fees payable on the RCF amounted to GBP0.5m (June
2020: GBP0.6m and December 2020: GBP1.2m). The interest rate
applicable to the facility is LIBOR plus a margin rate; the margin
rate is linked to the leverage ratio of the Group and the margin
rate is reviewed at six monthly intervals.
Contingent consideration -
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
--------- -------- -----------
LSLi contingent consideration - 342 302
Group First 1,470 1,392 1,470
RSC 3,786 3,437 3,653
DLPS 579 - -
Other - 264 22
--------- -------- -----------
5,835 5,435 5,447
--------- -------- -----------
Opening balance 5,447 5,804 5,804
Cash paid (302) (55) (171)
Acquisition 579 23 23
Amounts recorded though income statement 111 (337) (209)
--------- -------- -----------
Closing balance 5,835 5,435 5,447
--------- -------- -----------
There was GBPNil (June 2020: GBP342,000 and December 2020:
GBP302,000) contingent consideration relating to amounts owed to
third parties in relation to the acquisition of LSLi and certain of
its subsidiaries between 2012 and 2016. This is typically payable
between three and five years after the acquisition dates depending
on the profitability of those subsidiaries in the relevant
years.
GBP1,470,000 of contingent consideration relates to Group First
(June 2020: GBP1,392,000 and December 2020: GBP1,470,000) which is
due for payment in 2021. The additional consideration is calculated
using earnings multiples of between five and six times EBITA (plus
excess cash in the business) and has been capped at a maximum of
GBP25.0m.
GBP3,786,000 of contingent consideration relates to RSC New
Homes (June 2020: GBP3,437,000 and December 2020: GBP3,653,000).
The additional consideration will be calculated using earnings
multiples of between five and six times EBITA (plus excess cash in
the business) and has been capped at a maximum of GBP7,500,000.
GBP579,000 of contingent consideration relates to Direct Life
and Pension Services Limited, acquired in January 2021. The
additional consideration will be calculated using earnings
multiples of between five and six times EBITA
In the period ending 30 June 2021 GBP302,000 (June 2020:
GBP55,000 and December 2020: GBP171,000) of contingent
consideration was paid to former shareholders.
The table below shows the allocation of the contingent
consideration balance and income charge between the various
categories:
Unaudited Audited
Six Months Ended Year Ended
Contingent consideration balances relating 30 June 30 June 31 December
to amounts accounted for as: 2021 2020 2020
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Arrangement under IFRS 3 44 (504) (544)
Unwinding of discount on contingent consideration 67 167 335
--------- -------- -----------
Charge / (credit) 111 (337) (209)
--------- -------- -----------
The contingent consideration charged to the Income Statement in
the period excluding the unwinding of discount relates to both new
and previous acquisitions and relates to the acquisition of: LSLi
charge of nil (June 2020: GBP4,000 and December 2020: GBP4,000);
Mortgage First charge of nil (June 2020: credit GBP175,000 and
December 2020: credit GBP146,000); RSC New Homes charge of
GBP44,000 (June 2020: credit GBP313,000 and December 2020: credit
GBP216,000).
14. Provisions for liabilities
Unaudited - Six months ended 30 June:
2021 2020
Professional Professional
indemnity Onerous indemnity Onerous
claim provision leases Total claim provision leases Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ------------- ----------- ------------------- ------------- -----------
Balance at 1
January 7,042 136 7,178 8,212 440 8,652
Amount utilised (632) (46) (678) (1,069) (124) (1,193)
Amount released (1,131) - (1,131) (4) - (4)
Unwinding of
discount - - - 1 - 1
Provided in the
period 233 - 233 460 460
Balance at 30
June 5,512 90 5,602 7,600 316 7,916
------------------- ------------- ----------- ------------------- ------------- -----------
Current 2,854 54 2,908 2,545 176 2,721
Non-current 2,658 36 2,694 5,055 140 5,195
5,512 90 5,602 7,600 316 7,916
------------------- ------------- ----------- ------------------- ------------- -----------
Audited - Year ended 31 December 2020
Professional
indemnity Onerous
claim provision leases Total
GBP'000 GBP'000 GBP'000
-------------------- ----------- -----------
Balance at 1 January 8,212 440 8,652
Amount utilised (1,707) - (1,707)
Amount released (679) (304) (983)
Unwinding of discount 2 - 2
Provided in financial year 1,214 - 1,214
Balance at 31 December 7,042 136 7,178
-------------------- ----------- -----------
Current 2,926 72 2,998
Non-current 4,116 64 4,180
7,042 136 7,178
-------------------- ----------- -----------
The PI Cost provision is to cover the costs of claims relating
to valuation services for clients. The PI Costs provision includes
amounts for claims already received from clients, claims yet to be
received and any other amounts which may be payable as a result of
legal disputes associated with provision of valuation services.
The provision is the Directors' best estimate of the likely
outcome of such claims, taking account of the incidence of such
claims and the size of the loss that may be borne by the claimant,
after taking account of actions that can be taken to mitigate
losses. The provision will be utilised as individual claims are
settled and the settlement amount may vary from the amount provided
depending on the outcome of each claim. It is not possible to
estimate the timing of payment of all claims and therefore a
significant proportion of the provision has been classified as
non-current.
At 30 June 2021 the total provision for PI Costs was GBP5.5m
(June 2020: GBP7.6m and December 2020: GBP7.0m). The Directors have
considered the sensitivity analysis on the key risks and
uncertainties discussed above.
Cost per claim
A substantial element of the PI Cost provision relates to
specific claims where disputes are on-going. These specific cases
have been separately assessed and specific provisions have been
made. The average cost per claim has been used to calculate the
IBNR. Should the costs to settle and resolve these claims and
future claims increase by 10%, an additional GBP0.9m would be
required.
Rate of claim
The IBNR assumes that the rate of claim for the high-risk
lending period in particular reduces over time. Should the rate of
reduction be lower than anticipated and the duration extend,
further costs may arise. An increase of 30% in notifications in
excess of that assumed in the IBNR calculations would increase the
required provision by GBP0.1m.
Notifications
The Group has received a number of notifications which have not
deteriorated into claims or loss. Should the rate of deterioration
increase by 50%, an additional provision of less than GBP0.1m would
be required.
Onerous leases
The provision for lease obligations relates to obligations under
leases on vacant properties. The final outcome depends upon the
ability of the Group to sublet or assign the lease over the related
properties.
15. Analysis of Net cash
Unaudited Audited
Six Months Ended Year Ended
31 December
30 June 2021 30 June 2020 2020
GBP'000 GBP'000 GBP'000
------------- ------------ -----------
Interest bearing loans and borrowings
(including loan notes, overdraft,
IFRS16 lease liabilities, contingent
and deferred consideration
* Current 11,083 13,699 12,466
* Non-current 25,678 59,147 40,060
------------- ------------ -----------
36,761 72,846 52,526
Less: cash and short-term deposits (17,039) (19,263) (11,443)
IFRS 16 Lessee financial liabilities (30,896) (35,331) (33,957)
Less: deferred and contingent
consideration (5,865) (5,515) (5,569)
------------- ------------ -----------
Net (cash) / Bank Debt at the
end of the period (17,039) 12,737 1,557
------------- ------------ -----------
16. Investments in Joint Ventures and associates
30 June 31 December
2021 2020
GBP'000 GBP'000
-------- ------------
Investment in joint ventures and associates 268 11,406
-------- ------------
Investment in joint ventures
Opening balance (1 January) 11,406 10,305
Income / (loss) from joint ventures 934 1,314
Shareholder service charge not equity accounted (394) (213)
Investment in Pivotal 765 -
Dividend received from LMS (1,178) -
Disposal of LMS (8,249) -
Transfer of TM group to non current assets
held for sale (3,016) -
Closing balance 268 11,406
--------- --------
The Group holds a 32.34% (2020: 33.33%) interest in TM Group
(UK) limited (TM Group), a joint venture whose principal activity
is to provide searches. The principal place of business of TM Group
is the United Kingdom. On 8 July 2021, the Group announced the sale
of its holding in TM Group, details of which are included in Note
20. The processes of the transaction were ongoing at 30 June 2021,
and so the carrying value of the Groups investment in TM Group was
classified as held for sale, and recognised as such on the Group
balance sheet.
In May 2021, the Group sold its 50% (2020: 50%) interest in LMS,
a joint venture whose principal activity is to provide conveyancing
panel management services. The carrying value of LMS at the time of
disposal was GBP8,249,000. LSL received GBP12,000,000 as
consideration for its share of LMS.
Claims indemnity provision and contingency
Included in the sale agreement of LMS was a claims indemnity of
GBP2,000,000, for which the group has provided GBP571,000, which it
considers to be the most likely outcome. Further cases exist and
are considered possible, not probable, therefore no further
provision has been made for these cases in the interim financial
statements. Should these claims succeed the estimated further cost
would be GBP1,429,000.
In April 2021, the group formed Pivotal Growth Limited (Pivotal)
a joint venture whose principal activity is to become a national
mortgage broker. The Group acquired a 47.80% holding in Pivotal for
initial investment of GBP765,000.
Investment in associate
The Group had a 45.20% holding in Mortgage Gym at the end of
2020, a digital mortgage business. The carrying value at December
2020 was nil. In February 2021, LSL acquired the trade and assets
of mortgage gym from administrators, details of the acquisition can
be found in note 19.
17. Financial instruments - risk management
The financial risks the Group faces and the methods used to
manage these risks have not changed since 31 December 2020. Further
details of the risk management policies of the Group are disclosed
in Note 32 of the Group's Financial Statements for the year ended
31 December 2020.
The business is cash generative with a low level of maintenance
capital expenditure requirement. In addition, the Group's other
main priority is to generate cash to support its operations and to
fund any strategic acquisitions.
18. Fair values of financial assets and financial liabilities
There is no difference in the book amounts and fair values of
all the Group's financial instruments that are carried in these
interim condensed consolidated Group Financial Statements
Fair value hierarchy
As at 30 June 2021, the Group held the following financial
instruments measured at fair value. The Group uses the following
hierarchy for determining and disclosing the fair value of the
financial instruments by valuation technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
Unaudited - 30 June 2021 Total Level Level 2 Level 3
1
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Assets measured at fair value
Financial assets 7,417 - 729 6,688
-------- -------- -------- --------
Liabilities measured at fair value
Contingent consideration 5,835 - - 5,835
-------- -------- -------- --------
Unaudited - 30 June 2020 Total Level Level 2 Level 3
1
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Assets measured at fair value
Financial assets 9,324 - - 9,324
-------- -------- -------- --------
Liabilities measured at fair value
Contingent consideration 5,435 - - 5,435
-------- -------- -------- --------
Audited - 31 December 2020 Total Level Level 2 Level 3
1
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Assets measured at fair value
Financial assets 9,561 - - 9,561
-------- -------- -------- --------
Liabilities measured at fair value
Contingent consideration 5,447 - - 5,447
-------- -------- -------- --------
Of the investments totalling GBP7,417,000, GBP6,688,000 are
valued using Level 3 valuation techniques. The Directors reviewed
the fair value of the financial assets at 30 June 2021. The
underlying value of the investments will be driven by the
profitability of these businesses. If this was to drop by 10%, the
implied valuation is likely to also drop by around 10%,
approximately GBP0.7m.
The contingent consideration relates to amounts payable in the
future on acquisitions. The amounts payable are based on the
amounts agreed in the contracts and based on the future
profitability of each entity acquired. In valuing each provision,
estimates have been made as to when the options are likely to be
exercised and the future profitability of the entity at this date.
Further details of these provisions are shown in Note 13.
19. Acquisitions during the period
Direct Life and Pension Services Limited
On 22 January 2021, the Group acquired 60% of the issued share
capital of Direct Life and Quote Holdings Limited and its
subsidiary company, Direct Life and Pensions Services Limited.
Direct Life and Pension Services Limited is a financial
intermediary providing systems and services that enable consumer
brands and intermediaries to market, sell and transact protection
insurance. Direct Life and Pension Services Limited is authorised
by the Financial Conduct Authority (FCA).
The consideration for the initial investment was GBP2,379,000
with GBP1,800,000 paid on completion and a present value contingent
consideration on GBP579,000 in 2021. The contingent consideration
is due for repayment in January 2024.
The purchase price allocations for the acquisition are disclosed
below:
Fair value
GBP'000
-----------
Intangible assets 1,641
Property, plant and equipment 102
Investments 1
Trade and other receivables 511
Cash and cash equivalents 1,070
Current tax assets 207
Trade and other payables (749)
Provision for liabilities (438)
Deferred tax liabilities (410)
Total identifiable net assets acquired 1,935
Purchase consideration 2,379
Non Controlling interest 558
Goodwill 1,002
Purchase consideration discharged by: GBP'000
-----------
Cash 1,800
Present value contingent consideration (Note 13) 579
-----------
2,379
-----------
On acquisition of Direct Life and Quote Holdings Limited and
Direct Life and Pension Services Limited, intangible assets were
valued at GBP1,641,000. The intangible assets valued relate to
customer contracts and in-house developed software. On recognition
of the intangible assets, deferred tax liabilities of GBP410,000
were created. The goodwill represents expected synergies and
intangible assets that do not qualify for separate recognition.
The non controlling interest has been measured at fair value at
the date of acquisition.
From the date of acquisition, Direct Life and Pension Services
Limited has contributed GBP1,786,000 of revenue and GBP112,000 loss
to the continuing operations of the Group. If the acquisition had
taken place at the beginning of the year, revenue from continuing
operations would have been GBP1,805,000 and the loss from
operations would have been GBP116,000.
The Group has recognised costs of GBP30,000 relating to the
acquisition.
Mortgage Gym Limited
In February 2021, the Group acquired the trade and assets of
Mortgage Gym Limited from administrators. Mortgage Gym Limited
research, develop and deliver an online technology platform that
matches mortgage borrowers with mortgage lenders in a digital
marketplace. Mortgage Gym Limited is an appointed representative of
PRIMIS Mortgage Network, a trading name for First Complete Limited,
which is authorised and regulated by the Financial Conduct
Authority (FCA).
Prior to February 2021, Mortgage Gym Limited was an associate of
the Group, with the Group holding an interest of 34.69%.
The consideration paid for the trade and assets of Mortgage Gym
Limited, considered to be entirely attributable to the intangible
asset, was GBP2,384,000, which was settled by offsetting LSL as a
secured creditor. The fair value of the secured loan notes at the
date of acquisition was GBP2,240,000 with accrued interest of
GBP144,000.
From the date of acquisition, Mortgage Gym Limited has
contributed GBP333,000 of revenue and GBP603,000 loss before tax to
the continuing operations of the Group.
The Group has recognised costs of GBP150,000 relating to the
acquisition.
20. Events after the reporting period
On 8 July 2021, the Group sold its investment in TM Group (UK)
Limited, a provider of property searches and services, to Dye &
Durham (UK) Limited. The cash consideration for the disposal of the
Group's shares was GBP29,300,000. The Group's carrying value and
share of net assets of the TM Group investment as at 30 June 2021
was GBP3.0m.
INDEPENDENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the Interim Group
Income Statement, the Interim Group Statement of Comprehensive
Income, the Interim Group Balance Sheet, the Interim Group Cash
Flow Statement, the Interim Group Statement of Changes in Equity
and the relates Notes 1 to 20. We have read the other information
contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK and Ireland) "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
Group will be prepared in accordance with UK adopted IFRSs. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with UK adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statement in the half-yearly financial report. Our
conclusion, is based on procedures that are less extensive than
audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
Leeds
3 August 2021
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