TIDMLSL
RNS Number : 6594M
LSL Property Services
01 August 2017
For Immediate Release 1(st) August 2017
LSL Property Services plc ("LSL" or "The Group")
Interim Results For the six months ended 30(th) june 2017
LSL Property Services plc, a leading provider of residential
property services incorporating both estate agency and surveying
businesses, announces its interim results for the six months ended
30(th) June 2017.
2017 2016 change
---------------------------------------------- ------ ------ ---------
Group revenue - GBPm 151.5 151.4 -
Group Underlying Operating Profit(1) - GBPm 15.5 11.3 +37%
Group Underlying Operating Margin - % 10.2 7.5
---------------------------------------------- ------ ------ ---------
Group operating profit - GBPm 14.3 8.9 +61%
Profit before tax - GBPm 13.2 8.4 +57%
Exceptional gain - GBPm 1.1 -
Basic Earnings Per Share - pence 10.3 6.3 +63%
Adjusted Basic Earnings Per Share(2) - pence 11.5 8.6 +34%
Net Bank Debt(3) at 30(th) June - GBPm 31.7 61.7 -49%
Interim dividend - pence 4.0 4.0 -
1 Group Underlying Operating Profit is before exceptional costs,
contingent consideration, amortisation of intangible assets and
share-based payments (as defined in Note 5)
2 Refer to Note 6 for the calculation
3 Refer to Note 13 for the calculation
Strong first half Group financial performance
-- Strong performance with Group Underlying Operating Profit(1)
up 37% to GBP15.5m (2016: GBP11.3m)
o Operating profit in Estate Agency up 37% and Surveying up
16%
-- Group revenue in line with 2016 at GBP151.5m with resilient
performance in the context of the market conditions
-- The Estate Agency Division delivered a robust revenue
performance in line with the same period last year which benefited
from a very strong first quarter ahead of stamp duty changes
-- The Lettings businesses delivered positive income growth of
4% year on year (organic growth 3%)
-- Financial Services income growth of 16% delivered through
strong organic growth (12%) and the benefit of the acquisition of
Group First during the first quarter of 2016
-- Marsh & Parsons delivered a resilient performance despite
a challenging London market with total revenue down 4% whilst
Lettings revenue performed positively with growth of 8%
-- The Surveying Division delivered revenue growth of 2% with an
EBIT margin of 28.4% (2016: 24.9%)
-- Continued positive progress in addressing historic
Professional Indemnity (PI) claims with a GBP1.1m exceptional
provision release
-- Net Bank Debt of GBP31.7m (2016: GBP61.7m) with modest
gearing of 0.71x EBITDA (2016: 1.26)
-- Interim dividend of 4.0 pence (2016: 4.0 pence)
-- Strong operational cash flow and low level of gearing
-- LSL continues to explore a wide range of options to
capitalise on digital opportunities and during the second quarter
of 2017 completed the research and planning phase for a new ways of
working programme across our Estate Agency business
Commenting on today's announcement, Simon Embley, Chairman,
said:
"The Group has delivered a strong first half performance against
a challenging residential sales exchange market and as announced in
our pre-interim results trading update issued on 17(th) July 2017
these results are ahead of the Board's original expectations. I am
particularly pleased with the profit growth in both Estate Agency
and Surveying Divisions, as well as the positive Lettings income
and Financial Services income growth.
Whilst we expect Residential Sales volumes to remain suppressed
in the second half, trends in other parts of our business are
expected to be more resilient. Our Lettings business continues to
perform well, now representing 30% of total Estate Agency Division
income. Mortgage cost and availability remain positive for the UK
housing market with increasing distribution of products through
intermediary channels which will support our growing Financial
Services businesses which now represents 29% of total Estate Agency
Division income.
The Group has strong fundamentals with a robust balance sheet
and relatively low levels of gearing. The business is well
positioned to navigate the changing market conditions. I am
confident LSL will continue to deliver long-term value to our
shareholders."
For further information, please contact:
Ian Crabb, Group Chief Executive
Officer
Adam Castleton, Group Chief
Financial Officer
LSL Property Services plc 0207 382 0360
Richard Darby, Sophie Cowles
Buchanan 0207 466 5000
Notes on LSL:
LSL is a leading provider of residential property services to
its key customer groups. Services to consumers include: residential
sales, lettings, surveying, conveyancing and mortgage, pure
protection and general insurance brokerage services. Services to
mortgage lenders include: valuations and panel management services,
asset management and property management services. For further
information, please visit LSL's website: www.lslps.co.uk
Group Chief Executive's Review
Introduction
The Group has delivered a strong first half financial
performance with revenue of GBP151.5m which is in line with 2016
despite challenging market conditions and a strong first quarter
2016 which benefited from increased activity ahead of stamp duty
changes. Profit was significantly up in both Divisions.
The UK residential housing market continues to be challenging
with activity remaining subdued as consumer confidence continues to
be impacted by uncertainty. Total mortgage approvals for house
purchases were 2.8% lower in the first half of the year compared to
the same period in 2016(2) .
Financial Results
Group revenue was flat at GBP151.5m (2016: GBP151.4m). Group
Underlying Operating Profit(1) was up 37% to GBP15.5m (2016:
GBP11.3m) and Group Underlying Operating Profit Margin(1) was
improved at 10.2% (2016: 7.5%).
Group operating profit was up 61% to GBP14.3m (2016: GBP8.9m)
reflecting the increase in margin in both Divisions and including a
credit to the share based payment reserve as well as an exceptional
release of GBP1.1m in relation to the PI Costs provision.
During the first half of 2017 net finance costs were GBP1.2m. In
the first half of 2016 net finance costs of GBP0.5m included a one
off credit of accrued interest on loan note liabilities. The
effective tax rate for the period was 19.8% (2016: 23.1%), compared
to the current headline rate of corporation tax rate of 19.25%.
Group profit after tax was GBP10.6m (2016: GBP6.4m). Basic Earnings
Per Share were 10.3p (2016: 6.3p) and Adjusted Earnings Per Share
were 11.5p (2016: 8.6p).
Cash generated by operations was GBP10.5m (2016: GBP7.2m).
Operating cash flow included PI Costs settlements of GBP2.0m (2016:
GBP3.8m). Capital expenditure, including intangibles, was GBP1.8m
(2016: GBP3.6m), including one new Marsh & Parsons branch
opened during the period, in Brixton.
Net assets at 30(th) June 2017 were GBP134.5m (2016: GBP108.4m).
Net Bank Debt at 30(th) June 2017 was GBP31.7m compared to GBP61.7m
at 30(th) June 2016. Compared to 31(st) December 2016, Net Bank
Debt has increased by GBP11.4m driven by the normal seasonality of
the Estate Agency Division cash flows, continuing PI Costs claims
related payments, the payment of the deferred and contingent
consideration in relation to previous acquisitions as well as the
payment of dividends, taxes and bonuses. During the first half of
2017 the Group has been cautious in the deployment of capital and
there have been no lettings book acquisitions during the
period.
On 12(th) July 2017 the Group completed the sale of its
investment in the Guild of Professional Estate Agents (GPEA) with
consideration made up of cash (GBP3m) and shares in eProp Services
plc which is disclosed in this Interim Statement as a post balance
sheet event.
The Board remains confident in the underlying fundamentals and
prospects of the Group's businesses and has declared an interim
dividend payment amounting to 4.0 pence per share (2016: 4.0
pence). The ex-dividend date for the interim dividend is 10(th)
August 2017, with a record date of 15(th) August 2017 and a payment
date of 8(th) September 2017. Shareholders have the opportunity to
elect to reinvest their cash dividend and purchase existing shares
in LSL through a dividend reinvestment plan.
Estate Agency Division
The Estate Agency Division revenue was flat at GBP118.4m (2016:
GBP118.9m) reflecting growth in both Lettings income and Financial
Services income offsetting a fall in residential sales exchange
income. The Estate Agency Division Underlying Operating Profit(1)
increased by 37% to GBP9.4m (2016: GBP6.9m).
Year on year profit comparatives benefited from a Your Move
media campaign in the first half of 2016 which was not repeated in
the first half of 2017 resulting in lower marketing expenses for
the period. There was also a gain on the sale of a commercial
property in Marsh & Parsons in the first half of 2017.
Residential Sales income decreased by 13% to GBP37.0m (2016:
GBP42.5m) as a result of lower exchange volumes (-10%) in the
context of lower market activity and the impact of branch closures
in the second half of 2016. The impact of competition on
constrained stock levels impacted Residential Sales exchange fees
which fell by 4%.
The Group's Lettings income continued to grow and was 4% higher
than the same period in 2016 at GBP35.7m (2016: GBP34.3m after
adjusting for a reclassification between income categories in the
first half of 2016), with organic growth of 3%. The lettings books
acquired in 2016 are performing in line with expectations. No
lettings books were acquired during the period.
Marsh & Parsons total revenues were down 4% to GBP16.4m
(2016: GBP17.1m). Marsh & Parsons Underlying Operating
Profit(1) decreased by 23% to GBP1.7m (2016: GBP2.2m) with
operating margins of 10.4% (2016: 12.9%). Residential Sales were
down 16% whilst Lettings performed positively again, up 8% on an
underlying basis. One new Marsh & Parsons branch opened during
the period, in Brixton, which is trading in line with expectations.
Marsh & Parsons is planning to open a new branch in Islington
in September 2017.
Financial Services revenue increased by 16% to GBP34.1m (2016:
GBP29.5m) with organic growth of 12% driven by the continued
investment in increasing the level of Financial Services personnel,
as well as growth in the intermediary networks. This strong growth
in the value of mortgage completions represents an increase in
LSL's market share to 7.8% in 2017 (2016: 7.1%). LSL continues to
operate as the second largest network (measured by combined numbers
of advisors across both networks)(4) .
The Financial Services business continues to display good
organic growth across all products which include mortgage and
re-mortgage products, pure protection products and general
insurance products. Group First, which was acquired in February
2016, continues to perform in line with expectations and has
contributed to the strong performance in Financial Services in the
first half of 2017.
Asset Management outperformed the market(3) for repossessions
management with a fall in revenue of 6% in the period to GBP3.3m
(2016: GBP3.5m) against a repossessions market fall of 10%(3) .
LSL notes the contents of the Queen's speech in June 2017 which
confirmed the Government's intention to bring forward legislation
to ban letting agent fees to tenants. LSL continues to monitor the
proposed changes and to consider its commercial response to the
legislative changes as further details emerge.
Surveying Division
The Surveying Division performed strongly in the first half with
revenue up 2% and Underlying Operating Profit(1) up 16%. Revenue
per job was up 2% to GBP207 (2016: GBP203) reflecting a favourable
mix across lenders and the types of jobs performed, with jobs
performed remaining at the same level as 2016.
The technology roll-out has continued during the first half of
2017 with additional functionality releases.
Surveyor headcount continues to be a focus for management and
investment in graduates continues to ensure business requirements
are met with 320 qualified surveyors employed at the end of the
period (2016: 335). Profit margin increased to 28.4% (2016: 24.9%)
with a continued focus on the cost base and operational
efficiency.
At 30(th) June 2017, the total provision for PI Costs was
GBP17.9m (2016: GBP26.2m). In 2017 the Group continued to make
positive progress in addressing historic claims and there has been
an exceptional release of GBP1.1m.
Strategy
LSL remains committed to delivering on the stated strategy which
is as follows:
-- LSL's continuing Estate Agency strategy is to increase
operating profit per branch; expand the number of Marsh &
Parsons branches; grow recurring and where market conditions
permit, counter-cyclical income streams and evaluate selective
acquisitions.
-- LSL's continuing Surveying strategy is to optimise contract
performance and revenue generation from B2B customers, achieve
further improvement in efficiency and capacity utilisation, use
technology to target further improvements in customer satisfaction
and performance and continue the graduate training programme.
In total the Group arranged mortgage lending of GBP9.3bn during
the first half of 2017 (2016: GBP8.3bn). Financial Services remains
a clear focus for the Group as LSL sees further growth
opportunities in this space to enhance its position as a leading
mortgage broker.
Following the extensive independent research carried out in the
second half of 2016 to assess customer needs for the future, LSL
continues to explore a wide range of options to capitalise on
digital opportunities created by the continued growth in consumer
acceptance of online and hybrid estate agency business models. LSL
has made positive progress in the first half 2017 and a further
update will be provided later in 2017.
As part of this assessment process, during the second quarter
LSL completed the research and planning phase for a new ways of
working programme across our Estate Agency business to respond to
the changing landscape and customer demands. This programme will
bring together a number of initiatives including piloting new
technology to improve customer experience, streamlining processes
(e.g. customer management) and deliver cost efficiencies.
The findings to date of the programme confirm LSL's view that
there is an important role for the "traditional" branch led model
in the future, but it will evolve over time including the
deployment of technology.
Traditional estate agents currently represent the vast majority
of the residential sales market. LSL expects this to continue and
anticipates that traditional estate agents will continue to
represent the substantial majority of the sales market through
2025. Whilst LSL expects to evolve its operating model over time to
capitalise on this trend, in the foreseeable future LSL does not
expect any rationalisation from the current number of its Estate
Agency brands (12) nor any material change to the size of its
branch estate.
LSL will also focus on maintaining a robust balance sheet and
will continue to use a highly selective and disciplined approach to
all investment activity.
Outlook
2017 is expected to see a reduced volume of house purchase
transactions compared to the prior year, with modest house price
inflation outside prime Central London. However, mortgage costs and
availability remain positive and the medium to longer term
fundamentals of the UK housing market remain robust.
Trading in the Estate Agency and Surveying Divisions continues
to perform well. To date LSL has not seen any material change in
market conditions following the triggering of Article 50 on 29(th)
March 2017 and the outcome of UK General Election on 8(th) June
2017. LSL will continue to monitor market conditions carefully
throughout the year and adapt the businesses to any material market
changes.
The Board are positive regarding the outlook for the business,
committed to driving profitable organic growth, continuing to
evaluate selective acquisitions and progress LSL's digital plans.
As reported in the pre-interim results trading update issued on
17(th) July 2017, the Board expects a more equal weighting between
the first and second half financial results compared to prior
years.
The Group has a balanced business portfolio including Asset
Management, and the Letting and Financial Services businesses are
both proving more resilient to residential housing market
fluctuations. LSL will continue to benefit from the increasing
proportion of the business represented by these revenue
streams.
In Surveying, LSL will continue to use technology to drive
further customer enhancements, quality improvements and improvement
in efficiency and capacity utilisation. LSL will also continue to
optimise contract performance and revenue generation from B2B
customers.
The Group has strong fundamentals, with a robust balance sheet.
The business is well positioned to adapt to the evolving market as
it has in the past. The Board remains confident LSL will continue
to deliver long-term value to shareholders.
Ian Crabb
Group Chief Executive
1(st) August 2017
(1) Group Underlying Operating Profit is before exceptional
costs, contingent consideration, amortisation of intangible assets
and share-based payments (as defined in Note 5)
(2) Source: Bank of England for "House Purchase Approvals"
January-June 2016/2017 and HMRC for total transactions
(3) First half market performance estimated. Per first quarter
CML market statistics there was a 9.5% decline in the repossession
market compared to the same period in 2016
(4) Source: CML "Gross mortgage lending estimate June 2017"
Principal risks and uncertainties
The key risks and uncertainties relating to the Group's
operations remain consistent with those disclosed in the Group's
Annual Report and Accounts 2016 on pages 22 to 25. The Annual
Report and Accounts 2016 can be accessed on the Group's website:
www.lslps.co.uk. Having reconsidered these principal risks and
uncertainties which are summarised below, the Board continues to
consider them appropriate.
-- UK housing market
-- New UK housing market entrants
-- Acquisitions and growth initiatives
-- Professional services
-- Client contracts
-- Information technology infrastructure
-- Information security
-- Regulatory and compliance
-- Employees
The recent Group Risk Appetite Assessment exercise includes an
evaluation of developing areas of key risks and the effectiveness
of related business response plans. Recent notable examples include
the capture of political and economic developments, continuing
uncertainties caused by the outcome of Brexit negotiations, new
regulatory changes (such as the implementation of the 4(th)
Anti-Money Laundering Directive, the proposed ban in relation to
tenants fees announced in the Queen's Speech and the implementation
of General Data Protection Regulation in May 2018) and the impact
of emerging alternative online models for delivery of property
related services. The Board has concluded that such aspects are
included in the principal risk and uncertainties noted above.
Therefore the principal risks and uncertainties of the Group remain
the same as those included within the Annual Report and Accounts
2016.
Forward-Looking Statements
This statement may contain forward-looking statements with
respect to certain plans, goals and expectations relating to the
future financial condition, business performance and results of
LSL. By their nature, all forward-looking statements involve risk
and uncertainty because they relate to future events and
circumstances that are beyond the control of LSL, and they may
cause the actual results or performance of LSL to be materially
different from the results or performance implied by such
statements. Any forward-looking statements will be by reference to
the date of this statement only and must not be regarded as
guarantees of future performance. Further, nothing in this
statement should be construed as a profit forecast. Some of the
factors which may affect LSL's actual future financial conditions,
business performance and results are contained within the Group's
Annual Report and Accounts 2016 on pages 22 to 25 and in this
Statement, together with information on the management of the
principal risks and uncertainties faced by LSL.
Definitions
Definitions for words and expressions referred to and included
in this statement which are not expressly defined within, can be
found in LSL's Annual Report and Accounts 2016 (a copy of which is
available on LSL's website at: www.lslps.co.uk). All references to
'note(s)' in this statement, are unless expressly stated otherwise,
references to the 'Notes to the Interim Condensed Group Financial
Statements' included in this statement.
Responsibility statement of the Directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- The interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board
Ian Crabb
Director, Group Chief Executive Officer
Interim Group Income Statement
for the six months ended 30(th) June 2017
Unaudited Audited
Six Months Ended Year Ended
30(th) 30(th) 31(st) December
June June 2016
2017 2016
Note GBP'000 GBP'000 GBP'000
--------- --------- ---------------
Revenue 3,4 151,520 151,367 307,750
Operating expenses:
Employee and subcontractor
costs (91,778) (92,631) (182,687)
Establishment costs (10,174) (10,257) (19,888)
Depreciation on property,
plant and equipment (2,629) (2,565) (5,475)
Other (33,000) (35,776) (67,282)
--------- --------- ---------------
(137,581) (141,229) (275,332)
Other operating income 3 278 639 1,165
Gain/(Loss) on sale of
property, plant and equipment 668 3 (9)
Income from joint ventures 654 535 1,049
Group Underlying Operating
Profit 4 15,539 11,315 34,623
Share-based payments 145 (746) (1,263)
Amortisation of intangible
assets (2,227) (2,065) (3,914)
Contingent consideration 7 (230) 365 3,785
Exceptional gains 7 1,100 - 34,531
Exceptional costs 7 - - (2,341)
Group operating profit 4 14,327 8,869 65,421
Finance costs (1,176) (502) (1,896)
Net finance costs (1,176) (502) (1,896)
Profit before tax 4 13,151 8,367 63,525
Taxation (charge)
- related to exceptional
items and contingent consideration (212) (33) (6,432)
- other (2,386) (1,898) (6,601))
--------- --------- ---------------
9 (2,598) (1,931) (13,033)
Profit for the period/year 10,553 6,436 50,492
--------- --------- ---------------
Attributable to:
- Owners of the parent 10,555 6,439 50,493
- Non-controlling interest (2) (3) (1)
Earnings per share expressed
in pence per share:
Basic 6 10.3 6.3 49.2
Diluted 6 10.2 6.2 49.0
Interim Group Statement of Comprehensive Income
for the six months ended 30(th) June 2017
Unaudited Audited
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2017 2016 2016
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Profit for the period 10,553 6,436 50,492
Items to be reclassified
to profit and loss in subsequent
periods:
Reclassification adjustments
for disposal of financial
assets - - (33,022)
Income tax effect - - 5,914
Revaluation of financial
assets 2,146 2,998 11,816
Income tax effect (365) (469) (2,015)
--------- -------- -----------
Net other comprehensive
income to be reclassified
to profit and loss in subsequent
periods: 1,781 2,529 (17,307)
--------- -------- -----------
Total other comprehensive
income, net of tax 1,781 2,529 (17,307)
--------- -------- -----------
Total comprehensive income,
net of tax 12,334 8,965 33,185
--------- -------- -----------
Attributable to
- Owners of the parent 12,336 8,968 33,186
- Non-controlling interest (2) (3) (1)
--------- -------- -----------
Interim Group Balance Sheet
as at 30(th) June 2017
Unaudited Audited
Six Months Year
Ended Ended
30(th) 30(th) 31(st)
June June December
2017 2016 2016
Note GBP'000 GBP'000 GBP'000
---------- ---------- ----------
Non-current assets
Goodwill 151,901 152,009 151,901
Other intangible assets 31,185 33,969 33,249
Property, plant and equipment 17,052 20,204 18,842
Financial assets 10 7,473 31,869 4,603
Investments in joint ventures 8,627 8,246 8,762
----------
Total non-current assets 216,238 246,297 217,357
----------
Current assets
Trade and other receivables 37,964 37,452 32,263
Cash and cash equivalents - - -
---------- ---------- ----------
Total current assets 37,964 37,452 32,263
---------- ---------- ----------
Total assets 254,202 283,749 249,620
---------- ---------- ----------
Current liabilities
Financial liabilities 11 (8,501) (20,409) (10,739)
Trade and other payables (52,280) (50,507) (50,900)
Current tax liabilities (2,923) (1,398) (7,581)
Provisions for liabilities (4,220) (10,887) (5,742)
---------- ---------- ----------
Total current liabilities (67,924) (83,201) (74,962)
---------- ---------- ----------
Non-current liabilities
Financial liabilities 11 (33,762) (68,219) (26,469)
Deferred tax liability (3,887) (8,623) (3,801)
Provisions for liabilities 12 (14,141) (15,331) (15,622)
---------- ---------- ----------
Total non-current liabilities (51,790) (92,173) (45,892)
---------- ---------- ----------
Total Liabilities (119,714) (175,374) (120,854)
----------
Net assets 134,488 108,375 128,766
---------- ---------- ----------
Equity
Share capital 208 208 208
Share premium account 5,629 5,629 5,629
Share-based payment reserve 4,124 3,773 4,303
Treasury shares (5,331) (5,462) (5,368)
Fair value reserve 5,352 23,407 3,571
Retained earnings 124,324 80,638 120,239
---------- ---------- ----------
Equity attributable to
owners of parent 134,306 108,193 128,582
Non-controlling interests 182 182 184
Total equity 134,488 108,375 128,766
---------- ---------- ----------
Interim Group Cash Flow Statement
for the six months ended 30(th) June 2017
Unaudited Unaudited Audited
30(th) June 30(th) June 31(st) December
2017 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash generated from
operating activities
Profit before tax 13,151 8,367 63,525
Adjustments to reconcile
profit before tax
to net cash from operating
activities
Exceptional operating
income and costs and
contingent consideration
(non-cash) (870) (365) (35,975)
Amortisation of intangible
assets 2,227 2,065 3,914
Finance costs 1,176 502 1,896
Share-based payments (145) 746 1,263
------------- -------- ---------
2,388 2,948 (28,902)
-------- -------- ---------
Group underlying operating
profit 15,539 11,315 34,623
Depreciation 2,629 2,565 5,475
Dividend income - (293) (492)
Share of results of
joint ventures (654) (535) (1,049)
(Gain)/Loss on sale
of property, plant
and equipment (668) (3) 9
------------- -------- ---------
1,307 1,734 3,943
(Increase)/decrease
in trade and other
receivables (5,637) (1,178) 3,265
Increase/(decrease)
in trade and other
payables 1,280 (1,107) (614)
(Decrease) in provisions (2,003) (3,607) (8,561)
------------- -------- ---------
(6,360) (5,892) (5,910)
-------- -------- ---------
Cash generated from
operations 10,486 7,157 32,656
Interest paid (831) (979) (1,948)
Tax paid (7,504) (3,386) (8,861)
------------- --------
(8,335) (4,365) (10,809)
-------- -------- ---------
Net cash generated
from operating activities 2,151 2,792 21,847
Unaudited Unaudited Audited
30(th) June 30(th) June 31(st) December
2017 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from investing
activities
Cash acquired on purchase
of subsidiary undertaking - 1,542 1,593
Acquisition of subsidiaries
and other businesses - (8,525) (8,451)
Payment of contingent
consideration (2,088) (2,352) (3,537)
Investment in joint
venture - - (2)
Cash received on sale
of financial assets - - 35,991
Dividends received
from financial assets - 579 778
Purchase of property,
plant and
equipment and intangible
assets (1,765) (3,580) (6,064)
Proceeds from sale
of property,
plant and equipment 1,500 35 69
-------- -------- ---------
Net cash (used in)/
from investing activities (2,353) (12,301) 20,377
Cash flows from financing
activities
Repayment of loans - - (25,243)
Drawdown of loans 11,420 16,190 -
Repayment of loan
notes - (1,720) (7,294)
Payment of deferred
consideration (4,752) (1,968) (2,422)
Proceeds from exercise
of share options - 216 48
Dividends paid (6,466) (8,812) (12,916)
-------- -------- ---------
Net cash from/(used
in) financing activities 202 3,906 (47,827)
Net decrease in cash
and cash equivalents - (5,603) (5,603)
Cash and cash equivalents
at the beginning of
the year - 5,603 5,603
-------- --------- ---------
Cash and cash equivalents
at the end of the
year - - -
-------- --------- ---------
Interim Group Statement of changes in equity
for the six months ended 30(th) June 2017
Unaudited six months ended 30(th) June 2017
Share-
Share based Fair
Share premium payment Treasury value Retained Total Non-controlling
capital account reserve shares Reserve earnings equity interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st)
January 2017 208 5,629 4,303 (5,368) 3,571 120,239 128,582 184 128,766
Revaluation of
financial
assets (net
of tax) - - - - 1,781 - 1,781 - 1,781
Other
comprehensive
income for
the period - - - - 1,781 - 1,781 - 1,781
Profit for the
period - - - - - 10,555 10,555 (2) 10,553
Total
comprehensive
income for
the period - - - - 1,781 10,555 12,336 (2) 12,334
Exercise of
options - - (34) 37 - (4) (1) - (1)
Share-based
payments - - (145) - - - (145) - (145)
Dividend
payment - - - - - (6,466) (6,466) (6,466)
At 30(th) June
2017 208 5,629 4,124 (5,331) 5,352 124,324 134,306 182 134,488
--------- --------- -------- ---------- --------- ---------- -------- ----------------- --------
During the six month period to 30(th) June 2017 a total of
10,689 share options were exercised relating to LSL's various share
option schemes resulting in the shares being sold by the Trust. LSL
received nil on exercise of these options.
Unaudited six months ended 30(th) June 2016
Share-
Share based Fair
Share premium payment Treasury value Retained Total Non-controlling
capital account reserve shares Reserve earnings equity interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st)
January 2016 208 5,629 3,564 (5,988) 20,878 82,880 107,171 185 107,356
Revaluation of
financial
assets (net
of tax) - - - - 2,529 - 2,529 - 2,529
Other
comprehensive
income for
the period - - - - 2,529 - 2,529 - 2,529
Profit for the
period - - - - - 6,439 6,439 (3) 6,436
Total
comprehensive
income for
the period - - - - 2,529 6,439 8,968 (3) 8,965
Exercise of
options - - (441) 526 - 131 216 - 216
Share-based
payments - - 650 - - - 650 - 650
Dividend
payment - - - - - (8,812) (8,812) - (8,812)
At 30(th) June
2016 208 5,629 3,773 (5,462) 23,407 80,638 108,193 182 108,375
--------- --------- -------- ---------- --------- ---------- -------- ----------------- --------
During the six month period to 30(th) June 2016 a total of
150,082 share options were exercised relating to LSL's various
share option schemes resulting in the shares being sold by the
Trust. LSL received GBP216,000 on exercise of these options.
Audited year ended 31(st) December 2016
Share-
Share based Fair
Share premium payment Treasury value Retained Total Non-controlling
capital account reserve Shares Reserve earnings equity interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st)
January 2016 208 5,629 3,564 (5,988) 20,878 82,880 107,171 185 107,356
Disposal of
financial
assets (net
of tax) - - - - (27,108) - (27,108) - (27,108)
Revaluation of
financial
assets (net
of tax) - - - - 9,801 - 9,801 - 9,801
Other
comprehensive
income for
the year - - - - (17,307) - (17,307) - (17,307)
Profit for the
year - - - - - 50,493 50,493 (1) 50,492
Total
comprehensive
income for
the year - - - - (17,307) 50,493 33,186 (1) 33,185
Exercise of
options - - (524) 620 - (218) (122) - (122)
Share-based
payments - - 1,263 - - - 1,263 - 1,263
Dividend
payment - - - - - (12,916) (12,916) - (12,916)
At 31(st)
December 2016 208 5,629 4,303 (5,368) 3,571 120,239 128,582 184 128,766
--------- --------- -------- ---------- --------- ---------- --------- ----------------- ---------
During the year ended 31(st) December 2016, the Trust acquired
nil shares. During the period 176,955 share options were exercised
relating to LSL's various share option schemes resulting in the
Shares being sold by the Trust. LSL received GBP49,000 on exercise
of these options.
Notes to the Interim Condensed Group Financial Statements
The Interim Condensed Group Financial Statements for the period
ended 30(th) June 2017 were approved by the LSL Board on 31(st)
July 2017. The interim financial statements are not the statutory
accounts. The financial information for the year ended 31(st)
December 2016 is extracted from the audited statutory accounts for
the year ended 31(st) December 2016, which have been filed with the
Registrar of Companies. The auditor's report was unqualified and
did not contain an emphasis of matter paragraph, and did not make a
statement under section 498 (2) or (3) of the Companies Act
2006.
1. Basis of preparation
The interim condensed consolidated group financial statements
for the period ended 30(th) June 2017 have been prepared in
accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority and IAS 34 Interim Financial Reporting
(as adopted by the EU). The interim condensed consolidated group
financial statements have been prepared on a going concern
basis.
The interim condensed consolidated group financial statements do
not include all the information and disclosures required in the
annual financial statements, and should be read in conjunction with
the Group's annual financial statements as at 31(st) December 2016
which are included in LSL's Annual Report and Accounts 2016.
Significant accounting policies
The accounting policies adopted in the preparation of the
interim condensed consolidated group financial statements are
consistent with those followed in the preparation of the Group's
annual financial statements for the year ended 31(st) December
2016.
Management continue to evaluate the new standards that that will
have an effective date of 1(st) January 2018, IFRS 2, IFRS 9 and
IFRS 15. A project is being undertaken in relation to IFRS 15 which
will ensure that all revenue contracts have been reviewed, ensure
that any changes in the way revenue is recognised have been
identified and the impact of this is fully evaluated and
quantified. The impact of IFRS 2, IFRS 9 and IFRS 15 will be
quantified by the year end and further information disclosed within
the annual accounts. IFRS 16 will become effective from 1(st)
January 2019 and work has commenced on its implementation.
Judgements and estimates
The preparation of financial information in conformity with IFRS
as adopted by European Union requires management to make
judgements, estimates and assumptions that affect the application
of policies and reporting amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making the judgements about carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next six months are
largely the same as those as at 31(st) December 2016. These
assumptions are discussed in detail in the Group's Annual Report
and Accounts 2016. The assumptions discussed are as follows:
Judgements
Areas of judgment that have the most significant effect on the
amounts recognised in the consolidated financial statements
are:
-- Revenue Recognition
-- Exceptional Items
-- Intangible assets
-- Deferred tax
1. Basis of preparation (continued)
Significant accounting policies (continued)
Estimates
The key assumptions affected by future uncertainty that have a
significant risk of causing material adjustment to the carrying
value of assets and liabilities within the next financial year
are:
-- Lapse provision
-- Assessment of the useful life of an intangible asset
-- Valuation of financial assets
-- Professional Indemnity (PI) claims
-- Valuations in acquisitions
-- Impairment of intangible assets
-- Contingent consideration
-- Income tax
.
New standards and interpretations
There are no accounting standards or interpretations that have
become effective in the current reporting period which have had a
material effect on the net assets, results and disclosures of the
Group. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
Going concern
The Group meets its day to day working capital requirements
through a revolving credit facility. The Group currently has a
GBP100m credit facility which was extended in May 2016 and will now
expire in May 2020. As shown in Note 13, the Group had available
GBP68.3m of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met. The Group's forecasts
and projections, taking account of reasonably possible changes in
trading performance, show that the Group is expected to operate
within the terms of its current facilities and that therefore it is
appropriate to use the going concern basis of preparation for this
financial information.
2. Seasonality of operations
Due to the seasonal nature of the residential housing market,
turnover and operating profits are normally higher in the second
half of the year. However, as reported in the pre-interim results
trading update issued on 17(th) July 2017, the Board expects a more
equal weighting between the first and second half financial results
compared to prior years.
3. Revenue
Six months ended Year Ended
30(th) 30(th) 31(st)
June June December
2017 2016 2016
GBP'000 GBP'000 GBP'000
Revenue from services 151,520 151,367 307,750
--------- --------- ----------
Operating revenue 151,520 151,367 307,750
--------- --------- ----------
Rental income 278 346 673
Dividend income - 293 492
Other operating income 278 639 1,165
--------- --------- ----------
Total revenue 151,798 152,006 308,915
--------- --------- ----------
4. Segment analysis of revenue and operating profit
For management purposes, the Group is organised into business
units based on their products and services and has two reportable
operating segments as follows:
-- The Estate Agency and Related Services segment provides
services related to the sale and letting of residential properties.
It operates a network of high street branches. As part of this
process, the Estate Agency Division also provides marketing and
arranges conveyancing services. In addition, it provides
repossession asset management services to a range of lenders. It
also arranges mortgages for a number of lenders and arranges pure
protection and general insurance policies for a panel of insurance
companies via the estate agency branches, Pink Homes Loans, First
Complete, Embrace Mortgage Services, First2Protect, Mortgage First,
Insurance Brokers First and Linear Financial Services. The
Financial Services revenue included within the Estate Agency
Division includes two mortgage and insurance distribution networks
providing products and services for sale via financial
intermediaries. A significant proportion of the results of the
Financial Services are inextricably linked to the Estate Agency
business. They have therefore been aggregated with those of Estate
Agency and Related Service segment.
-- The Surveying and Valuation Services segment provides a
valuations and professional survey service of residential
properties to various lenders and individual customers.
Each segment has various products and services and the revenue
from these products and services are disclosed in the LSL's Annual
Report and Accounts 2016 within the Business Review section of the
Strategic Report.
The Management Team monitors the operating results of its
business units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance
is evaluated based on operating profit or loss which in certain
respects, as explained in the table below, is measured differently
from operating profit or loss in the Group Financial Statements.
Head office costs, Group financing (including finance costs and
finance incomes) and income taxes are managed on a Group basis and
are not allocated to operating segments.
4. Segment analysis of revenue and operating profit (continued)
Operating segments
The following tables presents revenue and profit information
regarding the Group's operating segments for the six months ended
30(th) June 2017, for the six months ended 30(th) June 2016 and for
the year ended 31(st) December 2016.
Six months ended 30(th) June 2017
Estate Surveying
agency and valuation
and related services
services GBP'000 Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000
------------- -------------- ------------- ---------
Segmental revenue 118,424 33,096 - 151,520
------------- -------------- ------------- ---------
Segmental result:
- before exceptional
costs, contingent
consideration, amortisation
and
share-based payments 9,428 9,390 (3,279) 15,539
- after exceptional
costs, contingent 6,921 10,342 (2,936) 14,327
consideration, amortisation
and
share-based payments
------------- -------------- ------------- ---------
Finance costs (1,176)
Profit before tax 13,151
Taxation (2,598)
Profit for the period 10,553
---------
In the period ended 30(th) June 2017, there were no single
customers that accounted for 10% or more of the Group's total
revenue.
Balance sheet information
Segment assets - intangible 170,528 12,558 - 183,086
Segment assets - other 61,392 7,896 1,828 71,116
-------- -------- -------- ---------
Total Segment assets 231,920 20,454 1,828 254,202
Total Segment liabilities (48,149) (29,729) (41,836) (119,714)
-------- -------- -------- ---------
Net assets/(liabilities) 183,771 (9,275) (40,008) 134,488
-------- -------- -------- ---------
All of the joint venture interests of the Group are recorded in
the Estate Agency and Related Services segment. Unallocated net
liabilities comprise plant and equipment (GBP8,000), other assets
(GBP1,820,000), accruals (GBP1,350,000), financial liabilities
(GBP2,000,000), deferred and current tax liabilities
(GBP6,810,000), overdraft (GBP6,176,000) and revolving credit
facility overdraft (GBP25,500,000).
4. Segment analysis of revenue and operating profit (continued)
Operating segments
Six months ended 30(th) June 2016
Estate Surveying
agency and valuation
and related services
services GBP'000 Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000
------------- -------------- ------------- ---------
Segmental revenue 118,894 32,473 - 151,367
------------- -------------- ------------- ---------
Segmental result:
- before exceptional
costs, contingent
consideration, amortisation
and
share-based payments 6,882 8,078 (3,645) 11,315
- after exceptional
costs, contingent 4,714 7,749 (3,594) 8,869
consideration, amortisation
and
share-based payments
------------- -------------- ------------- ---------
Finance income -
Finance costs (502)
Profit before tax 8,367
Taxation (1,931)
Profit for the period 6,436
---------
In the period ended 30(th) June 2016, there were no single
customers that accounted for 10% or more of the Group's total
revenue.
Balance sheet information
Segment assets - intangible 174,084 11,894 - 185,978
Segment assets - other 87,612 9,131 1,028 97,771
-------- -------- -------- ---------
Total Segment assets 261,696 21,025 1,028 283,749
Total Segment liabilities (55,785) (38,403) (81,186) (175,374)
-------- -------- -------- ---------
Net assets/(liabilities) 205,911 (17,378) (80,158) 108,375
-------- -------- -------- ---------
All of the joint venture interests of the Group are recorded in
the Estate Agency and Related Services segment. Unallocated net
liabilities comprise plant and equipment (GBP9,000), other assets
(GBP1,020,000), accruals (GBP923,000), financial liabilities
(GBP8,553,000), deferred and current tax liabilities
(GBP10,021,000), overdraft (GBP6,690,000) and revolving credit
facility overdraft (GBP55,000,000).
4. Segment analysis of revenue and operating profit (continued)
Operating segments
Year ended 31(st) December 2016
Estate Surveying
agency and valuation
and related services
services GBP'000 Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000
------------- -------------- ------------- ---------
Segmental revenue 243,036 64,714 - 307,750
------------- -------------- ------------- ---------
Segmental result:
- before exceptional
costs, contingent
consideration, amortisation
and
share-based payments 24,500 17,508 (7,385) 34,623
- after exceptional
costs, contingent
consideration, amortisation
and
share-based payments 22,344 18,030 25,047 65,421
------------- -------------- ------------- ---------
Finance income -
Finance costs (1,896)
Profit before tax 63,525
Taxation (13,033)
Profit for the year 50,492
---------
In the period ended 31(st) December 2016, there were no single
customers that accounted for 10% or more of the Group's total
revenue.
Estate Surveying
agency and valuation
and services
related GBP'000 Unallocated Total
activities GBP'000 GBP'000
GBP'000
------------------ -------------- ------------- ---------
Balance sheet information
Segment assets - intangible 172,736 12,414 - 185,150
Segment assets - other 56,574 6,873 1,023 64,470
------------------ -------------- ------------- ---------
Total Segment assets 229,310 19,287 1,023 249,620
Total Segment liabilities (53,997) (32,780) (34,077) (120,854)
------------------ -------------- ------------- ---------
Net assets/(liabilities) 175,313 (13,493) (33,054) 128,766
------------------ -------------- ------------- ---------
Unallocated net liabilities comprise plant and equipment
(GBP8,000), other assets (GBP1,015,000), accruals (GBP436,000),
financial liabilities (GBP5,759,000), deferred and current tax
liabilities (GBP11,382,000), revolving credit facility
(GBP16,500,000).
5. Adjusted performance measures
In addition to the various performance measures defined under
IFRS, the Group reports a number of alternative performance
measures that are designed to assist with the understanding of the
underlying performance of the Group. The Group seeks to present a
measure of underlying performance which is not impacted by the
inconsistency in profile of exceptional gains and exceptional
costs, contingent consideration, amortisation of intangible assets
and share-based payments. Share based payments are excluded from
the underlying performance due to the fluctuations that can impact
the charge, such as lapses and the level of annual grants. The
three adjusted measures reported by the Group are:
-- Group Underlying Operating Profit
-- Adjusted Basic EPS
-- Adjusted diluted EPS.
The Directors consider that these adjusted measures shown below
give a better and more consistent indication of the Group's
underlying performance. These measures form part of management's
internal financial review and are contained within the monthly
management information reports reviewed by the Board.
The calculations of adjusted basic and adjusted diluted EPS are
given in Note 6 and a reconciliation of Group Underlying Operating
Profit is shown below:
30(th) 30(th) 31st
June June December
2017 2016 2016
Note GBP'000 GBP'000 GBP'000
-------- -------- ----------
Group operating profit 4 14,327 8,869 65,421
Share-based payments (145) 746 1,263
Amortisation of intangible
assets 2,227 2,065 3,914
Exceptional gains 7 (1,100) - (34,531)
Exceptional costs 7 - - 2,341
Contingent consideration 7 230 (365) (3,785)
-------- -------- ----------
Group Underlying Operating
Profit 15,539 11,315 34,623
-------- -------- ----------
6. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the
period attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
period.
Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
Six months ended 30(th) June
Weighted 2017 Weighted 2016
Profit average Per Profit average Per
after number share after number share
tax of shares amount tax of shares amount
GBP'000 Pence GBP'000 Pence
Basic EPS 10,555 102,636,868 10.3 6,439 102,658,362 6.3
Effect of dilutive
share options - 741,376 - - 469,387 -
Diluted EPS 10,555 103,378,244 10.2 6,439 103,127,749 6.2
---------- ------------ -------- ---------- ------------ --------
6. Earnings per share (EPS) (continued)
Year ended 31(st) 2016
December 2016 Profit Weighted Per
after average share
tax number amount
GBP'000 of shares Pence
--------- ----------- -------
Basic EPS 50,493 102,575,484 49.2
Effect of dilutive
share options - 519,565 -
Diluted EPS 50,493 103,095,049 49.0
--------- ----------- -------
Adjusted basic and diluted EPS
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
Year
Six months ended Ended
30(th) 31(st)
30(th) June June December
2017 2016 2016
GBP'000 GBP'000 GBP'000
Group operating profit before
contingent consideration,
exceptional items, share-based
payments and amortisation 15,539 11,315 34,624
Add back non-controlling
interest 2 3 1
Group operating profit before
contingent consideration,
exceptional items, share-based
payments and amortisation
(excluding non-controlling
interest) 15,541 11,318 34,625
Net finance costs (excluding
exceptional items and contingent
consideration items) (931) (335) (1,410)
Normalised taxation (2,812) (2,197) (6,643)
Adjusted profit after tax(1)
before exceptional items,
share-based payments and
amortisation 11,798 8,786 26,572
------------ --------- ----------
Six months ended 30(th) June
Adjusted 2017 Adjusted 2016
profit Weighted Per profit Weighted Per
after average share after average share
tax(1) number amount tax(1) number amount
GBP'000 of shares Pence GBP'000 of shares Pence
Adjusted basic
EPS 11,798 102,636,868 11.5 8,786 102,658,362 8.6
Effect of dilutive
share options 741,376 469,387
Adjusted diluted
EPS 11,798 103,378,244 11.4 8,786 103,127,749 8.5
--------- ------------ -------- --------- ------------ --------
6. Earnings per share (EPS) (continued)
Year ended 31(st) December 2016
Adjusted 2016
profit Weighted Per
after average share
tax(1) number amount
GBP'000 of shares Pence
Adjusted basic
EPS 26,572 102,575,484 25.9
Effect of dilutive - 519,565 -
share options
Adjusted diluted
EPS 26,572 103,095,049 25.8
----------- ------------ --------
(1) This represents adjusted profit after tax attributable to
equity holders of the parent. Tax has been adjusted to exclude the
prior year tax adjustments, and the tax impact of exceptional
items, amortisation and share-based payments. The effective tax
rate used is 19.25% (30(th) June 2016: 20.00%; 31(st) December
2016: 20.00%).
7. Exceptional items and contingent consideration
Six Months Year Ended
Ended
30(th) 30(th) 31(st)
June June 2016 December
2017 2016
Exceptional costs: GBP'000 GBP'000 GBP'000
----------- ------------- -------------
Branch/centre closure and
restructuring costs including
redundancy costs - - 2,341
Total operating exceptional
costs - - 2,341
Deferred and contingent consideration
on acquisitions 230 (365) (3,785)
----------- ------------- -------------
230 (365) (1,444)
----------- ------------- -------------
Exceptional gains:
Gain on disposal of Zoopla
shares - - (32,931)
Provision for PI claims/notifications
(PI Costs) (1,100) - (1,600)
----------- ------------- -------------
(1,100) - (34,531)
----------- ------------- -------------
Net exceptional (gain) and
contingent consideration (870) (365) (35,975)
----------- ------------- -------------
Contingent consideration on acquisitions
The contingent consideration recognised in the period relates to
a charge of GBP129,000 in LSLi and a charge of GBP101,000 in Group
First (31(st) December 2016 a credit of GBP3,785,000 and 30(th)
June 2016: credit of GBP365,000).
Professional Indemnity
Positive progress in addressing historic PI Costs has resulted
in a GBP1,100,000 release of the provision (31(st) December 2016:
release of GBP1,600,000; 30(th) June 2016: nil)
8. Dividends paid and proposed
Dividends per share
A final dividend in respect of the year ended 31(st) December
2016, of 6.3 pence per share (December 2015: 8.6 pence per share),
amounting to GBP6.5m was paid in the period ended 30(th) June 2017.
An interim dividend has been announced amounting to 4.0 pence per
share (June 2016: 4.0 pence).
Interim dividends are recognised when paid.
9. Taxation
The major components of income tax charge in the interim Group
income statements are:
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2017 2016 2016
GBP'000 GBP'000 GBP'000
----------- ---------- ----------
UK corporation tax:
- current year 2,851 1,881 12,703
- adjustment in respect of
prior years (2) 162 1,009
----------- ----------
2,849 2,043 13,712
Deferred tax:
Origination and reversal of
temporary differences (221) (85) (500)
Adjustment in respect of prior
year (30) (27) (179)
----------- ---------- ----------
(251) (112) (679)
----------- ---------- ----------
Total tax charge in the income
statement 2,598 1,931 13,033
----------- ---------- ----------
Income tax charged directly to other comprehensive income is
GBP365,000 (31(st) December 2016: GBP3,899,000 credit; 30(th) June
2016: GBP469,000 charge) and relates to the revaluation of
financial assets. Income tax credited directly to the share based
payment reserve is GBP29,000 (and 31(st) December 2016: GBP65,000
and 30(th) June 2016: GBP96,000).
The headline rate of corporation tax has decreased from 20% to
19%, effective from 1(st) April 2017 resulting in an expected
effective corporation tax rate of 19.25% for the year ended 31(st)
December 2017. A further decrease in the corporation tax rate to
17% will be effective from 1(st) April 2020, and this is the rate
at which deferred tax has been provided.
10. Financial assets
Six Months Ended Year Ended
Available-for-sale financial 30(th) 30(th) 31(st)
assets June June December
2017 2016 2016
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Unquoted shares at fair value 6,653 1,774 4,603
Quoted shares at fair value 820 30,095 -
-------- -------- ----------
7,473 31,869 4,603
-------- -------- ----------
Opening balance 4,603 28,871 28,871
Acquisitions 724 - -
Disposals - - (36,083)
Fair value adjustment recorded
through other comprehensive
income 2,146 2,998 11,815
Closing balance 7,473 31,869 4,603
-------- -------- ----------
10. Financial assets (continued)
The financial assets include unlisted equity instruments which
are carried at fair value. Fair value is judgemental given the
assumptions required and have been valued using a level 3 valuation
techniques (see Note 15).
Zoopla
Financial assets also include warrants in ZPG Plc (Zoopla).
These were issued in accordance with the 2016 services agreement
with Zoopla. Zoopla's share price at 30(th) June 2017 was GBP3.62
per share. The Directors consider the best estimate of the fair
value of LSL's warrants to be the share price which values the
Group's stake in Zoopla at GBP820,000. These warrants are therefore
valued using a level 1 valuation technique.
Other investments
The carrying value of the Group's investment in Vibrant Energy
Matter (VEM) at 30(th) June 2017 has been assessed as GBP912,000
(31(st) December 2016: GBP912,000).
The carrying value of the Group's investment in GPEA Limited
(GPEA) at 30(th) June 2017 has been assessed as GBP5,741,000
(31(st) December 2016: GBP3,691,000), reflecting the proposed
consideration for the sale of the investment Note 17).
11. Financial liabilities
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2017 2016 2016
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Current
Overdraft 6,176 6,690 3,756
2% unsecured loan notes 2,000 5,569 -
Deferred consideration 38 5,081 4,790
Contingent consideration 287 3,069 2,193
8,501 20,409 10,739
-------- -------- ----------
Non-current
Bank loans - revolving credit
facility (RCF) 25,500 55,000 16,500
2% unsecured loan notes - 2,000 2,000
Deferred consideration 58 - 66
Contingent consideration 8,204 11,219 7,903
33,762 68,219 26,469
-------- -------- ----------
Contingent consideration -
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2017 2016 2016
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Marsh & Parsons Growth Shares - 1,746 -
LSLi contingent consideration 1,517 5,002 3,419
LMS 1 530 1
Group First Limited 6,636 6,581 6,339
Other 337 429 337
-------- -------- ----------
8,491 14,288 10,096
-------- -------- ----------
Opening balance 10,096 9,886 9,886
Cash paid (2,088) (2,352) (3,537)
Acquisition - 6,581 6,598
Amounts recorded though income
statement 483 173 (2,851)
-------- -------- ----------
Closing balance 8,491 14,288 10,096
-------- -------- ----------
11. Financial liabilities (continued)
The GBP2,000,000 unsecured loan notes, payable to a former Marsh
& Parsons director are due in March 2018, subject to certain
conditions being satisfied. The contingent consideration relating
to the Marsh & Parsons growth shares is nil (31(st) December
2016: nil and 30(th) June 2016: GBP1,746,000).
GBP1,517,000 (31(st) December 2016: GBP3,419,000 and 30(th) June
2016: GBP5,002,000) of contingent consideration relates to payments
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.
GBP1,000 (31(st) December 2016: GBP1,000 and 30(th) June 2016:
GBP530,000) of contingent consideration relates to payments to
third parties in relation to the acquisition of LMS in September
2014.
GBP6,636,000 of contingent consideration relates to Group First
(31(st) December 2016: GBP6,339,000; 30(th) June 2016:
GBP6,581,000). The additional consideration will be calculated on
an earnings multiple of between five and six times EBITA (plus
excess cash in the business) and has been capped at a maximum of
GBP25 million.
The table below shows the allocation of the contingent
consideration balance and income charge between the various
categories:
Six Months Ended Year Ended
Contingent consideration balances 30(th) 30(th) 31(st)
relating to amounts accounted June June December
for as: 2017 2016 2016
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Remuneration - 3,800 2,076
Put options over non-controlling
interests 1 530 1
Arrangement under IFRS 3 8,490 9,958 8,019
-------- -------- ----------
Closing balance 8,491 14,288 10,096
-------- -------- ----------
Contingent consideration profit
and loss impact in the period
relating to amounts accounted
for as:
Remuneration 13 379 (1,412)
Put options over non-controlling
interests - (268) (268)
Arrangement under IFRS 3 225 (105) (1,657)
Unwinding of discount on contingent
consideration 245 167 486
-------- -------- ----------
Charge/(credit) 483 173 (2,851)
-------- -------- ----------
12. Provisions for liabilities
Six months ended 30(th) June:
2017 2016
Professional Professional
indemnity indemnity
claim Onerous claim Onerous
provision leases Total provision leases Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------------- ----------- ------------- ----------- -----------
Balance at 1(st)
January 20,686 678 21,364 29,672 53 29,725
Acquired in
the period - - - - 17 17
Amount utilised (2,045) (148) (2,293) (3,954) - (3,954)
Amount released (1,100) (82) (1,182) - (40) (40)
Unwinding of
discount 100 - 100 100 - 100
Provided in
the period 270 2 372 370 - 370
Balance at 30(th)
June 17,911 450 18,361 26,188 30 26,218
---------------- ------------- ----------- ------------- ----------- -----------
Current 4,098 122 4,220 10,871 16 10,887
Non-current 13,813 328 14,141 15,317 14 15,331
17,911 450 18,361 26,188 30 26,218
---------------- ------------- ----------- ------------- ----------- -----------
Year ended 31(st) December 2016
Professional
indemnity Onerous
claim leases Total
provision
GBP'000 GBP'000 GBP'000
---------------- ------------- -----------
Balance at 1(st) January 29,672 53 29,725
Amount utilised (8,126) (137) (8,263)
Amount released (1,600) (6) (1,606)
Unwinding of discount 200 - 200
Provided in the period (including
exceptional costs) 540 768 1,308
Balance at 31(st) December 20,686 678 21,364
---------------- ------------- -----------
Current 5,385 357 5,742
Non-current 15,301 321 15,622
20,686 678 21,364
---------------- ------------- -----------
The PI Cost provision is to cover the costs of claims relating
to valuation services for clients which are not covered by PI
insurance. The PI 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(th) June 2017 the total provision for PI Costs was
GBP17.9m. The Directors have considered the sensitivity analysis on
the key risks and uncertainties discussed above.
12. Provisions for liabilities (continued)
Cost per claim
A substantial element of the provision relates to specific
claims where disputes are on-going. These specific cases have been
separately assessed and specific provisions have been made. The
average cost per claim has been used to calculate the IBNR. Should
the costs to settle and resolve these claims and future claims
increase by 10%, an additional GBP1.4m would be required.
Rate of claim
The IBNR assumes that the rate of claim for the high risk
lending period in particular reduces over time. Should the rate of
reduction be lower than anticipated and the duration extend,
further costs may arise. An increase of 30% in notifications in
excess of that assumed in the IBNR calculations would increase the
required provision by GBP0.3m.
Notifications
The Group has received a number of notifications which have not
deteriorated into claims or loss. Should the rate of deterioration
increase by 50%, an additional provision of GBP0.1m would be
required.
Onerous leases
The provision for lease obligations relates to obligations under
leases on vacant properties. The provision is expected to be fully
utilised by January 2021. The final outcome depends upon the
ability of the Group to sublet or assign the lease over the related
properties.
13. Analysis of Net Bank Debt
Six Months Ended Year Ended
30(th) 30(th) 31(st)
June June December
2017 2016 2016
GBP'000 GBP'000 GBP'000
-------- -------- ----------
Interest bearing loans and
borrowings
* Current 8,501 20,409 10,739
* Non-current 33,762 68,219 26,469
-------- -------- ----------
42,263 88,628 37,208
Less: 2% unsecured loan notes (2,000) (7,569) (2,000)
Less: deferred and contingent
consideration (8,587) (19,369) (14,952)
-------- -------- ----------
Net Bank Debt at the end of
the period 31,676 61,690 20,256
-------- -------- ----------
Net Bank Debt at 30(th) June 2017 was GBP31.7m.
14. Financial instruments - risk management
The financial risks the Group faces and the methods used to
manage these risks have not changed since 31(st) December 2016.
Further details of the risk management policies of the Group are
disclosed in Note 30 of the Group's Financial Statements for the
year ended 31(st) December 2016.
The Group has a current ratio of net bank debt (excluding loan
notes) to EBITDA of 0.71 (31(st) December 2016: 0.51 and 30(th)
June 2016: 1.26). The business is cash generative with a low level
of maintenance capital expenditure requirement. The Group remains
committed to its stated dividend policy of 30% to 40% of adjusted
operating profit after interest and tax. In addition, the Group's
other main priority is to generate cash to support its operations
and to fund any strategic acquisitions.
15. 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
financial statements.
Fair value hierarchy
As at 30(th) June 2017, the Group held the following financial
instruments measured at fair value. The Group uses the following
hierarchy for determining and disclosing the fair value of the
financial instruments by valuation technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
-- 30(th) Level Level Level
June 1 2 3
2017
GBP'000 GBP'000 GBP'000 GBP'000
--------- -------- --------- --------
Assets measured at fair
value
Financial assets 7,473 820 - 6,653
Liabilities measured at
fair value
Contingent consideration 8,491 - - 8,491
Liabilities for which
fair values are disclosed
Interest-bearing loans
and borrowings:
Floating rate borrowings 25,500 - 25,500 -
2% unsecured loan notes 2,000 - 2,000 -
Deferred consideration 96 - - 96
30(th) Level Level Level
June 1 2 3
2016
GBP'000 GBP'000 GBP'000 GBP'000
--------- -------- --------- --------
Assets measured at fair
value
Financial assets 31,869 30,095 1,774
Liabilities measured at
fair value
Contingent consideration 14,288 14,288
Liabilities for which
fair values are disclosed
Interest-bearing loans
and borrowings:
Floating rate borrowings 55,000 - 55,000 -
12% unsecured loan notes 7,569 - 7,569 -
Deferred consideration 77 77
-- 31(st) Level Level Level
Dec 1 2 3
2016
GBP'000 GBP'000 GBP'000 GBP'000
--------- -------- --------- --------
Assets measured at fair
value
Financial assets 4,603 - - 4,603
Liabilities measured at
fair value
Contingent consideration 10,096 - - 10,096
Liabilities for which
fair values are disclosed
Interest-bearing loans
and borrowings:
Floating rate borrowings 16,500 - 16,500 -
2% unsecured loan notes 2,000 - 2,000 -
Deferred consideration 4,856 4,856
15. Fair values of financial assets and financial liabilities
(continued)
Of the investments totalling GBP7,473,000, GBP6,653,000 are
valued using Level 3 valuation techniques. The Directors reviewed
the fair value of the financial assets at 30(th) June 2017. 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%,
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 11.
Fair values of the Group's interest-bearing borrowings and loans
are determined by using DCF methodology using a discount rate that
reflects the issuer's borrowing rate as at the end of the reporting
period. The own non-performance risk as at 30(th) June 2017 was
assessed to be insignificant.
16. Acquisitions
There have been no acquisitions in the six month period to
30(th) June 2017. The following information relates to the
comparative six month period ended 30(th) June 2016:
During the comparative period the Group acquired nine lettings
businesses for a total consideration of GBP4.0m. The fair value of
the identifiable assets and liabilities of these businesses as at
the date of acquisition were determined as below:
Fair value recognised
on acquisition
31(st)
30(th) December
June 2016 2016
GBP'000 GBP'000
Intangible assets 3,834 3,825
Deferred tax liabilities - (688)
-------------- -------------
Total identifiable net assets acquired 3,834 3,137
Purchase consideration 3,975 3,825
-------------- -------------
Goodwill 141 688
-------------- -------------
In February 2016, the Group, through a wholly owned subsidiary,
acquired 65% interest in Group First, who provide mortgage and
protection brokerage services to the purchasers of new homes
through its subsidiaries, Mortgages First Limited and Insurance
First Brokers Limited. The consideration for the initial investment
was GBP9.1m cash with 50% paid on completion, and a further 50%
paid in the first half of 2017. The remaining 35% is subject to put
and call options which are exercisable between 2018 and 2020. The
contingent consideration was management's best estimation of the
probable discounted payout (using a rate of 6.5%), based upon
current forecasts over the earn-out period (GBP6,636,000 at 30(th)
June 2017 - note 11). Due to the nature of the payment terms, the
contingent consideration is considered to be a capital payment for
accounting purposes. The fair value of the identifiable assets and
liabilities of as at the date of acquisition were determined as
below:
16. Acquisitions (continued)
Fair value recognised
on acquisition
30(th) 31st December
June 2016 2016
GBP'000 GBP'000
Intangible assets 809 809
Property, plant and equipment 847 847
Trade and other receivables (No
impairment identified) 127 127
Cash and cash equivalents 1,542 1,542
Trade and other payables (1,527) (1,501)
Current tax (216) (216)
Deferred tax liabilities (38) 160
Total identifiable net assets acquired 1,544 1,768
Purchase consideration 15,681 15,681
-------------- -----------------
Goodwill 14,137 13,913
-------------- -----------------
Purchase consideration discharged by:
Cash 4,550 4,550
Deferred consideration 4,550 4,550
Contingent consideration 6,581 6,581
------- -------
15,681 15,681
------- -------
The acquisition accounting above was considered provisional at
30(th) June 2016 as LSL was reviewing the estimates of the likely
payments under the contract, but the calculation above represented
the Directors best estimate at 30(th) June 2016. In addition, work
was on-going to identify acquired intangibles in the Group. This
work was finalised in the Group's Financial Statements for the year
ended 31(st) December 2016 and at that stage any deferred tax
liability was recognised. None of the goodwill was expected to be
deductible for tax purposes.
The goodwill of Group First comprises certain intangible assets
that cannot be individually separated and reliably measured from
the acquiree due to their nature. These items include an
experienced management team with a good record of delivering a
quality service to customers, the expected value of synergies and
the potential to significantly grow the business. Group First had
contributed GBP795,000 profit before tax and GBP2,750,000 revenue
in the comparative period since acquisition. If it had been
acquired at the beginning of the comparative year then the
consolidated revenue would have been GBP920,000 higher and the
consolidated profit before tax would have been GBP222,000 higher.
An analysis of cash-flow on acquisition is given in the table
below.
From the date of acquisition to 30(th) June 2016, the
acquisitions in aggregate, including Group First, had contributed
GBP3,032,000 of revenue and GBP982,000 profit before tax to the
Group, excluding the impact of movements in the contingent
consideration recorded through the profit and loss. If all of these
combinations had taken place at the beginning of the year, the
consolidated revenue would have been higher by GBP1,200,000 and the
consolidated profit before tax would have been higher by
GBP409,000. Transaction costs have been expensed.
GBP'000
Transaction costs 52
Net cash acquired with the subsidiaries
and other businesses (1,542)
Purchase consideration discharged 8,525
--------
Net Cash outflow on acquisition 7,035
--------
17. Post Balance Sheet event
Subsequent to the period end the Company has sold it's holding
in GPEA for GBP5.7m, for cash of GBP3m and shares in eProp Services
plc.
INDEPENDENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2017 which comprises the Interim Group
Income Statement, the Interim Group Statement of Comprehensive
Income, the Group Balance Sheet, the Interim Group Cash Flow
Statement, the Interim Group Statement of Changes in Equity and the
related Notes 1 to 17. We have read the other information contained
in the half yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2017 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Leeds
1 August 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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