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LSL Property Services   -  LSL   

Interim Results

Released 07:00 30-Jul-2019

RNS Number : 0968H
LSL Property Services
30 July 2019
 

 

For immediate release

30th July 2019

 

 

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

 

Interim Results For the six months ended 30th june 2019

 

LSL Property Services plc, a leading provider of residential property services incorporating estate agency, financial services and surveying and valuation businesses, announces its interim results for the six months ended 30th June 2019.

 

 

2019

2018

  change

Group Revenue - £m

154.1

152.9

+1%

Group Underlying Operating Profit1 - £m

12.2

11.6

+5%

Group underlying operating margin - %

7.9

7.6

 

Group Adjusted EBITDA2 - £m

19.7

14.4

+37%

Net Exceptional (cost) / gain - £m

(12.8)

1.2

 

Group operating (loss) / profit - £m

(2.8)

7.4

 

(Loss) / profit before tax - £m

(4.6)

6.4

 

Basic (loss) / Earnings Per Share - pence

(3.1)

4.7

 

Adjusted Basic Earnings Per Share3 - pence

9.0

8.6

+5%

Net Bank Debt4 at 30th June - £m

52.0

46.0

+13%

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 6 of the financial statements). Excluding the impact of IFRS 16 Group Underlying Operating Profit in H1 2019 was £11.8m

2                      Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation of right of use assets, plant, property and equipment (as defined in Note 6 of the financial statements).  Excluding the impact of IFRS 16, Group Adjusted EBITDA in H1 2019 was £14.3m

3                      Refer to Note 7 of the financial statements for the calculation

4                      Refer to Note 14 of the financial statements for the calculation

 

Positive first half Group financial performance

 

§ Positive performance with Group Underlying Operating Profit2 up 5% to £12.2m (2018: £11.6m) and Group Adjusted EBITDA2 up 37%. Excluding the impact of IFRS 16, Group Underlying Operating Profit was 2% ahead of prior year and Group Adjusted EBITDA was broadly in line with prior year

§ Group Revenue up 1% to £154.1m (2018: £152.9m) with a resilient performance in the context of subdued market conditions

§ The Estate Agency Division delivered a strong performance with Underlying Operating Profit2 increasing to £4.0m (2018: £1.4m), benefiting materially from the reshaping of the Your Move and Reeds Rains branch networks, announced on 5th February 2019

§ The Financial Services Division delivered a strong performance with Underlying Operating Profit2 up 20% to £4.3m (2018: £3.6m) reflecting growth in core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018

§ The Surveying Division delivered Underlying Operating Profit2 of £6.3m (2018: £8.6m) impacted by market conditions, business mix and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new contract in May 2018

§ Exceptional costs of £13.4m recognised in the period predominantly from the reshaping of the Your Move and Reeds Rains branch networks, announced on 5th February 2019. Continued positive progress in addressing historic Professional Indemnity (PI) claims with a £0.6m exceptional provision release as claims were settled below previous expectations

 

Full year outlook

§ The Board remains confident that the Group will deliver a full year Underlying Operating Profit in line with its prior expectations, as the business is expected to continue to benefit from the range of LSL's ongoing self-help measures

§ Interim dividend of 4.0 pence (2018: 4.0 pence)

 

Estate Agency Division Performance1

§ LSL announced the reshaping of its Your Move and Reeds Rains branch networks on 5th February 2019. We are pleased that the implementation of this programme has progressed in-line with our expectations despite the scale and complexity of the project. As a result, the revenue in the keystone branch network in H1 was slightly ahead of the LSL business plan. During Q1, the Your Move and Reeds Rains estate agency branch network was reshaped from 308 owned branches to 144 keystone branches following the closure and merging of 81 neighbouring branches into the keystone branch network, the franchising of 39 branches and the closure of 44 branches

§ The Estate Agency Division delivered a strong performance with Underlying Operating Profit2 increasing to £4.0m (2018: £1.4m), benefiting materially from the reshaping of the Your Move and Reeds Rains branch networks, announced on 5th February 2019

§ LSL expect the changes to the branch networks to continue to deliver a material improvement to Underlying Operating Profit in Your Move and Reeds Rains, assuming no material change in market conditions

§ Profit per branch (Your Move, Reeds Rains and LSLi) increased to £48.4k (2018: £24.9k) on a rolling twelve month basis as a result of the benefit from the reshaping of Your Move and Reeds Rains networks

§ The Estate Agency Revenues for H1 2019 and H1 2018 as reported and on a like for like basis, adjusting for the closure of the Your Move and Reeds Rains branches during Q1 2019 are set out below:

 

 

H1 2019

H1 20181

%

Change

(Reported)

 

% Change

(LFL)              

Total Estate Agency Revenue

£77.1m

£88.9m

-13%

 

-5%

Residential Sales exchange Revenue

£27.6m

£32.9m

-16%

 

-6%

Lettings income

£33.8m

£37.3m

-9%

 

0%

 

 

 

 

 

 

§ Total Estate Agency Revenue decreased by 13% to £77.1m (2018: £88.9m) impacted by the soft market conditions and the reduction in the size of the Your Move and Reeds Rains branch networks during Q1 2019. Adjusting for the closure of the Your Move and Reeds Rains branches during Q1 2019, like for like Revenue was down 5% year on year

§ Adjusting for the closure of the Your Move and Reeds Rains branches during Q1 2019, Residential Sales Exchange income was down 6% year on year, impacted by market volumes and Lettings income in-line with prior year on a like for like basis

§ The London market conditions continued to be challenging in H1 2019 as anticipated. Marsh & Parsons delivered a resilient Revenue performance despite the market conditions with total Revenue down 5.5%

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

§ Legislation banning tenant fees came into effect on 1st June 2019 and LSL implemented the required changes across its Estate Agency brands. LSL continues to implement self-help measures in lettings

§ LSL continued its accretive lettings book acquisition programme with three lettings books acquired during the period for a total consideration of £1.4m

 

Financial Services Division Performance1

§ The Financial Services Division delivered a strong performance with Underlying Operating Profit2 up 20% to £4.3m (2018: £3.6m) reflecting growth in core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018

§ Total Financial Services Division Revenue increased by 4% to £34.3m (2018: £33.0m)

§ Financial Services organic growth, excluding Estate Agency, in H1 2019 was 3%

§ The value of LSL's mortgage completions in the first half of 2019 increased to £14.7bn (2018: £13.2bn)

§ The number of appointed representative firms as at 30th June 2019  increased to 860 (2018: 842)

§ The number of financial advisers as at 30th June 2019 was 2,277 (2018: 2,298)

§ The roll out of Toolbox, the new Financial Services technology system is progressing in line with expectations

 

Surveying and Valuations Division Performance

§ The Surveying Division delivered Underlying Operating Profit2 of £6.3m (2018: £8.6m) impacted by market conditions, business mix and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new contract in May 2018

§ Surveying income increased by 37% to £42.7m (2018: £31.1m) due to the new contract with Lloyds Bank plc, which was awarded in May 2018

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

§ Continued positive progress in addressing historic PI claims with a £0.6m exceptional provision release in H1 2019 as claims were settled below previous expectations

§ Technology enhancements continue to be implemented during 2019 with further functionality releases designed to drive quality and efficiency improvements

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

 

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

"The Group delivered a positive financial performance in the first half of 2019, with positive growth in Revenue and Underlying Operating Profit, despite subdued residential property market conditions.

 

The Board remains confident that the Group will deliver a full year Underlying Operating Profit in line with its prior expectations, as the business is expected to continue to benefit from the range of LSL's ongoing self-help measures.

 

Whilst we continue to remain cautious on the residential property market outlook for 2019 given the current uncertainty over the UK and global political and economic environment and the potential impact on UK consumer confidence, the Board is confident that the Group, with its market leading brands, broad portfolio of residential property services and the benefits from the proactive self-help measures, remains in a strong position to perform well given a range of potential market conditions, in order to maximise Shareholder value.

 

The Group has a robust balance sheet with relatively low levels of gearing and is highly cash generative at an operational level. The Board remain confident of the opportunities for further positive progress for the Group."

 

For further information, please contact:

 

 

Ian Crabb, Group Chief Executive Officer                       

 

Adam Castleton, Group Chief Financial Officer

 

LSL Property Services plc                                                                                                  

0207 382 0360

 

 

Helen Tarbet, Sophie Wills

 

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

 

 

 

 

 

Group Chief Executive's Review

 

Introduction

 

The Group delivered a resilient first half Revenue performance with Revenue up 1%. Group Underlying Operating profit2 was up 5% and Adjusted EBITDA2 was up 37%. Adjusted for the impact of IFRS 16, Group Underlying Operating profit was up 2% year on year and Adjusted EBITDA was broadly in line with prior year.

 

Market conditions in H1 2019 have been softer than the equivalent period in 2018. The RICS June 2019 Residential Market Survey3 reported that that the RICS new buyer enquiries tracker and the RICS newly agreed sales net balance was negative for five of the six months in H1 2019. The RICS June 2019 Residential Market Survey3 reported average stock levels on estate agents books at record lows and whilst buyer enquiries edged upwards in June 2019, RICS reported significant declines in the early part of H1 2019.

 

Financial results

 

Group Revenue was up 0.8% to £154.1m (2018: £152.9m). Group Underlying Operating Profit2 was up 4.7% to £12.2m (2018: £11.6m) and Group Underlying Operating Profit Margin2 was 7.9% (2018: 7.6%).

 

Group operating loss was £2.8m (2018: profit £7.4m) impacted in the period by £13.4m of exceptional charges incurred, predominantly as a result of  the reshaping of the Your Move and Reeds Rains estate agency networks, which delivered a material improvement in financial performance in Your Move and Reeds Rains in H1 2019. LSL expect the changes to the branch networks to continue to deliver a material improvement to underlying operating profit in Your Move and Reeds Rains, assuming no material change in market conditions.

 

During the first half of 2019 net finance costs increased to £1.8m (2018: £1.0m), due to the additional finance cost resulting from the adoption of the new leasing standard, IFRS 16. The expected effective tax rate for the period is 29.7% (June 2018: 24.2%), leading to tax credit of £1.4m. The effective tax rate has increased to 29.7% primarily as a result of disallowable expenditure within the exceptional costs in the year.  Group loss after tax was £3.2m (2018: profit of £4.9m). Basic Loss Per Share was 3.1p (2018: earnings per share: 4.7p) and Adjusted Earnings Per Share were 9.0p (2018: 8.6p).

 

Cash generated from operations increased to £9.5m (2018: £1.1m), which excluded the repayments of lease liabilities following the adoption of IFRS 16 , higher Group Underlying Operating Profit2 compared to the same period last year and an improvement in working capital compared to the prior year. Operating cash flow included PI Costs settlements of £1.5m (2018: £0.6m). Capital expenditure, including intangibles, was £2.2m (2018: £2.1m), including two new Marsh & Parsons branches opened during the period, in Streatham Hill and Willesden Green.

 

During the first half of 2019 the Group continued its accretive lettings book acquisition programme with three lettings books acquired during the period for a total consideration of £1.4m.

 

Net assets at 30th June 2019 were £129.9m (2018: £146.0m). Net Bank Debt at 30th June 2019 was £52.0m compared to £46.0m at 30th June 2018. Compared to 31st December 2018, Net Bank Debt has increased by £20m driven by the normal seasonality of the Estate Agency Division cash flows, the funding of the three strategic lettings book acquisitions, the payment of the deferred consideration in relation to previous acquisitions, the exceptional costs in relation to the reshaping of the Estate Agency network as well as the payment of dividends and taxes. LSL has a 14.7% minority shareholding in Yopa. LSL's previous carrying value of £7.8m for Yopa has been written down through reserves by £1.3m to £6.5m as at 30th June 2019 to reflect the Board's assessment of fair value.

  

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 (2018: 4.0 pence). The ex-dividend date for the interim dividend is 8th August 2019, with a record date of 9th August 2019 and a payment date of 16th September 2019.  Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan.  The election date is 23rd August 2019. 

 

Segment reporting

 

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

 

Estate Agency Division1

 

LSL announced the reshaping of its Your Move and Reeds Rains branch networks on 5th February 2019. We are pleased that the implementation of this programme has progressed in-line with our expectations despite the scale and complexity of the project. As a result, the revenue in the keystone branch network in H1 was slightly ahead of the LSL business plan. During Q1, the Your Move and Reeds Rains estate agency branch network was reshaped from 308 owned branches to 144 keystone branches following the closure and merging of 81 neighbouring branches into the keystone branch network, the franchising of 39 branches and the closure of 44 branches. This reshaping was in-line with LSL announcement of 5th February 2019.

 

Estate Agency Division total Revenue was down 13.2% at £77.1m (2018: £88.9m) reflecting the reshaping of the Your Move and Reeds Rains branch networks during the first quarter of 2019. Adjusting for the closure of the Your Move and Reeds Rains branches during the first quarter of 2019, like for like total Revenue decreased by 4.8% compared to the same period in 2018.

 

The Estate Agency Division delivered a strong performance with Underlying Operating Profit2 increasing to £4.0m (2018: £1.4m), benefiting materially, in line with expectations, from the reshaping of the Your Move and Reeds Rains branch networks, announced on 5th February 2019. Profit per branch (Your Move, Reeds Rains and LSLi) increased to £48.4k (2018: £24.9k) on a rolling twelve month basis as a result of the benefit from the reshaping of the networks. We expect the changes to the branch networks to continue to deliver a material improvement to Underlying Operating Profit in Your Move and Reeds Rains, assuming no material change in market conditions.

 

Residential Sales income decreased by 16% to £27.6m (2018: £32.9m) due to the reshaping of the Your Move and Reeds Rains branch networks and the market conditions. Adjusting for the closure of the Your Move and Reeds Rains branches during Q1 2019, Residential Sales income decreased by 6%. In a highly competitive market, the Estate Agency Division has broadly maintained residential market share and delivered an increase in average residential fees of 7% to £3,247 (2018: £3,035). The average residential fee in H1 2019 benefited from the closure of Your Move and Reeds Rains branches which generated lower average fees. Like for like, average residential fee in H1 2019 were maintained at the same level compared to the same period last year.  

 

Total Lettings income decreased by 9.2% to £33.8m (2018: £37.3m). On a like for like basis, adjusting for the reshaping of the Your Move and Reeds Rains branch networks, Lettings income was in line with the prior year. The Group has recommenced its letting books acquisitions programme with three lettings books acquired during the period for a total consideration of £1.4m.

 

Marsh & Parsons total Revenues were down 5.5% to £15.0m (2018: £15.9m). Marsh & Parsons Underlying Operating Profit2 decreased to £0.4m (2018: £0.7m) with operating margins of 2.7% (2018: 4.4%). Adjusted EBITDA as reported for H1 2019 was £2.3m (2018: £1.2m). Excluding the impact of IFRS 16, Adjusted EBITDA for H1 2019 was £0.7m (2018: £1.2m).

 

Marsh & Parsons Residential Sales were down 10.6%, against an overall London market for sales transactions which LSL estimates was down c.15% in the first half of 2019. The Residential Sales performance was impacted by a reduced pipeline entering into 2019. The pipeline has improved over the first half of 2019 which is an encouraging metric, heading into the second half of the year. Market stock levels in lettings are subdued, resulting in Lettings income decreasing by 5.3% in the first half of 2019. 

 

Prime Central London has been the area most impacted by the market conditions whilst branches in outer prime Central London areas have been less negatively impacted. Two new Marsh & Parsons branches opened in outer prime Central London during the period, in Streatham Hill and Willesden Green. These new branches are trading in line with expectations. Despite the opening of two new branches since 30th June 2018, with strong cost control, total expenditure fell by 4% year on year.

 

Legislation banning tenant fees came into effect on 1st June 2019 and LSL implemented the required changes across its Estate Agency brands. LSL continues to implement self-help measures in lettings with the aim of optimising lettings income.

 

In the second half of 2019, the Estate Agency Division will continue to benefit from the reshaping of the Your Move and Reeds Rains branch networks, residential sales pipelines which are currently ahead of the Board's expectations and continued cost control across the LSL businesses.

 

Financial Services Division1

 

Financial Services Division Revenue increased by 4% to £34.3m (2018: £33.0m). Financial Services organic growth, excluding Estate Agency, in H1 2019 was 3%. The growth in the value of mortgage completions represents an increase in LSL's market share4 to 8.5% in 2019 (2018: 8%).  LSL is the second largest combined network nationwide, measured by combined number of appointed representative firms5. The number of financial advisers as at 30th June 2019 was 2,277 (2018: 2,298).

 

The Financial Services Division delivered a strong performance with Underlying Operating Profit2 up 20% to £4.3m (2018: £3.6m) reflecting growth in core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018. The Financial Services business continues to display good organic growth across its breadth of products including mortgage products, pure protection products and general insurance products. The integration of PTFS, which was acquired in January 2018, is delivering synergy benefits in line with expectations.

 

The roll out of Toolbox, LSL's Financial Services technology system is progressing in line with expectations.

 

Surveying and Valuations Division

 

Revenue in the Surveying Division in the first half of 2019 increased by 37% to £42.7m (2018: £31.1m), with a total number of jobs performed of 250,695 (2018: 154,905). This increase was driven by the contract signed in 2018 for the Surveying Division to supply surveying and valuation services to Lloyds Bank Group plc from September 2018. The initial operational performance of the Lloyds Bank plc contract has been in line with expectations.

 

Market conditions in H1 2019 were notably softer than anticipated and in the equivalent period in 2018. Income per job in H1 2019 reduced to £170 (2018: £201) due to a change in the business mix. Total Surveying Division expenditure increased due to the additional headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new contract in May 2018. As a result, LSL delivered a reduced Underlying Operating Profit in H1 2019 of £6.3m (2018: £8.6m) with a profit margin of 14.8% (2018: 27.7%).

 

The total number of qualified surveyors6 at 30th June 2019 was 490 (2018: 314), with the increase due to the transfer of Lloyds Bank plc employed surveyors into the LSL Surveying business during H2 2018.  The on-going graduate programme continues to be successful and assists in alleviating the impact of capacity constraints in the market. 

 

At 30th June 2019, the total provision for PI Costs was £10.9m (2018: £14.6m). In 2019 the Group continued to make positive progress in addressing historic claims and there has been an exceptional release of £0.6m.

During H1 2019, the Surveying Division was pleased to be awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank.

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

Technology enhancements continue to be implemented during 2019 with further functionality releases designed to drive quality and efficiency improvements.

 

Strategy

 

LSL remains committed to delivering on its stated strategy:

Estate Agency

·    Ambition to achieve £80k-£100k profit per branch in the medium term based on the expectation of a normalised level of market transactions

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

·    Grow recurring and where market conditions permit counter-cyclical income streams

·    Evaluate selective acquisitions of Residential Sales businesses and lettings books

 

Financial Services

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

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

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

·    Evaluate further selective Financial Services acquisitions

 

Surveying and Valuation Services

·    Optimise contract performance and revenue generation from business to business customers

·    Achieve further improvement in efficiency and capacity utilisation

·    Use technology to target further improvements in customer satisfaction and performance

·    Continue the graduate training programme

 

Outlook

 

The Board remains confident that the Group will deliver a full year Underlying Operating Profit in line with its prior expectations, as the business is expected to continue to benefit from the range of LSL's ongoing self-help measures. 

 

Whilst we continue to remain cautious on the residential property market outlook for 2019 given the current uncertainty over the UK and global political and economic environment and the potential impact on UK consumer confidence, the Board is confident that the Group, with its market leading brands, broad portfolio of residential property services and the benefits from the proactive self-help measures, remains in a strong position to perform well given a range of potential market conditions, in order to maximise Shareholder value.

 

The Group has a robust balance sheet with relatively low levels of gearing and is highly cash generative at an operational level. The Board remain confident of the opportunities for further positive progress for the Group.

 

Ian Crabb

Group Chief Executive Officer

30th July 2019

 

 

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

(2)  Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments; Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation of right of use assets, plant, property and equipment (both as defined in Note 6)

(3)  Source: RICS UK Residential Market Survey, June 2019

(4)  Source: UK Finance new mortgage lending by type of lender (excludes product transfers), June 2019

(5)  Source: Which-Network - network performance figures for Q1 2019 showing the combined numbers for PRIMIS

(6)  FTE (full time equivalent)

 

 

 

 

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 2018 on pages 30 to 34. The Annual Report and Accounts 2018 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

·    Investment, acquisitions and growth initiatives

·    Professional services

·    Client contracts

·    Business infrastructure (including IT)

·    Information security (including data protection)

·    Regulatory and compliance

·    Employees

 

A recent Group Risk Appetite Assessment exercise included an evaluation of developing areas of key risks and the effectiveness of related business response plans.

 

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 2018.

 

 

Forward-Looking Statements

This statement may contain forward looking statements with respect to certain plans and current 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 including, amongst other things, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates, inflation, deflation, the impact of competition, changes in customer preferences, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the UK. As a result LSL's actual future condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward looking statements. Nothing in this statement should be construed as a profit forecast. Information about the management of the Principal Risks and Uncertainties facing LSL is set out within the Strategic Report in the Group's Annual Report and Accounts 2018 on pages 30 to 34.

 

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 2018 (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

30th July 2019 

 

 

Interim Group Income Statement

for the six months ended 30th June 2019

 

 

 Unaudited
  Six Months Ended

 

Audited
Year Ended

 

 

 

30th June
2019

30th  June
2018

31st December 2018

 

Continuing Operations

Note

£'000

£'000

£'000

 

 

 

 

 

 

 

Revenue

4,5

154,115

152,891

324,640

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Employee and subcontractor costs

 

(96,958)

(96,705)

(203,095)

 

Establishment costs

 

(7,341)

(10,056)

(20,614)

 

Depreciation on property, plant  and equipment

 

(7,513)

(2,772)

(5,674)

 

Other

 

(30,268)

(31,737)

(60,211)

 

 

 

(142,080)

(141,270)

(289,594)

 

 

 

 

 

 

 

Other operating income

 

459

388

557

 

Gain on sale of property, plant and equipment

 

(6)

-

34

 

(Loss) / income from joint ventures and associates

 

(331)

(399)

259

 

 

 

 

 

 

 

Group Underlying Operating Profit

6

12,157

11,610

35,896

 

 

 

 

 

 

 

Share-based payments

 

(553)

(590)

(349)

 

Amortisation of intangible assets

 

(2,236)

(2,718)

(5,301)

 

Exceptional gains

8

593

1,189

2,188

 

Exceptional costs

8

(13,380)

-

(5,234)

 

Contingent consideration

 

652

(2,057)

(1,783)

 

Group operating (loss) / profit

 

(2,767)

7,434

25,417

 

 

 

 

 

 

 

Finance income

 

5

-

-

 

Finance costs

 

(1,802)

(1,018)

(2,333)

 

Net finance costs

 

(1,797)

(1,018)

(2,333)

 

 

 

 

 

 

 

(Loss) / profit before tax

 

(4,564)

6,416

23,084

 

 

 

 

 

 

 

Taxation credit / (charge)

10

1,353

(1,555)

(5,201)

 

 

 

 

 

 

 

(Loss) / profit for the period/year

 

(3,211)

4,861

17,883

 

 

 

 

 

 

 

(Loss) / earnings per share expressed in pence per share:

 

 

 

 

 

Basic

7

(3.1)

4.7

17.4

 

Diluted

7

(3.1)

4.7

17.3

 

 

 

Interim Group Statement of Comprehensive Income

for the six months ended 30th June 2019

 

 

 

 Unaudited
 Six Months Ended

Audited
Year Ended

 

 

  30th June
 2019

30th June
2018

31st December 2018

 

 

     £'000

 £'000

£'000

 

 

 

 

 

(Loss) / profit for the period

 

(3,211)

4,861

17,883

 

 

 

 

 

Items not to be reclassified to profit and loss in subsequent periods:

 

 

 

 

 

 

Revaluation of financial assets not recycled through income statement

 

(3,006)

-

(12,200)

Income tax effect

 

-

-

-

Net other comprehensive (loss):

 

(3,006)

-

(12,200)

 

 

 

 

 

Total other comprehensive (loss) for the year, net of tax

 

(3,006)

-

(12,200)

 

 

 

 

 

Total comprehensive (loss) / income, net of tax

 

(6,217)

4,861

5,683

 

 

 

 

 

 

 

Interim Group Balance Sheet

as at 30th June 2019

 

 

Unaudited
Six Months Ended

Audited
Year Ended

 

 

30th June
2019

30th June
2018

31st December 2018

 

Note

£'000

£'000

£'000

 

 

 

 

 

Non-current assets

 

 

 

 

Goodwill

 

159,724

159,226

159,723

Other intangible assets

 

31,438

32,296

31,960

Property, plant and equipment

 

50,154

16,971

16,866

Financial assets

11

9,602

26,032

11,566

Investments in joint ventures and associates

 

12,187

8,448

13,230

Contract assets                                                                 

 

813

-

959

Total non-current assets

 

263,918

242,973

234,304

 

 

 

 

 

Current assets

 

 

 

 

Trade and other receivables

 

43,438

40,006

38,650

Contract assets

 

253

-

262

Current tax asset

 

1,500

-

-

Cash and cash equivalents

 

4,984

516

2,405

Total current assets

 

50,175

40,522

41,317

 

 

 

 

 

Total assets

 

314,093

283,495

275,621

 

 

 

 

 

Current liabilities

 

 

 

 

Financial liabilities

12

(20,601)

(10,226)

(10,455)

Trade and other payables

 

(58,826)

(55,359)

(63,980)

Current tax liabilities

 

-

(1,892)

(2,688)

Provisions for liabilities

13

(5,734)

(8,104)

(6,616)

Total current liabilities

 

(85,161)

(75,581)

(83,739)

 

 

 

 

 

Non-current liabilities

 

 

 

 

Financial liabilities

12

(90,375)

(52,803)

(41,156)

Deferred tax liability

 

(2,634)

(2,429)

(2,189)

Provisions for liabilities

13

(6,052)

(6,681)

(5,944)

Total non-current liabilities

 

(99,061)

(61,913)

(49,289)

 

 

 

 

 

Total Liabilities

 

(184,222)

(137,494)

(133,028)

 

 

 

 

 

Net assets

 

129,871

146,001

142,593

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

208

208

208

Share premium account

 

5,629

5,629

5,629

Share-based payment reserve

 

4,671

4,382

4,129

Shares held by EBT

 

(5,224)

(5,304)

(5,261)

Fair value reserve

 

(13,032)

473

(11,727)

Retained earnings

 

137,619

140,431

149,615

Equity attributable to owners of parent

 

129,871

145,819

142,593

 

 

 

 

 

Non-controlling interests

 

-

182

-

Total equity

 

129,871

146,001

142,593

 

 

 

Interim Group Cash Flow Statement

for the six months ended 30th June 2019

 

 

Unaudited
Six Months Ended

Audited
Year Ended

 

 

30th June

2019

30th June 2018

31st December 2018

 

Note

£'000

£'000

£'000

(Loss) / profit before tax

 

(4,564)

6,416

23,084

Adjustments for:

 

 

 

 

Exceptional operating items and contingent consideration

 

12,135

866

4,829

Depreciation of tangible owned and lease assets

 

7,513

2,772

5,674

Amortisation of intangible assets

 

2,236

2,718

5,301

Share-based payments

 

553

590

349

Loss / (profit) on disposal of fixed assets

 

6

-

(34)

Loss / (profit) from joint ventures

 

331

399

(259)

Finance income

 

(5)

-

-

Finance costs

 

1,802

1,018

2,333

Revaluation of financial assets through the income statement

 

-

(737)

-

Realisation of non-cash consideration received for operating activities

 

-

-

1,529

Operating cash flows before movements in working capital

20,007

14,042

42,806

Movements in working capital

 

 

 

 

(Increase) / decrease in trade and other receivables

 

(4,222)

(5,388)

(3,815)

(Decrease) / increase in trade and other payables

 

(5,423)

(6,235)

(111)

(Decrease) / increase in provisions

 

(836)

(1,363)

(3,608)

 

 

(10,481)

(12,986)

(7,534)

Cash generated from operations

 

9,526

1,056

35,272

Interest paid

 

(725)

(720)

(1,359)

Income taxes paid

 

(2,685)

(3,662)

(6,875)

Exceptional costs paid

 

(6,662)

-

(3,310)

Net cash generated from operating activities

 

(546)

(3,326)

23,728

Cash flows used in investing activities

 

 

 

 

Cash acquired on purchase of subsidiary undertaking

 

-

6,944

6,944

Acquisitions of subsidiaries and other businesses

 

(1,300)

(6,507)

(7,732)

Payment of contingent consideration

12

(133)

(1,306)

(1,392)

Investment in joint ventures and associates

 

-

-

(4,100)

Investment  in financial assets

11

(1,750)

(13)

(13)

Cash received on sale of financial assets

 

1,015

-

-

Rental receipts

 

33

-

-

Purchase of property, plant and equipment and intangible assets

 

(2,154)

(2,055)

(5,877)

Proceeds from sale of property, plant and equipment

 

-

-

156

Net cash (expended) / generated on investing activities

 

(4,289)

(2,937)

(12,014)

Drawdown of loans

12

22,500

16,521

4,521

Refinance costs

 

-

(250)

(250)

Repayment of loan notes

12

-

(2,000)

(2,000)

Payment of deferred consideration

 

(2,000)

-

-

Proceeds from the exercise of share options

 

26

1

20

Repayments of lease liabilities

 

(6,027)

-

-

Dividends paid

 

(7,085)

(7,493)

(11,600)

Net cash expended in financing activities

 

7,414

6,779

(9,309)

 

 

 

 

 

Net increase / (decrease) in cash and cash  equivalents

 

2,579

516

2,405

Cash and cash equivalents at the end of the period / year

 

4,984

516

2,405

Interim Group Statement of changes in equity

Unaudited - for the six months ended 30th June 2019                         

 

 

 

 

Share capital

 

Share premium account

Share- based payment reserve

 

 

Shares held by EBT*

 

 

Fair value Reserve

 

 

Retained earnings

 

 

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1st January 2019

208

5,629

4,129

(5,261)

(11,727)

149,615

142,593

Adjustment on initial application of IFRS 16

-

-

-

-

-

-

-

Revised opening balance at 1st January 2019

208

5,629

4,129

(5,261)

(11,727)

149,615

142,593

 

 

 

 

 

 

 

 

Revaluation of financial assets

-

-

-

-

(3,006)

-

(3,006)

Disposal of financial asset

-

-

-

-

1,701

(1,701)

-

Other comprehensive income for the period

-

-

-

-

(1,305)

(1,701)

(3,006)

Loss for the period

-

-

-

-

-

(3,211)

(3,211)

Total comprehensive income for the period

-

-

-

-

(1,305)

(4,912)

(6,217)

Exercise of options

-

-

(11)

37

-

1

27

Share-based payments

-

-

553

-

-

-

553

Dividend payment

-

-

-

-

-

(7,085)

(7,085)

At 30th June 2019

208

5,629

4,671

(5,224)

(13,032)

137,619

129,871

 

During the six month period to 30th June 2019 a total of 10,672 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the

Trust.  LSL received £26,000 on exercise of these options.

 

*Treasury Shares have been renamed to Shares held by EBT.

Interim Group Statement of changes in equity

Unaudited for the six months ended 30th June 2018

 

 

 

 

Share capital

 

Share premium account

Share- based payment reserve

 

 

Shares held by EBT*

 

 

Fair value Reserve

 

 

Retained earnings

 

 

Total equity

 

Non-controlling interest

 

 

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1st January 2018

208

5,629

3,802

(5,317)

494

143,578

148,394

182

148,576

Adjustment on initial application of IFRS 15

-

-

-

-

-

(534)

(534)

-

(534)

Adjustment on initial application of IFRS 9

-

-

-

-

(21)

21

-

-

-

Revised opening balance

208

5,629

3,802

(5,317)

473

143,065

147,860

182

148,042

Other comprehensive income for the period

-

-

-

-

-

-

-

-

-

Profit for the period

-

-

-

-

-

4,861

4,861

-

4,861

Total comprehensive income for the period

-

-

-

-

-

4,861

4,861

-

4,861

Exercise of options

-

-

(10)

13

-

(2)

1

-

1

Share-based payments

-

-

590

-

-

-

590

-

590

Dividend payment

-

-

-

-

-

(7,493)

(7,493)

-

(7,493)

At 30th June 2018

208

5,629

4,382

(5,304)

473

140,431

145,819

182

146,001

 

During the six month period to 30th June 2018 a total of 3,661 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the Trust.  LSL received £1,000 on exercise of these options.

 

* Treasury Shares have been renamed to Shares held by EBT.

Interim Group Statement of changes in equity

   Audited for the year ended 31st December 2018

 

 

 

 

Share capital

 

Share premium account

Share- based payment reserve

 

 

Shares held by EBT

 

 

Fair value Reserve

 

 

Retained earnings

 

 

Total equity

 

Non-controlling interest

 

 

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1st January 2018

208

5,629

3,802

(5,317)

494

143,578

148,394

182

148,576

Adjustment on initial application of IFRS 15

-

-

-

-

-

(434)

(434)

-

(434)

Adjustment on initial application of IFRS 9

-

-

-

-

(21)

21

-

-

-

Revised opening balance

208

5,629

3,802

(5,317)

473

143,165

147,960

182

148,142

Other comprehensive income for the period

 

 

 

 

 

 

 

 

 

Revaluation of financial assets

-

-

-

-

(12,200)

-

(12,200)

-

(12,200)

Profit for the period

-

-

-

-

-

17,883

17,883

-

17,883

Total comprehensive (loss)/income for the period

-

-

-

-

(12,200)

17,883

5,683

-

5,683

Exercise of options

-

-

(22)

56

-

(15)

19

-

19

Share-based payments

-

-

349

-

-

-

349

-

349

Acquisition of minority interest

-

-

-

-

-

182

182

(182)

-

Dividend payment

-

-

-

-

-

(11,600)

(11,600)

-

(11,600)

At 31st December 2018

208

5,629

4,129

(5,261)

(11,727)

149,615

142,593

-

142,593

 

During the year ended 31st December 2018, the Trust acquired nil LSL Shares.  During the period 15,966 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the Trust.  LSL received £20,000 on exercise of these options.

Notes to the Interim Condensed Group Financial Statements

 

The Interim Condensed Group Financial Statements for the period ended 30th June 2019 were approved by the LSL Board on 30th July 2019.  The interim Financial Statements are not the statutory accounts.  The financial information for the year ended 31st December 2018 is extracted from the audited statutory accounts for the year ended 31st December 2018, 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 30th June 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Group's annual Financial Statements as at 31st December 2018 which are included in LSL's Annual Report and Accounts 2018.

 

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

 

This is the first set of the Group's Financial Statements where IFRS 16 (Leases) has been applied. Changes to significant accounting policies are disclosed in Note 2 to these Financial Statements.

 

2.     Changes in significant accounting policies

 

Except as described below, 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 31st December 2018.

 

The changes in the accounting policies are also expected to be reflected in the Group's Consolidated Financial Statements for the year ending 31st December 2019.

 

The Group has initially adopted IFRS 16 Leases from 1st January 2019, replacing the current lease guidance including IAS 17.

 

Previously all of the Group's leases were accounted for as operating leases (see Note 25 of the 2018 Group Annual Report and Accounts). Both properties and vehicles fall under the scope of IFRS 16, with properties being the most significant by value.

 

The standard permits either a full retrospective or a modified retrospective approach for the adoption. The Group has adopted the standard using the modified retrospective approach, with the right of use asset being equal to the lease liability at the point of original recognition.  Therefore, the cumulative impact of the adoption is recognised in retained  earnings as of 1st  January 2019 and the comparatives are not restated.

 

As a lessee

 

Under IFRS 16 Leases are accounted for on the right of use model. The Income Statement presentation and expense recognition pattern is similar to that required for finance leases by IAS 17 previously adopted by the Group.

 

At inception, the Group assesses whether a contract contains a lease. This assessment involved the exercise of judgement about whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset.  

 

IFRS 16 permits lessees to elect not to apply the recognition requirements to short term leases and leases for which the underlying asset is of low value. The Group has  elected not to recognise short term leases of less than one year at inception and low value leases which will continue to be reflected in the Income Statement.  This will be the ongoing policy adopted by the Group.  There are no right of use assets or lease liabilities recognised for these leases, and the expense is recognised in the Income Statement on a straight line basis.

 

In addition the Group has chosen to apply the relief option, which allows it to adjust the right of use by the amount of any provision for onerous leases recognised in the balance sheet immediately before the date of initial application. 

 

As a lessor

 

At inception, the Group assesses whether a contract contains a lease. This assessment involved the exercise of judgement about whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset.

 

When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub lease separately. It assesses the lease classification of a sub-lease with reference to the asset arising from the head lease, not with reference to the underlying asset. If the head lease is a short-term lease to which the Group has applied the short-term lease exemption, then the sub lease will follow that classification and be treated as an operating lease. 

 

Where the Group is an intermediate lessor in a sublease, IFRS 16 has resulted in the recognition of a financial asset, where the sublease was previously classified as an operating lease under IAS 17.

 

The following reconciliation to the opening balance for IFRS 16 lease liabilities as at 1st January 2019 is based upon the operating lease obligations at 31st December 2018:

 

 

Lease liabilities

 

 

£'000

 

 

Operating lease obligations at 31st December 2018

39,909

Relief option for short term leases

(165)

Relief option for leases of low value assets

(245)

Extension and termination options reasonably certain to be exercised

9,065

Other

447

Operating lease obligations as at 31st December 2018

49,011

 

 

Discounted using the incremental borrowing rate at 1st January 2019

(5,578)

 

 

Lease liabilities recognised at 1st January 2019

43,433

 

Leases are shown as follows in the balance sheet and Income statement for the period ending 30th June 2019:

 

Consolidated balance sheet

£'000

Non-current assets

 

Property, plant and equipment

36,436

Financial assets

307

Current liabilities

 

Financial Liabilities

(12,273)

Non-current liabilities

 

Financial Liabilities

(26,993)

Consolidated income statement

 

Depreciation

(5,030)

Finance Income

5

Finance costs

(775)

 

Short term leases of less than twelve months at inception and low value leases are charged to the Income statement evenly over the life of the lease. In the six month period ending 30th June 2019. £2,318,000 relating to short period and low value leases were included in Operating expenses.

 

 

 

3.     Judgements and estimates

 

The preparation of financial information in conformity with IFRS as adopted by the 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 31st December 2018, with the exception of the adoption of IFRS 16: Leases which the Group considers to be a key judgement given the judgement required in assessing the appropriate treatment of individual leases.  These assumptions are discussed in detail in the Group's Annual Report and Accounts 2018.  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:

·      Intangible assets

·      Valuation of financial assets

·      Deferred tax

·      Exceptional items

·      Identification of leases  

 

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

·      Valuations in acquisitions

·      Impairment of intangible assets

·      Contingent consideration

·      Income tax

 

Going concern

 

The Group meets its day to day working capital requirements through a revolving credit facility.  The Group currently has a £100 million credit facility which was extended in January 2018 and will now expire in May 2022.  As shown in Note 12 to these interim condensed consolidated Group Financial Statements, the Group has utilised £57 million of the facility leaving £43 million of available 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.

 

 

 

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 30th June 2019

 

Residential Sales exchange

£'000

Lettings

£'000

Asset Management £'000

Financial Services £'000

Surveying and Valuation Services

 £'000

Other £'000

 

Total

 £'000

Timing of revenue recognition

 

 

 

 

 

 

 

Services transferred at a point in time

27,575

18,587

1,762

41,108

42,669

6,492

138,193

Services transferred over time

-

15,234

688

-

-

-

15,922

Total revenue from contracts with customers

27,575

33,821

2,450

41,108

42,669

6,492

154,115

 

Unaudited Six Months ended 30th June 2018

 

 

Residential Sales exchange

£'000

 

Lettings

£'000

 

Asset Management £'000

 

Financial Services £'000

Surveying and Valuation Services

 £'000

 

Other £'000

 

Total

£'000

Timing of revenue recognition

 

 

 

 

 

 

 

Services transferred at a point in time

32,873

19,756

2,784

40,798

31,060

8,012

135,283

Services transferred over time

-

17,503

105

-

-

-

17,608

Total revenue from contracts with customers

32,873

37,259

2,889

40,798

31,060

8,012

152,891

 

Audited year ended 31st December 2018

 

 

Residential Sales exchange

£'000

 

 

Lettings

£'000

 

Asset Management £'000

 

Financial Services

£'000

Surveying and Valuation Services

 £'000

 

 

Other

£'000

 

 

Total

£'000

Timing of revenue recognition

 

 

 

 

 

 

 

Services transferred at a point in time

69,854

40,696

3,906

87,427

69,798

15,522

287,203

Services transferred over time

-

35,880

1,557

-

-

-

37,437

Total revenue from contracts with customers

69,854

76,576

5,463

87,427

69,798

15,522

324,640

 

 

 

5.            Segment analysis of revenue and operating profit

 

To reflect the increased importance of LSL's Financial Services businesses, the LSL Board has updated the Group segmental reporting effective from 1st January 2019.  For the six months ended 30th June 2019, LSL reports three segments: Estate Agency; Financial Services; and Surveying and Valuation Services:

·      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 and asset management services to a range of lenders.  Following the change to LSL's segment reporting, the Estate Agency Division receives a commercially agreed commission payment from the Financial Services Division (from Embrace Financial Services and First2Protect). This arrangement reflects Financial Services income generated by the Estate Agency Division.

·      The Financial Services Segment arranges mortgages for a number of lenders and arranges pure protection and general insurance policies for a panel of insurance companies via the Estate Agency branches, PRIMIS, Embrace Financial Services, First2Protect, Mortgages First, Insurance First Brokers and Linear Financial Services and RSC New Homes. 

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

 

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.

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

Operating segments

 

The following tables presents revenue and profit information regarding the Group's operating segments for the six months ended 30th June 2019, for the six months ended 30th June 2018 and for the year ended 31st December 2018.

 

 

Six months ended 30th June 2019

Income statement  information

Estate Agency

 and Related

 Services

£'000

 

Financial Services

£'000

Surveying

and Valuation Services

£'000

 

 

Unallocated

£'000

 

 

Total

£'000

 

 

 

 

 

 

Revenue from external customers

70,338

41,108

42,669

-

154,115

Intersegment revenue

6,797

(6,797)

-

-

-

Total revenue

77,135

34,311

42,669

-

154,115

 

 

 

 

 

 

Segmental result:

 

 

 

 

 

 - before exceptional costs, contingent

 consideration, amortisation and

    share-based payments

4,017

4,326

6,318

(2,504)

12,157

 - after exceptional costs, contingent consideration, amortisation and

 share-based payments

(10,354)

4,020

6,342

(2,775)

(2,767)

 

 

 

 

 

 

Finance costs

 

 

 

 

(1,797)

Profit before tax

 

 

 

 

(4,564)

Taxation

 

 

 

 

1,353

Profit for the period

 

 

 

 

(3,211)

 

 

 

Six months ended 30th June 2019 (continued)

 

 

Estate Agency and Related Services

 

 

Financial Services

Surveying
and Valuation Services

Unallocated

Total

 

£'000

£'000

£'000

£'000

£'000

Balance sheet information

 

 

 

 

 

Segment assets - intangible

160,382

18,805

11,975

-

191,162

Segment assets - other

85,316

12,271

17,007

8,337

122,931

Total Segment assets

245,698

31,076

28,982

8,337

314,093

Total Segment liabilities

(73,416)

(22,383)

(28,741)

(59,682)

(184,222)

Net assets/(liabilities)

172,282

8,693

241

(51,345)

129,871

 

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 £12,000, IFRS 16 plant and equipment £63,000, other assets £1,779,000, other taxes £49,000, accruals £(35,000), IFRS 16 financial liabilities £(63,000), deferred and current tax £(1,134,000), and revolving credit facility overdraft £(52,016,000).

 

 

Six months ended 30th June 2018

Income statement  information

Estate Agency and Related Services

(Restated)*

£'000

 

Financial

 Services

(Restated)*

£'000

 

Surveying

 and Valuation

 Services

£'000

 

 

 

Unallocated

 £'000

 

 

 

Total

£'000

 

 

 

 

 

 

Revenue from external customers

81,033

40,798

31,060

-

152,891

Intersegment revenue

7,843

(7,843)

-

-

-

Total revenue

88,876

32,955

31,060

-

152,891

 

 

 

 

 

 

Segmental result:

 

 

 

 

 

 - before exceptional costs, contingent

consideration, amortisation and

    share-based payments

1,388

3,616

8,604

(1,998)

11,610

- after exceptional costs, contingent consideration, amortisation and

    share-based payments

(2,513)

2,671

9,496

(2,220)

7,434

 

 

 

 

 

 

Finance costs

 

 

 

 

(1,018)

Profit before tax

 

 

 

 

6,416

Taxation

 

 

 

 

(1,555)

Profit for the period

 

 

 

 

4,861

 

 

Balance sheet information

 

 

 

 

 

Segment assets - intangible

160,231

18,968

12,323

-

191,522

Segment assets - other

72,826

8,178

9,194

1,775

91,973

Total Segment assets

233,057

27,146

21,517

1,775

283,495

Total Segment liabilities

(39,505)

(22,202)

(24,165)

(51,622)

(137,494)

Net assets / (liabilities)

193,552

4,944

(2,648)

(49,847)

146,001

 

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

 

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

 

Unallocated net liabilities comprise plant and equipment £6,000, other assets £1,746,000, accruals £(307,000), financial liabilities £(471,000), deferred and current tax liabilities £(4,321,000), and revolving credit facility overdraft £(46,500,000).

 

 

Year ended 31st December 2018

 

Estate Agency and Related Services

(Restated)*

Financial Services

(Restated)*

Surveying

and Valuation Services

Unallocated

Total

 Income Statement  information

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Revenue from external customers

167,415

87,427

69,798

-

324,640

Intersegment revenue

16,424

(16,424)

-

-

-

Total revenue

183,839

71,003

69,798

-

324,640

 

 

 

 

 

 

Segmental result:

 

 

 

 

 

 - before exceptional costs, contingent    consideration, amortisation and

share-based payments

11,107

9,461

20,426

(5,098)

35,896

 - after exceptional costs, contingent consideration, amortisation and share-based payments

3,605

7,996

19,022

(5,206)

25,417

 

 

 

 

 

 

Finance costs

 

 

 

 

(2,333)

Profit before tax

 

 

 

 

23,084

Taxation

 

 

 

 

(5,201)

Profit for the year

 

 

 

 

17,883

 

 

 

 

 

 

Balance sheet information

 

 

 

 

 

 

 

 

 

 

 

Segment assets - intangible

160,944

18,568

12,171

-

191,683

Segment assets - other

59,014

9,429

11,659

3,836

83,938

Total Segment assets

219,958

27,997

23,830

3,836

275,621

Total Segment liabilities

(40,100)

(24,789)

(27,828)

(40,311)

(133,028)

 

 

 

 

 

 

Net assets / (liabilities)

179,858

3,208

(3,998)

(36,475)

142,593

 

 

 

 

 

 

 

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

 

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

 

Unallocated net liabilities comprise plant and equipment £15,000, other assets £3,822,000, accruals £(922,000), deferred and current tax liabilities £(4,890,000), and revolving credit facility overdraft £(34,500,000).

 

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. 

 

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 8 to these Interim Condensed Consolidated Group Financial Statements and a reconciliation of Group Underlying Operating Profit is shown below:

 

 

 

30th June
2019

30th June
2018

31st December
2018

 

 

£'000

£'000

£'000

 

 

 

 

 

Group operating (loss) / profit

 

(2,767)

7,434

25,417

Share-based payments

 

553

590

349

Amortisation of intangible assets

 

2,236

2,718

5,301

Exceptional gains

 

(593)

   (1,189)

(2,188)

Exceptional costs

 

13,380

-

5,234

Contingent consideration charge

 

(652)

2,057

1,783

Group Underlying Operating Profit

 

12,157

11,610

35,896

 

 

 

 

 

Depreciation on owned property, plant and equipment

 

2,483

2,772

5,674

Depreciation on leased property, plant and equipment

 

5,030

-

-

Group Adjusted EBITDA

 

19,670

14,382

41,570

 

 

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.

 

Six months ended 30th June

 

 

 

Profit

after tax

£'000

Weighted average number of shares

2019

Per share amount

Pence

 

Profit

after tax

£'000

Weighted average number of shares

2018

Per share amount

Pence

 

 

 

 

 

 

 

 

Basic EPS

(3,211)

102,666,615

(3.1)

4,861

102,646,794

4.7

 

Effect of dilutive share options

 

984,381

 

 

1,038,545

 

 

Diluted EPS

(3,211)

103,650,996

(3.1)

4,861

103,685,339

4.7

               

 

 

Year ended 31st December 2018

 

 

 

 

Profit

after tax

£'000

Weighted

 average number of shares

2018

Per share

amount

Pence

 

 

 

 

 

 

Basic EPS

 

 

 

17,883

102,653,447

17.4

Effect of dilutive share options

 

 

 

 

839,935

 

Diluted EPS

 

 

 

17,883

103,493,382

17.3

 

 

 

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:

 

 

    Six months ended

Year Ended

 

30th June 2019

£'000

30th June

2018

£'000

31st  December

2018

£'000

Group operating profit before contingent consideration, exceptional items, share-based payments and amortisation (excluding non-controlling interest)

 

12,157

11,610

 

 

35,896

Net finance costs (excluding exceptional items and contingent consideration items)

(788)

(741)

(1,401)

Normalised taxation

(2,160)

(2,065)

(6,554)

Adjusted profit after tax  before exceptional items, share-based payments and amortisation

9,209

8,804

27,941

 

 

Six months ended 30th June

 

 

Adjusted profit after tax

£'000

Weighted average number of shares

2019

Per share amount
Pence

Adjusted profit after tax

£'000

Weighted average number of shares

2018

Per share amount
Pence

 

 

 

 

 

 

 

Adjusted basic EPS

9,209

102,666,615

9.0

8,804

102,646,794

8.6

Effect of dilutive share options

 

984,381

 

 

1,038,545

 

Adjusted diluted EPS

9,209

103,650,996

8.9

8,804

103,685,339

8.5

 

 

Year ended 31st December 2018

 

 

 

 

Adjusted

profit after tax

£'000

Weighted average number of shares

2018

Per share amount

Pence

 

 

 

 

 

 

 

Adjusted basic EPS

 

 

 

27,941

102,653,447

27.2

Effect of dilutive share options

 

 

 

 

839,935

 

Adjusted diluted EPS

 

 

 

27,941

103,493,382

27.0

 

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 19.00% (30th June 2018: 19.00% and 31st December 2018: 19.00%)

 

 

8.     Exceptional items

 

 

Six months ended

  Year Ended

 

30th June 2019

30th June

2018

31st December

 2018

 

£'000

£'000 

£'000

Exceptional costs:

 

 

 

Branch / centre closure and restructuring costs including redundancy costs

13,081

-

1,993

Transition costs relating to surveying contracts

299

-

3,241

 

13,380

-

5,234

Exceptional gains:

 

 

 

Exceptional gain in relation to historic Professional Indemnity costs

593

1,189

2,188

 

Exceptional costs

Initial non-recurring transition and integration costs of £0.3m (June 2018: £Nil, December 2018: £3.2m) relate to the contract to supply surveying and valuation services to Lloyds Bank plc.

 

In the Estate Agency Division there were £13.1m (June 2018: £Nil, December 2018: £2.0m) of non-recurring and material exceptional costs relating to the planned Estate Agency branch/centre closures and restructuring costs.  The most significant costs incurred are redundancy costs and leasehold property costs with the balance including non-cash fixed asset write-offs.

 

Exceptional Gains

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

In 2019 the Group has continued to make positive progress in settling historic PI claims resulting in a release of the provision of £0.6m (June 2018: £1.2m, December 2018: £2.2m)

 

 

9.     Dividends paid and proposed

 

A final dividend in respect of the year ended 31st December 2018, of 6.9 pence per share (Year ended December 2017: 7.3 pence per share), amounting to £7.1 million was paid in the period ended 30th June 2019.  An interim dividend has been announced amounting to 4.0 pence per share (June 2018: 4.0 pence).  Interim dividends are recognised when paid.

 

 

10.   Taxation

 

The major components of income tax charge in the interim Group income statements are:

 

      Six Months Ended

Year Ended

 

30th June

2019

30th June

2018

31st December 2018

 

£'000

£'000

£'000

UK corporation tax:

 

 

 

- current year credit / (charge)

1,503

(1,689)

(5,931)

- adjustment in respect of prior years

-

-

205

 

1,503

(1,689)

(5,726)

Deferred tax:

 

 

 

Origination and reversal of temporary differences

(150)

134

322

Adjustment in respect of prior year

 

-

203

 

(150)

134

525

 

 

 

 

Total tax credit / (charge) in the income statement

1,353

(1,555)

(5,201)

 

The headline UK rate of corporation tax will decrease from 19% to 17% effective from 1st April 2020, and the future rate of 17% is the rate at which deferred tax has been provided (2018: 17%).   Corporation tax is recognised at a rate of 19% for the current period (2018: 19%), although this will reduce to a blended rate of 17.5% for the year ended 31st December 2020.

 

Deferred tax charged directly to other comprehensive income relating to the revaluation of financial assets is £Nil.  In the six months ended 30th June 2018 £Nil and year ended 31st December 2018 £Nil.

 

 

 

11.   Financial assets

 

Six Months Ended

Year Ended

 

 

30th June

2019

30th June

2018

31st December 2018

 

£'000

£'000

£'000

Convertible loan notes -  at fair value

 

 

 

Unsecured convertible loan notes - interest free

750

-

-

Secured convertible loan notes - 5%

1,000

-

-

 

1,750

-

-

Investment in equity instruments - at fair value

 

 

 

Unquoted shares at fair value

7,545

23,766

11,566

Quoted shares at fair value

-

2,266

-

 

7,545

26,032

11,566

Other financial instruments - at fair value

 

 

 

IFRS 16 lessor financial assets

307

-

-

 

 

 

 

 

9,602

26,032

11,566

 

 

 

 

Opening balance

11,566

25,282

25,282

Adjustment on initial recognition of IFRS 16

329

-

-

 

11,895

25,282

25,282

 

 

 

 

Acquisitions

1,750

13

13

Disposals

(1,037)

-

(2,266)

Fair value adjustment recorded through profit and loss

-

737

737

Fair value adjustment recorded through reserves

(3,006)

-

(12,200)

Closing balance

9,602

26,032

11,566

 

 

 

 

Non-current assets

9,602

26,032

11,566

Current assets

-

-

-

 

9,602

26,032

11,566

 

Convertible loan notes at fair value

LSL has subscribed for £1,000,000 of Convertible Secured Preference Loan Notes with Mortgage Gym Limited.  Interest on the Convertible Secured Preference Loan Notes is 5% per annum.  The final repayment date of the Convertible Secured Preference Loan Notes is 5th June 2024. Repayment may take place before this date.  The Convertible Secured Preference Loan Notes are secured by way of debenture.

 

LSL has subscribed for £750,000 of Unsecured Convertible Loan Notes with Yopa Property Limited.  The Unsecured Convertible Loan Notes do not receive any interest.  The final repayment date of the Unsecured Convertible Loan Notes is 16th May 2020.  Repayment may take place before this date on the occurrence of certain events.  

                               

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 31 to the December 2018 Group Financial Statements). 

 

Vibrant Energy Matters Limited (VEM)

The carrying value of the Group's investment in VEM at 30th June 2019 has been assessed as £722,000 (June 2018: £722,000 and December 2018: £722,000).

NBC Property Master Limited

The carrying value of the Group's investment at 30th June 2019 has been assessed as £78,000 (June 2018: £78,000 and December 2018: £78,000).

Global Property Ventures Limited

The carrying value of the Group's investment in Global Property Ventures Limited at 30th June 2019 has been assessed as £250,000 (June: 2018: £250,000 and December 2018: £250,000).

 

eProp Services plc

In June 2019 the Group disposed of 100% of it's holding in eProp Services plc for a consideration of £1,015,000. At the 30th June 2018 and 31st December 2018 the investment was assessed as £2,716,000. There were no tax effects resulting from the disposal.

 

Yopa Property Limited

The carrying value of the Group's investment in Yopa at 30th June 2019 has been assessed as £6,500,000 (June 2018: £20,000,000 and December 2018: £7,800,000).  The fair value of the Group's investment in Yopa has been assessed by using Level 3 techniques.  This has led to the recognition of a fair value impairment of £1,305,000 (June 2018:£Nil and 2018: £12,200,000) which has been recognised in the Statement of Other Comprehensive Income.

 

 

12.   Financial liabilities

 

Six Months Ended

Year Ended

 

30th June

2019

30th June

2018

31st December 2018

 

£'000

£'000

£'000

Current

 

 

 

IFRS 16 lessee financial liabilities

12,273

-

-

Deferred consideration

86

1,929

1,998

Contingent consideration

8,242

8,297

8,457

 

20,601

10,226

10,455

Non-current

 

 

 

Bank loans - revolving credit facility (RCF)

57,000

46,500

34,500

IFRS 16 lessee financial liabilities

26,993

-

-

Deferred consideration

-

71

75

Contingent consideration

6,382

6,232

6,581

 

90,375

52,803

41,156

 

Unsecured loan notes

 

A variation of the 2011 loan notes was issued as a part of the satisfaction of the consideration of Marsh & Parsons. The first instalment was paid in July 2016 and the final payment of £2.0m was paid in March 2018.

 

Contingent consideration -

 

Six Months Ended

Year Ended

 

30th June

2019

30th June

2018

31st December 2018

 

£'000

£'000

£'000

 

 

 

 

LSLi contingent consideration

593

449

488

LMS

-

1

-

Group First Limited

8,917

9,384

9,476

RSC

4,878

4,395

4,751

Other

236

300

323

 

14,624

14,529

15,038

 

 

 

 

Opening balance

15,038

9,059

9,059

Cash paid

(133)

(1,306)

(1,392)

Acquisition

144

4,445

4,773

Amounts recorded though income statement

(425)

2,331

2,598

Closing balance

14,624

14,529

15,038

 

£593,000 (June 2018: £449,000 and December 2018: £488,000) of contingent consideration relates 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. 

£8,917,000 of contingent consideration relates to Group First (June 2018: £9,284,000 December 2018: £9,476,000).  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 £25.0m.

 

£4,878,000 of contingent consideration relates to RSC New Homes (June 2018: £4,395,000 and December 2018: £4,751,000). 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 £7,500,000.

During 2019 £2,133,000 (June 2018: £1,305,000 and December 2018: £1,392,000) of deferred and contingent consideration was paid to third parties.

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 relating to amounts accounted for as:

30th June

2019

30th June

2018

31st December 2018

 

£'000

£'000

£'000

 

 

 

 

Put options over non-controlling interests

-

1

-

Arrangement under IFRS 3

14,624

14,528

15,038

Closing balance

14,624

14,529

15,038

 

 

 

 

Contingent consideration profit and loss impact in the period relating to amounts accounted for as:

 

                         

 

 

 

 

 

Remuneration

-

-

-

Put options over non-controlling interests

-

-

2

Arrangement under IFRS 3

(652)

2,055

1,781

Unwinding of discount on contingent consideration

227

277

815

(Credit) / charge

(425)

2,332

2,598

 

 

13.   Provisions for liabilities

Six months ended 30th June:

2019

2018

 

Professional indemnity claim provision

 

Onerous

leases

 

 

Total

Professional indemnity claim provision

Onerous

leases

 

Total

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Balance at 1st January

12,430

130

12,560

15,916

210

16,126

(1,507)

(474)

(1,981)

(482)

(3)

(485)

Amount released

(593)

-

(593)

(1,189)

(70)

(1,259)

15

-

15

21

-

21

Provided in the period

520

1,265

1,785

382

-

382

10,865

921

11,786

14,648

137

14,785

 

 

 

 

 

 

5,228

506

5,734

8,061

43

8,104

5,637

415

6,052

6,587

94

6,681

 

10,865

921

11,786

14,648

137

14,785

 

 

 

Year ended 31st December 2018

 

 

 

Professional indemnity

 claim provision

Onerous

leases

 

Total

 

£'000

£'000

£'000

         

 

 

 

Balance at 1st January

15,916

210

16,126

Amount utilised

(1,985)

(85)

(2,070)

Amount released

(2,187)

(55)

(2,242)

Unwinding of discount

43

-

43

Provided in financial year

643

60

703

Balance at 31st December

12,430

130

12,560

 

 

 

 

Current

6,525

91

6,616

Non-current

5,905

39

5,944

 

12,430

130

12,560

 

 

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 30th June 2019 the total provision for PI Costs was £10.9m (December 2018: £12.4m).  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 £1.1m 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 £0.1m.

 

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 £0.1m 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.

 

 

 

14.   Analysis of Net Bank Debt

 

Six Months Ended

Year Ended

 

30th June

2019

30th June

2018

31st December 2018

 

£'000

£'000

£'000

Interest bearing loans and borrowings

 

 

 

-       Current

20,601

10,226

10,456

-       Non-current

90,375

52,803

41,156

 

110,976

63,029

51,612

Less: cash and short-term deposits

(4,984)

(516)

(2,405)

IFRS 16 Lessee financial liabilities

(39,266)

-

-

Less: deferred and contingent consideration

(14,710)

(16,529)

(17,112)

Net Bank Debt at the end of the period

52,016

45,984

32,095

 

 

15.   Financial instruments - risk management

 

The financial risks the Group faces and the methods used to manage these risks have not changed since 31st December 2018.  Further details of the risk management policies of the Group are disclosed in Note 31 of the Group's Financial Statements for the year ended 31st December 2018.

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.

 

 

16.   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 30th June 2019, 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.

 

30th June 2019

Total

Level 1

Level 2

Level 3

 

£'000

£'000

£'000

£'000

Assets measured at fair value

 

 

 

 

Financial assets

9,295

-

-

9,295

Liabilities measured at fair value

 

 

 

 

Contingent consideration

14,624

-

-

14,624

 

30th June 2018

Total

Level 1

Level 2

Level 3

 

£'000

£'000

£'000

£'000

Assets measured at fair value

 

 

 

 

Financial assets

26,032

2,266

-

23,766

Liabilities measured at fair value

 

 

 

 

Contingent consideration

14,529

-

-

14,529

 

31st December 2018

Total

Level 1

Level 2

Level 3

 

£'000

£'000

£'000

£'000

Assets measured at fair value

 

 

 

 

Financial assets

11,566

-

-

11,566

Liabilities measured at fair value

 

 

 

 

Contingent consideration

15,038

-

-

15,038

 

Of the investments totalling £9,602,000, all are valued using Level 3 valuation techniques.  The Directors reviewed the fair value of the financial assets at 30th June 2019.  Excluding loan notes, 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%, £0.8m.

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.

 

17.   Acquisitions

Six months ended 30th June 2019

 

·      Lettings income

 

During the period the Group acquired three lettings books for initial consideration paid of £1,300,000, and total consideration of £1,445,000.

 

 

 

INDEPENDENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC

 

Introduction

 

We have been engaged by the Company to review the Interim Condensed Group Financial Statements in the half-yearly financial report for the six months ended 30th June 2019 which comprises the Interim Group Income Statement, the Interim Group Statement of Comprehensive Income, the Interim Group Balance Sheet, the Interim Group Cash Flow Statement, the Interim Group Statement of Changes in Equity and the related Notes 1 to 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 30th June 2019 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

30th July 2019

 

 


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