Interim Results

RNS Number : 7054L

LSL Property Services

04 August 2011

 



4 August 2011

LSL Property Services plc ("LSL")

Interim Results

LSL Property Services plc, a leading provider of residential property services incorporating both estate agency and surveying businesses, announces interim results for the six months ended 30 June 2011.

Highlights

Group 

§ Group revenue increased by 2% to £103.4m (2010: £101.1m)

§ Group Underlying Operating Profit⁽¹⁾ was £11.8m (2010: £13.4m).  Reduction in profit as expected  after planned investment of £2.6m in growing market share in estate agency

§ Operating margin was 11.5% (2010: 13.3%).

§ Profit before tax decreased to £6.5m (2010: £19.7m) as 2010 included an exceptional gain of £13.4m arising on acquisition of Halifax Estate Agencies Limited.

§ Basic earnings per share 4.7p (2010: 19.4p). Adjusted basic earnings per share decreased by 12.5% to 7.7p (2010: 8.8p)

§ Half Year dividend increased by 12% to 2.8p per share (2010 : 2.5p)

§ Continued strong cash generation. Net debt reduced by £8.1m to £6.2m at 30 June 2011 (30 June 2010: £14.3m)

Surveying Performance 

§ Underlying Operating Profit was £12.8m (2010: £15.2m). Surveying operating margin 33.3% (2010: 36.0%)

§ Revenue decline driven by reduction in mortgage approvals and particularly strong comparatives for key lenders

§ Strong growth in provision of surveying services to private buyers resulting in revenue of £1.3m during the period

Estate Agency Performance

§ Underlying Operating Profit was £0.6m (2010: loss of £0.6m)

§ Market share increased to 4.5% (2010: 4.0%) and pipeline growth of 5% against the backdrop of a further fall in mortgage approvals

§ Profit held back by planned £2.6m investment in people and call centre

§ Agency branches revenue growth supported by improved contribution from lettings up 19% to £13.6m and financial services up 42% to £8.7m. Ex Halifax Estate Agency branches on track for three year profit improvement plan.

(1)   Underlying Operating Profit is before exceptional costs, amortisation of intangible assets and share-based payments

Commenting on today's announcement, Roger Matthews, Chairman, said:

"Against the backdrop of an ongoing challenging housing market, we have continued to strengthen our market positions and drive new revenue streams in both Estate Agency and Surveying. As a result, the Board remains confident of delivering further progress in 2011, a confidence that is reflected in our decision to announce a 12% increase in the interim dividend payment to 2.8p per share."

For further information, please contact:

Simon Embley, Group Chief Executive Officer                  

Steve Cooke, Group Finance Director

LSL Property Services plc                                                                                   0207 382 0360

Richard Darby, Nicola Cronk

Buchanan                                                                                                          0207 466 5000

An analysts' briefing will be held today at 09.30am at the offices of Buchanan Communications 107 Cheapside, London EC2V 6DN.

Notes to Editors:

LSL Property Services plc is one of the leading residential property services companies in the UK and provides a broad range of services to its clients who are principally mortgage lenders, as well as buyers and sellers of residential properties. For further information, please visit our website: www.lslps.co.uk.

Chairman's Statement

Underlying Operating Profit⁽¹⁾ for the 6 months ended 30 June 2011 was £11.8m (2010: £13.4m) after the Group invested £2.6m as planned to grow its market share in Estate Agency. Market conditions remained extremely challenging with mortgage approvals for house purchase falling by 4% to 284,000 compared to the same period in 2010 and total mortgage approvals was 2% lower.

Despite the tough market, our new Surveying services for private buyers and the market share growth initiatives in Estate Agency are achieving excellent early results.  We are confident that the investments made in the business in the first half will result in volume increases in the second half of the year and into the longer term. Estate Agency pipelines at 30 June 2011 were 5% higher than in June 2010 and are continuing to build despite the decline in market volumes.

Estate Agency delivered an impressive result given the market conditions and the substantial up-front investment in the cost base.  The Estate Agency business made further market share gains which continued the momentum generated during 2010, and achieved significant increases in lettings and financial services income especially in the ex Halifax Estate Agency branches.

Our Surveying division has delivered a robust performance despite a further contraction in the market from what were already historically low levels. In addition to the reduction in market volumes a number of our key lender clients were trading against strong 2010 comparatives but we expect activity levels to pick up in the second half of the year against the comparative.  

Operating cash generation in the period was again strong with net debt reduced by £8.1m from £14.3m at 30 June 2010 to £6.2m at 30 June 2011. The Group has a strong balance sheet and committed bank facilities of £75m through to March 2014.

Financial Results

·      Group revenue increased by 2% to £103.4m (2010: £101.1m)

·      Underlying Group Operating Profit⁽¹⁾ decreased by 11.8% to £11.8m (2010: £13.4m) after the planned investment of £2.6m in Estate Agency

·      Operating margin was 11.5% (2010: 13.3%)

·      Net interest payable was £0.8m (2010: £1.1m) and the Group profit before tax, amortisation and exceptional cost/profit was £10.7m (2010: £10.4m).

·      Profit before tax was £6.5m (2010: £19.7mincluding an exceptional gain of £13.4m arising on acquisition of Halifax Estate Agencies Limited).

·      The effective rate of tax was 26.3%. The underlying effective tax rate, excluding exceptional and prior year tax adjustments, was 28%.

·      Earnings per share of 4.7p (2010: 19.4p); adjusted basic earnings per share of 7.7p (2010: 8.8p)

·      Half Year dividend increased by 12% to 2.8p per share (2010 : 2.5p)

(1)   Underlying Operating Profit is before exceptional costs, amortisation of intangible assets and share-based payments

Divisions

·      Estate Agency turnover increased by 11% to £65.0m (2010: £58.8m) and generated an Underlying Operating Profit of £0.6m (2010: Underlying Operating Loss of £0.6m)

·      Surveying turnover decreased by 9% to £38.3m (2010: £42.3m), and the Underlying Operating Profit decreased by 16% to £12.8m (2010: £15.2m). The overall Surveying margin was 33.3% (2010: 36.0%)

Balance Sheet

Net assets at 30 June 2011 were £66.3m (2009: £60.9m). Net debt at 30 June 2011 was £6.2m representing a reduction of £8.1m from June 2010.

Cashflow and Capital Expenditure

The Group has delivered strong cash generation in the first half of 2011 with cash inflow from operations pre exceptionals of £7.2m (2010: £14.5m).  There were working capital cash outflows during the period relating to deferred marketing fees, VAT instalment payments and some residual Halifax Estate Agencies Limited costs. Total capital expenditure during the first half of 2011 was £1.6m mainly relating to investment in developing our IT infrastructure.

Net debt at 30 June 2010 benefited from inclusion of all of the cash received relating to the acquisition of the Halifax Estate Agency business while some of the costs of integration of the business were incurred in the second half of 2010. Net debt has increased slightly compared to £4.9m at 31 December 2010, reflecting the relatively weak seasonal agency cash inflows in the first half of the year combined with planned cash outflows relating to dividends, tax and employee related share purchases.

Interim Dividend

The Board has declared an interim dividend payable of 2.8 pence per share, an increase of 12% on last year (2010: 2.5p).  The dividend payment reflects our positioning at the top end of our previously stated policy of applying a dividend payout ratio of between 30% to 40% of Underlying Group Profit after Tax. The dividend will be paid on 9 September 2011 to shareholders on the register at 12 August 2011.

Developments

The surveying market has been particularly challenging during the first half due to the combination of a further reduction in mortgage approval volumes and tough comparatives for certain key lender clients. In addition, while remortgage volumes increased by 19% during the period much of the increase did not result in physical survey valuations because the transactions were at low loan to value ratios. However we have continued to invest in the provision of market leading service levels to lender clients which has resulted in key contract renewals during the period and as a result the Surveying operating margin reduced to 33.3% (2010: 36.0%). Professional Indemnity claims continued at a high level across the sector but our costs have been running at budgeted levels during the period.

One of our key organic growth initiatives is the expansion of Surveying services for private buyers which began with the trial of the new RICS Condition Report in late 2010. Since then we have successfully  mobilised several distribution channels. Revenue for these services was £1.3m during the period and the annualised average daily run rate during June 2011 was £3.0m. In addition the margin on this business is higher than had been expected as the majority of buyers are trading up to more detailed reports.

Our Estate Agency division has once again made excellent progress despite a further 4% decline in activity levels in the house purchase market. The first stage of a programme of market share improvement initiatives focusing on investment in branch management was started during 2010. This has been continued during 2011 while a second stage started in January 2011 with the launch of 'The Bridge' call centre. The overall result has been an increase in market share from 4.0% in the first half of 2010 to 4.5% in the first half of 2011 together with a 5% increase in pipelines compared to June 2010, the benefit from which should convert into profit in the second half of the year. We have also continued to grow lettings and financial services income streams especially in the ex Halifax Estate Agency branches that were acquired in January 2010 and which had not previously offered these services to customers. During the first half, total lettings income grew by 19% compared to the previous year and financial services income grew by 42%. 

The Group invested an additional £2.6m in the Estate Agency division during the period, principally in branch management and 'The Bridge' call centre. We have achieved very encouraging increases in market share and pipelines to date but the full benefits of this investment will be seen in the second half of 2011 and beyond.

The Group remains committed to building counter cyclical income streams in Estate Agency and the latest increase in lettings performance now takes this core income stream from a level that was £6.5m in the first half of 2008 to £13.6m in the first half of 2011. Our other key counter cyclical business is asset management, which contributed revenue of £7.4m during the first half. While this was 5% lower than the first half of 2010 all of the reduction was due to a decline in market volumes as estimated repossessions of 18,000 in the first half were 10% lower than the same period last year.  

Further to the financial services acquisitions in 2010, we have made good progress during the period in building a simplified operating model across LSL's intermediary networks, including First Complete and Pink Home Loans and as a result profitability is improving as expected.  In line with our strategy of making strategically important acquisitions in the sector we acquired 'The Mortgage Alliance,' the mortgage distribution business of Santander UK plc (with £250,000 net assets) in July 2011.

In July 2011 we also acquired an interest of 33.33% in Legal Marketing Services Limited (LMS) and LMS Direct Conveyancing Limited (LMS DC) through investment in Cybele Solutions Holdings Limited (the ultimate parent company of LMS and LMS DC (LMS Group).  The LMS Group operates a conveyancing and remortgage panel management business mainly for lender clients and also provides conveyancing services.

Outlook

While market conditions remain extremely challenging with volumes at less than 50% of historic norms, we are pleased with progress during the first half year which included substantial investment in key organic growth initiatives. LSL retains a cautious view of the market for 2011 given the continued shortage of available mortgage finance and the general economic uncertainty particularly in the financial sector.

Despite this backdrop the results from the first half have reaffirmed our strategy of growing market share in Estate Agency and developing Surveying services for private buyers and the Board remains confident of delivering further progress in 2011. Even without recovery in market transaction volumes the Group is well positioned to increase shareholder value both through the delivery of the organic growth initiatives and from further value accretive acquisitions.

Roger Matthews

4 August 2011

Principal risks and uncertainties

There are a number of risks and uncertainties facing the business in the second half of the financial year. The Board has reconsidered the risks and uncertainties as described on page 21 of the 2010 Report & Accounts, dated 2 March 2011 (a copy of which is available on the Group's website at www.lslps.co.uk) and consider these to be still appropriate.  In addition to the risks and uncertainties mentioned therein we believe that the current economic uncertainty especially in the financial sector could impact lender behaviour in the UK market and have a consequential impact on mortgage availability.

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

Sapna B FitzGerald

Company Secretary

Interim Group Income Statement

for the six months ended 30 June 2011

		Unaudited		Audited
		Six Months Ended		Year Ended
		30 June	30 June	31 December
		2011	2010	2010
	Note	£'000	£'000	£'000
Revenue	3	103,365	101,084	206,607
Operating expenses:
Employee and subcontractor costs		(60,308)	(54,382)	(115,763)
Establishment costs		(8,485)	(7,564)	(14,891)
Depreciation on property, plant  and equipment		(1,121)	(706)	(1,748)
Other		(22,448)	(25,834)	(43,960)
		(92,362)	(88,486)	(176,362)
Rental income		555	825	1,690
Group's share in post tax profits of joint ventures	9	286	-	-
Group operating profit before exceptional (costs)/income, amortisation and share-based payments	3	11,844	13,423	31,935
Share-based payments		(340)	(208)	(298)
Amortisation of intangible assets		(3,952)	(4,038)	(8,077)
Exceptional (costs)/profit	5	(245)	13,275	12,189
Gain on sale of available-for-sale financial assets		-	-	3,923
Group operating profit		7,307	22,452	39,672
Dividend income		-	516	516
Finance income		6	2	5
Finance costs		(821)	(1,114)	(2,228)
Exceptional finance costs	5	-	(2,186)	(2,007)
Net financial costs		(815)	(2,782)	(3,714)
Profit before tax	3	6,492	19,670	35,958
Taxation
- related to exceptional costs		69	3,841	4,911
- others		(1,779)	(3,574)	(6,334)
	7	(1,710)	267	(1,423)
Profit for the period/year		4,782	19,937	34,535
Attributable to:
- Owners of the parent		4,794	19,937	34,500
- Non-controlling interest		(12)	-	35
Earnings per share expressed in pence per share:
Basic	4	4.7	19.4	33.6
Diluted	4	4.7	19.3	33.4
Basic (adjusted)	4	7.7	8.8	21.0
Diluted (adjusted)	4	7.7	8.8	20.9

Interim Group Statement of Comprehensive Income

for the six months ended 30 June 2011

	Unaudited		Audited
	Six Months Ended		Year Ended
	30 June	30 June	31 December
	2011	2010	2010
	£'000	£'000	£'000
Profit for the period/year	4,782	19,937	34,535
Recycling of unrealised gains reserve	-		(3,900)
Recycling of cash flow hedge	-	87	87
Income tax	-	(24)	(24)
Other comprehensive income for the period/year, net of tax	-	63	(3,837)
Total comprehensive income for the period/year, net of tax	4,782	20,000	30,698

Attributable to:
- Owners of the parent	4,794	20,000	30,663
- Non-controlling interest	(12)	-	35

Interim Group Balance Sheet
as at 30 June 2011

	Unaudited			Audited
		At 30 June 2011	At 30 June 2010	At 31 December 2010
		£'000	£'000	£'000
Non-current assets
Goodwill		74,932	72,416	74,742
Other intangible assets		13,661	21,355	17,613
Property, plant and equipment		14,350	11,708	13,850
Financial assets		347	4,798	1,097
Investments accounted for under the equity method		700	-	-
Other receivables		-	150	-
Total non-current assets		103,990	110,427	107,302
Current assets
Trade and other receivables		30,795	27,891	25,136
Current tax assets		-	433	-
Cash and cash equivalents		269	1,783	338
Total current assets		31,064	30,107	25,474
Total assets		135, 054	140,534	132,776
Current liabilities
Financial liabilities		-	(556)	(92)
Trade and other payables		(46,924)	(50,401)	(45,085)
Current tax liabilities		(1,903)	-	(258)
Provisions for liabilities and charges		(440)	(665)	(584)
Total current liabilities		(49,267)	(51,622)	(46,019)
Non-current liabilities
Financial liabilities		(6,494)	(15,537)	(5,155)
Trade and other payables		-	(1,128)	-
Deferred tax liability		(2,135)	(1,011)	(2,183)
Provisions for liabilities and charges		(10,848)	(10,379)	(11,309)
Total non-current liabilities		(19,477)	(28,055)	(18,647)
Net Assets		66,310	60,857	68,110
Equity
Share capital		208	208	208
Share premium account		5,629	5,629	5,629
Share-based payment reserve		467	1,090	1,014
Treasury shares		(3,109)	(2,272)	(3,139)
Unrealised gain reserve		-	3,900	-
Retained earnings		63,092	52,302	64,363
Equity attributable to owners of parent		66,287	60,857	68,075
Non-controlling interests		23	-	35
Total Equity		66,310	60,857	68,110

Interim Group Statement of Cash Flows 

for the six months ended 30 June 2011

	Unaudited - Six Months Ended				Audited Year Ended
	30 June 2011		30 June 2010		31 December 2010
	£'000	£'000	£'000	£'000	£'000	£'000
Cash generated from operating activities
Profit before tax		6,492		19,670		35,958
Adjustments to reconcile profit before tax to net cash generated from operating activities
Negative goodwill	-		(29,145)		(29,825)
Exceptional operating costs (excluding negative goodwill and share-based payments)	245		15,870		17,636
Gain on sale of available-for-sale financial asset	-		-		(3,923)
Amortisation of intangible assets	3,952		4,038		8,077
Dividend income	-		(516)		(516)
Exceptional finance costs	-		2,186		2,007
Finance income	(6)		(2)		(5)
Finance costs	821		1,114		2,228
Share-based payments	340		208		298
		5,352		(6,247)		(4,023)
Group operating profit before exceptional costs, amortisation and share-based payments		11,844		13,423		31,935
Share of post tax profit of joint venture	(286)		-		-
Depreciation	1,121		706		1,748
Loss/(gain) on sale of property, plant and equipment	6		-		(17)
		841		706		1,731
(Increase)/decrease in trade and other receivables	(6,640)		(1,862)		4,679
Increase/(decrease) in trade and other payables and provisions	1,194		2,213		(2,675)
		(5,446)		351		2,004
Cash generated from operations pre exceptional costs		7,239		14,480		35,670
Exceptional costs paid		(245)		(13,726)		(18,560)
Cash generated from operations		6,994		754		17,110
Interest paid		(821)		(1,145)		(1,957)
Tax paid		(113)		(3,638)		(3,485)
Net cash from operating activities		6,060		(4,029)		11,668
Cash flows from investing activities
Cash acquired on purchase of subsidiary undertakings and commercial business	-		25,972		25,946
Purchase of subsidiary undertakings, minority interest and commercial business	(150)		(1,993)		(3,742)
Dividends received	336		516		516
Interest received	6		2		5
Purchase of property, plant and equipment	(1,627)		(1,935)		(4,982)
Proceeds from sale of property, plant and equipment	-		719		738
Purchase of available-for-sale financial asset	-		-		(195)
Repayment of amounts due  from sale of available-for-sale financial asset	981		-		1,961
Net cash from investing activities		(454)		23,281		20,247

Interim Group Statement of Cash Flows 

for the six months ended 30 June 2011

	Unaudited - six months ended				Audited Year Ended
	30 June 2011		30 June 2010		31 December 2010
	£'000	£'000	£'000	£'000	£'000	£'000
Cash flows from financing activities
Proceeds from revolving credit facility	1,247		-		-
Repayment of revolving credit facility	-		(13,154)		(23,692)
Purchase of treasury shares (net of consideration received on reissue of treasury shares)	(857)		394		(597)
Dividends paid	(6,065)		(5,567)		(8,146)
Net cash used in financing activities		(5,675)		(18,327)		(32,435)
Net increase/(decrease) in cash and cash equivalents		(69)		925		(520)
Cash and cash equivalents at the beginning of the year		338		858		858
Cash and cash equivalents at the end of the year		269		1,783		338

Interim Group Statement of Changes in Equity

for the six months ended 30 June 2011

Unaudited six months ended 30 June 2011

	Share capital	Share premium account	Share- based payment reserve	Investment in treasury shares	Hedging reserve	Retained earnings	Total equity	Minority interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2011	208	5,629	1,014	(3,139)	-	64,363	68,075	35	68,110
Profit for the period	-	-	-	-	-	4,794	4,794	(12)	4,782
Other  comprehensive income	-	-	-	-	-	-	-	-	-
Total comprehensive income	208	5,629	1,014	(3,139)	-	69,157	72,869	23	72,892
Investment in treasury shares	-	-	-	(1,751)	-	-	(1,751)	-	(1,751)
Reissuance of treasury shares	-	-	(887)	1,781	-	-	894	-	894
Share-based payments	-	-	340	-	-	-	340	-	340
Dividend paid	-	-	-	-	-	(6,065)	(6,065)	-	(6,065)
At 30 June 2011	208	5,629	467	(3,109)	-	63,092	66,287	23	66,310

Treasury shares represent the cost of LSL Property Services plc shares purchased in the market and held by the Employee Benefit Trust to satisfy future exercise of options under the Group's share options schemes. At 30 June 2011 the Group held 1,311,109 (31 December 2010: 1,381,907) of its own shares at an average cost of £2.37 (31 December 2010: £2.27). The market value of the shares at 30 June 2011 was £3,668,000. The nominal value of each share is 0.2p.

Unaudited six months ended 30 June 2010

	Share capital	Share premium account	Share- based payment reserve	Investment in treasury shares	Unrealised gains reserve	Hedging reserve	Retained earnings	Total equity	Minority interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January  2010	208	5,629	2,259	(2,805)	3,900	(63)	36,729	45,857	-	45,857
Profit for the period	-	-	-	-	-	-	19,937	19,937	-	19,937
Other comprehensive income	-	-	-	-	-	63	-	63	-	63
Total comprehensive income	208	5,629	2,259	(2,805)	3,900	-	56,666	65,857	-	65,857
Reissuance of treasury shares	-	-	(1,377)	533	-	-	1,203	359	-	359
Share-based payments	-	-	208	-	-	-	-	208	-	208
Dividend paid	-	-	-	-	-	-	(5,567)	(5,567)	-	(5,567)
At 30 June 2010	208	5,629	1,090	(2,272)	3,900	-	52,302	60,857	-	60,857

Interim Group Statement of Changes in Equity

Year ended 31 December 2010

	Share capital	Share premium account	Share- based payment reserve	Investment in treasury shares	Unrealised gains reserve	Hedging reserve	Retained earnings	Total equity	Minority interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2010	208	5,629	2,259	(2,805)	3,900	(63)	36,729	45,857	-	45,857
Profit for the year	-	-	-	-	-	-	34,500	34,500	35	34,535
Other comprehensive income	-	-	-	-	(3,900)	63	-	(3,837)	-	(3,837)
Total comprehensive income	208	5,629	2,259	(2,805)	-	-	71,229	76,520	35	76,555
Purchase of treasury shares	-	-	-	(1,007)	-	-	-	(1,007)	-	(1,007)
Reissuance of treasury shares	-	-	(1,543)	673	-	-	1,280	410	-	410
Share-based payments	-	-	298	-	-	-	-	298	-	298
Dividend paid	-	-	-	-	-	-	(8,146)	(8,146)	-	(8,146)
At 31 December 2010	208	5,629	1,014	(3,139)	-	-	64,363	68,075	35	68,110

Notes to the Interim Condensed Group Financial Statements

The interim condensed group financial statements for the year ended 30 June 2011 was approved by the board of directors on 4 August 2011. The Group's published financial statements for the year ended 31 December 2010 have been reported on by the Group's auditors and filed with the Registrar of Companies. The auditor's report on those accounts, which have been filed with the Registrar of Companies, was unqualified and did not contain an emphasis of matter paragraph, and did not make a statement under section 498 of the Companies Act 2006.

1              Basis of preparation

The interim condensed group financial statements for the year ended 30 June 2011 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and IAS 34 Interim Financial Reporting (as adopted by the EU).  The interim condensed group financial statements have been prepared on a going concern basis.

The interim condensed 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 December 2010.

Significant accounting policies

The accounting policies adopted in the preparation of the interim condensed group financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2010.  Also see note 9.

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 ongoing 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 a those as at 31 December 2010. These assumptions are discussed in detail on page 51 and in notes 14 and 21 of the Group's annual financial statements for the year ended 31 December 2010. The assumptions discussed are as follows:

·              Impairment of intangible assets

·              Professional indemnity claims

New standards and interpretations

The amendments to the following standards below did not have any impact on the accounting policies, financial position or performance of the Group:

·              IAS 32 Amendments to IAS 32 Classification of Rights Issue

·              IAS 24 Related Party Disclosures (Revised)

·              Improvements to International Financial Reporting Standards 2010

·              IFRIC 14 Amendments to IFRIC 14 - Prepayments of a minimum funding requirement

·              IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

·              IAS 39 Financial Instruments: Recognition and Measurement - Eligible hedged items (Amendment)

1.             Basis of preparation (continued)

Significant accounting policies (continued)

New standards and interpretations (continued)

The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not effective for the financial year beginning 1 January 2011 and have not been early adopted:

International Accounting Standards (IAS/IFRSs)		Effective date*
IFRS 9	Financial Instruments: Classification and Measurement	1 January 2013

*  The effective dates stated here are those given in the original IASB/IFRIC standards and interpretations. As the Group has elected to prepare their financial statements in accordance with IFRS as adopted by the European Union, the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group's discretion to adopt standards early.

Going concern

The Group has in place borrowing facilities to March 2014 to a maximum of £75m. These facilities are subject to financial performance covenants. The Board has prepared a working capital forecast based upon assumptions as to trading and has concluded that the Group has adequate working capital, will meet the financial performance covenants 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 property market turnover is normally higher in the second half of the year.

3.             Segment analysis of revenue and operating profit

For management purposes, the group is organised into business units based on their products and services and has two reportable operating segments as follows:

·              The estate agency and related services provides services related to the sale and letting of housing via a network of high street branches. In addition, it provides repossession asset management services to a range of lenders. It also sells mortgages for a number of lenders and sells life assurance and critical illness policies, etc for a number of insurance companies via the estate agency branch and Linear network.  It also operates as a mortgage and insurance distribution company providing products and services to financial intermediaries.

·              The surveying and valuation segment provides a professional valuation service of domestic properties to various lending corporations and professional survey service to individual customers.

No operating segments have been aggregated to form the above reported operating segments.

Management 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 consolidated 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. 

3.             Segment analysis of revenue and operating profit (continued)

Operating segments

The following table present revenue and profit information regarding the group's operating segments for the years ended 30 June 2011 and 2010.

Six Months ended 30 June 2011	Estate agency and related  activities £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Income statement  information
Segmental revenue	65,011	38,354	-	103,365
Segmental result:
· before exceptional costs, amortisation and share-based payments	583	12,789	(1,528)	11,844
· after exceptional costs, amortisation and share based payments	(743)	9,624	(1,575)	7,307
Dividend income				-
Finance income				6
Finance costs				(821)
Profit before tax				6,492
Taxation				(1,710)
Profit for the period				4,782

In the period ended 30 June 2011, there is no revenue from one customer that accounts for 10% or more of the Group's total revenue (2010 - none).

Six months ended 30 June 2010

	Estate agency and related  activities £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Income statement  information
Segmental revenue	58,761	42,323	-	101,084
Segmental result:
· before exceptional costs, amortisation and share-based payments	(606)	15,217	(1,188)	13,423
· after exceptional costs, amortisation and share based payments	11,514	9,940	(1,188)	20,266
Dividend income				516
Finance income				2
Finance costs				(1,114)
Profit before tax				19,670
Taxation				267
Profit for the period				19,937

3.             Segment analysis of revenue and operating profit (continued)

Operating segments (continued)

Year ended 31 December 2010	Estate agency and related  activities £'000	Surveying and valuation Services £'000	Unallocated £'000	Total £'000
Income statement  information
Segmental revenue	125,672	80,934	-	206,606
Segmental result:
- before exceptional costs, amortisation
and share-based payments	7,236	27,301	(2,602)	31,935
- after exceptional costs, amortisation
and share-based payments	20,447	22,139	(2,914)	39,672
Dividend income				516
Finance income				5
Finance costs				(2,228)
Exceptional finance costs				(2,007)
Profit before tax				35,958
Taxation				(1,423)
Profit for the year				34,535

4.             Earnings per share

Basic earnings/(loss) per share amounts are calculated by dividing net profit/(loss) for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings/(loss) per share amounts are calculated by dividing the net profit/(loss) 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 June

	Profit after tax £'000	Weighted average number of shares	2011 Per share Amount Pence	Profit after tax £'000	Weighted average number of shares	2010 Per share amount Pence
Basic EPS	4,794	102,847,841	4.7	19,937	102,970,688	19.4
Effect of dilutive share options		66,451		-	556,589	-
Diluted EPS	4,794	102,914,292	4.7	19,937	103,527,278	19.3

Year ended 31 December 2010				Profit After tax £'000	Weighted average number of shares	2010 Per Share Amount Pence
Basic EPS				34,500	102,777,043	33.6
Effect of dilutive share options				-	418,857	-
Diluted EPS				34,500	103,195,900	33.4

4.             Earnings per share (continued)

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

	30 June 2011 £'000	30 June 2010 £'000	31 December 2010 £'000
Group operating profit before exceptional costs, share-based payments and amortisation (excluding amount attributable to non-controlling interests)	11,856	13,423	31,900
Tax relating to profit of joint venture	2	-	-
Net finance costs	(815)	(596)	(1,707)
Normalised taxation	(3,091)	(3,756)	(8,654)
Adjusted profit after tax1 before exceptional costs, share-based payments and amortisation	7,952	9, 071	21,539

Adjusted basic and diluted EPS

Six months ended 30 June

	Adjusted Profit after tax1 £'000	Weighted average number of shares	2011 Per share amount Pence	Adjusted Profit after tax £'000	Weighted average number of shares	2010 Per share amount Restated Pence
Adjusted Basic EPS	7,952	102,847,841	7.7	9, 071	102,970,688	8.8
Effect of dilutive share options		66,451		-	556,589	-
Adjusted Diluted EPS	7,952	102,914,292	7.7	9, 071	103,527,277	8.8

Year ended 31 December 2010

				Adjusted Profit after tax £'000	Weighted average number of shares	2010 Per share amount Restated Pence
Adjusted Basic EPS				21,539	102,777,043	21.0
Effect of dilutive share options				-	418,857	-
Adjusted Diluted EPS				21,539	103,195,900	20.9

(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 28% (2010 - 29%).

5.             Exceptional profit and other exceptional costs

	Six Months Ended		Year Ended
	30 June 2011 £'000	30 June 2010 £'000	31 December 2010 £'000
Exceptional profit arising through acquisition of HEAL:
Negative goodwill arising on acquisition	-	(29,145)	(29,825)
Employee costs
Redundancy costs due to branch closures and business reorganisation of the acquisition	-	7,242	7,730
Other
Acquisition and re-branding costs	-	6,125	6,125
	-	(15,778)	(15,970)
Other exceptional costs:
Employee costs
Redundancy costs due to branch closures and business reorganisation	180	358	756
Accelerated share-based payments	-	27	-
Other
Acquisition related costs	65	88	96
Others	-	-	133
Provision for professional indemnity claims	-	2,030	2,796
Total operating exceptional costs	245	2,503	(12,189)
Finance costs
Banking fees incurred for extension of facility	-	886	924
Interest rate swap	-	1,300	1,083
	245	2,186	2,007
	245	(11,089)	(10,182)

6.            Dividends paid and proposed

	Six Months Ended		Year  Ended
	30 June 2011 £'000	30 June 2010 £'000	31 December 2010 £'000
Declared and paid during the period:
Equity dividends on ordinary shares:
Final dividend for full year 2010:5.9 pence	6,065	5,567	5,567
Dividends on ordinary shares proposed (not recognised as a liability as at 30 June):
Interim dividend for 2011: 2.8 pence per share (2010 - 2.50 pence)	2,879	2,577	2,579

7.     Taxation

The major components of income tax charge/(credit) in the interim group income statements are:

	Six Months Ended		Year Ended
	30 June 2011	30 June 2010	31 December 2010
	£'000	£'000	£'000
UK corporation tax
- current year	1,767	940	1,280
- tax underprovided/(overprovided) in prior year	(9)	-	281
	1,758	940	1,561
Deferred tax:
Origination and reversal of temporary differences	(210)	(2,214)	(966)
Impact of rate change on deferred tax	-	-	(80)
Adjustment in respect of prior year	162	1,007	908
Total deferred tax	(48)	(1,207)	(138)
Total tax charge/(credit) in the income statement	1,710	(267)	1,423

The Group's current taxation credit comprises corporation tax calculated at estimated effective tax rates for the year.

Income tax charged directly to equity is £nil (2010 - £24,000) which relates to deferred tax on the net loss on the cash flow hedge.

In March 2011, the UK government announced its intention to accelerate the planned phased decrease in the rate of corporation tax with a reduction to 26% on 1 April 2011 and further reducing by 1% per annum until it reaches 23% on 1 April 2014. At 30 June 2011 the change in corporation tax rate from the planned 27% to 26% on 1 April 2011 had been substantively enacted and therefore the deferred tax assets and liabilities included within these results have been calculated based on the reduced current UK corporation tax rate of 26%. The forecast effect of the proposed reductions in the corporation tax rate by 2014 would be to decrease the net deferred tax liability by £246,000.

8.     Analysis of net debt

	Six Months Ended		Year Ended
	30 June 2011	30 June 2010	31 December 2010
	£'000	£'000	£'000
Interest bearing loans and borrowings	6,494	16,093	5,247
Less: cash and short-term deposits	(269)	(1,783)	(338)
Net debt at the end of the year	6,225	14,310	4,909

9.     Results of joint venture

As part of acquisition of Halifax Estate Agencies Limited (HEAL) in 2010 the Group had acquired a stake TM Group UK Limited.  This was classified as an available-for-sale investment in 2010.  In 2011 this is classified as a Joint Venture as joint control is being exercised on this entity and consequently adopted 'equity method' as permitted under IAS 31 'Interests in Joint Ventures' to account for this joint venture.

The Group's share of profit after tax in joint venture included in the Income Statement in the six months to 30 June 2011 is summarised below:

	Six months ended 30 June 2011 £'000
Revenue	5,216
Operating expenses	(4,937)
Operating profit	279
Finance income	9
Profit before tax	288
Taxation	(2)
Profit after tax	286

 

 

10.  Post balance sheet events

In July 2011 the Group acquired 'The Mortgage Alliance' (the mortgage distribution business of Santander UK plc (with £250,000 net assets).  The Group also entered into an equal share joint venture with Connells Limited and management of Legal Marketing Services Limited and LMS Direct Conveyancing Limited.  The Group paid £672,000 for its share of 33.33% in the joint venture.  The effects of the acquisition on the Group's assets and liabilities have not been disclosed as the Group is currently in the process of determining the fair value of the net assets acquired.

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 year ended 30 June 2011 which comprises the Interim Group Income Statement, the Interim Group Statement of Comprehensive Income, the Interim Group Balance Sheet, the Interim Group Statement of Cash Flows, the Interim Group Statement of Changes in Equity and the related notes 1 to 9.  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 ISRE 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 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 Services 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 2011 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 Services Authority.

Ernst & Young LLP

Leeds

4 August 2011

 

END

 

 

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