Interim Results

RNS Number : 9099F

LSL Property Services

02 August 2016

 

For Immediate Release

2 August 2016

LSL Property Services plc

Interim Results For the six months ended 30 june 2016

LSL Property Services plc (LSL or the Group), a leading provider of residential property services incorporating Estate Agency and Surveying businesses, announces its interim results for the six months ended 30 June 2016.

	2016	2015	Change
Group revenue	£151.4m	£140.2m	+8%
Group operating profit(1)	£11.3m	£10.3m	+10%
Operating profit margin	7.5%	7.4%
Profit before tax	£8.4m	£6.2m	+35%
Basic earnings per share	6.3p	4.7p	+34%
Adjusted basic earnings per share	8.6p	7.2p	+19%
Net bank debt at 30 June	£61.7m	£53.0m
Interim dividend	4.0p	4.0p	-%

(1)  Operating Profit is before exceptional gains and costs, contingent consideration, amortisation of intangible assets and share based payments

Strong first half Group financial performance in a changing market

•  Group revenue up 8% to £151.4m with growth in both Divisions:

o  Estate Agency up 9% and Surveying up 5%

•  Group operating profit⁽¹⁾ up 10% to £11.3m with operating profit margins slightly higher at 7.5%

o  Estate Agency up 10%, Surveying up 7%

•  Double digit growth in Lettings income up 11% and Financial Services income up 29%
•  Nine Lettings books acquired in the period for a total investment of £4.1m (2015: £3.9m)
•  Group First Limited, a provider of mortgage and protection brokerage services, acquired in February 2016
•  Net bank debt of £61.7m (2015: £53.0m); £100m committed banking facility extended to May 2020
•  Interim dividend of 4.0 pence (2015: 4.0 pence)

Current trading and outlook

•  Transaction volumes in the UK residential housing market grew strongly in Q1 as the well flagged changes to Stamp Duty, which took effect on 1 April 2016, resulted in an acceleration of market activity. As expected, Q2 saw a slowing down of transaction volumes in the run up to the EU referendum and following the accelerated activity in Q1
•  As announced in the Group's trading update on 22 July 2016 the EU referendum has impacted UK consumer confidence
•  Whilst it is difficult to accurately predict market transactions and consumer confidence for the remainder of calendar year 2016, as reported in the Group's recent pre-interim results trading update, LSL does not expect market conditions to improve sufficiently to meet previous financial expectations for the full year

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

"The Group has delivered a strong first half performance in a changing market. I am particularly pleased with the profit growth in both Estate Agency and Surveying.

Whilst we expect Residential Sales volumes to remain suppressed in the second half, trends in other parts of our business are expected to be more resilient. Our Lettings business continues to perform well, now representing 29% of total Estate Agency income. Mortgage cost and availability remain positive for the UK housing market with increasing distribution of products through intermediary channels which will support our growing Financial Services business.

Whilst these are uncertain times in the residential housing market, the Group has strong fundamentals with a robust balance sheet and relatively low levels of gearing. The business will adapt quickly as it has in the past and is well positioned to navigate the current market conditions. I remain confident that LSL will continue to deliver long term value to our shareholders."

For further information, please contact:

Ian Crabb, Group Chief Executive Officer
Adam Castleton, Group Chief Financial Officer
LSL Property Services plc	0207 382 0360
Richard Darby, Sophie McNulty, Sophie Cowles
Buchanan	0207 466 5000

Notes on LSL:

LSL is a leading provider of residential property services to its key customer groups.  Services to consumers include: residential sales, lettings, surveying, conveyancing and advice on mortgages and non-investment insurance products. Services to mortgage lenders include: valuations and panel management services, asset management and property management services. For further information, please visit LSL's website:

www.lslps.co.uk

 

Group Chief Executive's Review

Introduction

The Group has delivered a strong first half financial performance in a changing market with revenue and profit up in both Divisions. Group revenue was up 8% to £151.4m with Estate Agency up 9% and Surveying up 5%. Group operating profit⁽¹⁾ was up 10% to £11.3m with Estate Agency up 10% and Surveying up 7%.

The UK residential housing market place demonstrated two clear trends in the first half. Underlying housing transaction⁽²⁾ volumes were ahead 16.5% in the first quarter of the year compared to the same period in 2015 as increases in stamp duty effective from 1 April 2016 accelerated market activity.  Market activity⁽²⁾ slowed in the second quarter being 1.5% ahead of the comparative period in 2015 as completions slowed ahead of the EU referendum. The Estate Agency Division performance reflected these trends.

Financial Results

Group revenue was up 8% at £151.4m (2015: £140.2m). Group operating profit⁽¹⁾ was up 10% to £11.3m (2015: £10.3m) and Group operating profit margin⁽¹⁾ was slightly up at 7.5% (2015: 7.4%).

The Estate Agency Division revenues were up 9% at £118.9m (2015: £109.1m) reflecting double digit growth in both Lettings income and Financial Services income. Estate Agency Division operating profit⁽¹⁾ increased by 10% to £6.9m (2015: £6.3m). Surveying Division revenues were up 5% at £32.5m (2015: £31.1m). Operating profits⁽¹⁾ in the Surveying Division increased by 7% to £8.1m (2015: £7.6m).

Group operating profit after contingent consideration, exceptional costs, amortisation and share based payments was up 18% to £8.9m (2015: £7.5m) reflecting the increase in operating profit⁽¹⁾ and the net effect of a lower charge to contingent consideration this year compared to last year, partly offset by an increase in amortisation of intangible assets following the higher level of lettings book acquisitions in the last 12 months.

Net finance costs were £0.5m (2015: £1.3m). The effective tax rate for the period was 23.1% (2015: 22.3%). Group profit after tax was £6.4m (2015: £4.8m). Earnings per share were 6.3p (2015: 4.7p) and adjusted earnings per share were 8.6p (2015: 7.2p).

Cash generated by operations was £7.2m (2015: cash used £0.3m). Operating cash flow included Professional Indemnity (PI) cash settlements of £3.8m (2015: £7.6m). Capital expenditure, including intangibles, was £3.6m (2015: £3.1m), including two new Marsh & Parsons branches opened during the period, in Tooting and Tufnell Park.

The fair value of the Group's 2.7% stake in Zoopla was calculated to be £30.1m at 30 June 2016. In July 2016 the Group disposed of one million shares for gross proceeds of £3.0m which has been used to reduce net bank debt. Following this disposal, the Group retains a 2.5% stake in Zoopla.

Net assets at 30 June 2016 were £108.4m (2015: £88.1m) with the increase year on year driven by the acquisition of Group First Limited and lettings books. Net bank debt at 30 June 2016 was £61.7m compared to £53.0m at 30 June 2015. Compared to 31 December 2015, net bank debt has increased by £21.8m driven by investments in acquisitions and the normal seasonality of the Estate Agency Division cash flows, continuing PI cash payments, and the payment of dividends, taxes and bonuses. In May 2016, the Group's existing revolving credit facility of £100m was extended on more favourable terms for LSL until May 2020.

The Board remains confident in the underlying fundamentals and prospects of the business and has declared an interim dividend payment amounting to 4.0p pence per share (2015: 4.0 pence).  The ex-dividend date for the interim dividend is 11 August 2016, with a record date of 12 August 2016 and a payment date of 6 September 2016. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan.

Estate Agency Division

Residential Sales income increased by 1% to £42.5m (2015: £42.0m) with average fees per unit up 1%.  Exchange volumes were flat year on year reflecting an acceleration of completions ahead of the Stamp Duty changes on 1 April 2016, with a slowdown in Q2 following the strong Q1 and the run up to the EU referendum and continuing in the period afterwards. 

The Group's Lettings income grew strongly again by 11% to £34.0m (2015: £30.6m) with organic growth of 5%. LSL acquired nine lettings books in the period for £4.1m (2015: £3.9m). These acquired lettings books are performing in line with expectations. The Lettings business continued to perform well across all brands in the first half and is expected to remain more resilient against residential housing market fluctuations.

Marsh & Parsons total revenues were up 11% to £17.1m (2015: £15.4m). Marsh & Parsons operating profit⁽¹⁾ increased by 47% to £2.2m (2015: £1.5m) with increased operating margins of 12.9% (2015: 9.4%). Residential Sales were up 10% and Lettings performed strongly again up 13%. Two new Marsh & Parsons branches opened during the period, in Tooting and Tufnell Park.

Financial Services revenue increased by 29% to £29.5m (2015: £22.8m) and in total the Group arranged mortgage lending of £8.3bn during the first half (2015: £6.0bn).

Organic performance remains strong across our Financial Services products including mortgage and re-mortgage products, protection products and general insurance products. We continue to improve penetration in our own Estate Agency networks and our Intermediary networks continues to benefit from the trend towards intermediary distribution of lender products.

In February 2016 the Group acquired a 65% interest in Group First Limited which provides mortgage and protection brokerage services to purchasers of new homes through its subsidiaries, Mortgages First Limited and Insurance First Brokers Limited. This business has performed in line with our expectations in the period since acquisition.

Asset Management outperformed the market⁽³⁾ for repossessions with a fall in revenue of 19% in the period to £3.5m (2015: £4.3m).

Surveying Division

The Surveying Division traded well in the first half with revenue up 5% and operating profit⁽¹⁾ up 7%. Revenue per job was up 8% to £203 (2015: £188) reflecting a favourable mix across lenders and the types of jobs performed. Surveyor headcount was optimised to meet business requirements with 335 qualified surveyors employed at the end of the period (2015: 367). Profit margin increased to 24.9% (2015: 24.4%).   A technology refresh during the second half will deliver further enhancements.

At 30 June 2016, the total provision for PI Costs was £26.2m (2015: £31.9m). In 2016 the Group continued to make positive progress in addressing these historic claims and the reduction in the rate of notifications and claims from the high risk lending period of 2004 to 2008 has been in line with LSL's expectations during the year and those assumed in setting the PI costs provision.

Strategy

LSL remains focused on the strategy communicated in March 2015. The focus in Estate Agency is to drive operating profit per branch to between £80k to £100k in the medium term, by growing recurring income streams and Financial Services income; making selective acquisitions; and investing in the Marsh & Parsons new branch roll-out.

The focus in Surveying is to optimise contract performance from B2B customers, to achieve further improvement in efficiency and capacity utilisation and to use technology to drive further customer enhancements and quality improvements.

In the current uncertain market conditions, LSL will also focus on maintaining a robust balance sheet and will continue to use a highly selective and disciplined approach to all investment activity.

LSL is taking selective cost measures where necessary to adapt the Group's cost base to the more uncertain market conditions. In the second half, a cost saving programme across the Group and the technological refresh in Surveying will result in between £2m to £3m of exceptional costs in H2 2016.

Outlook

The Group has a balanced business portfolio including Asset Management and the Letting and Financial Services businesses which are both proving more resilient to residential housing market fluctuations and we will continue to benefit from the increasing proportion of our business represented by these revenue streams.

Mortgage costs and availability remain positive with continued share of lending taken by the intermediary market.

In Surveying, we will continue to use technology to drive further customer enhancements, quality improvements and improvement in efficiency and capacity utilisation. We will continue to optimise contract performance and revenue generation from B2B customers.

Whilst it is difficult to accurately predict housing market transactions and consumer confidence for the remainder of calendar 2016, as reported in the Group's recent pre-interim results trading update, LSL does not expect market conditions to improve sufficiently to meet previous financial expectations for the full year.

The Group has strong fundamentals, with a robust balance sheet. The business is well positioned to adapt to a changing market as it has in the past and to successfully navigate through a more difficult market environment. The Board remains confident that LSL will continue to deliver long term value to our shareholders.

Ian Crabb

Group Chief Executive

2 August 2016

(1)  Operating Profit is before exceptional gains and costs, contingent consideration, amortisation of intangible assets and share based payments

(2)  Source: Bank of England for "House Purchase Approvals" January-May 2015/2016

(3)  H1 market performance estimated. Per Q1 CML market statistics there was a 30% decline in the repossession market compared to the same period in 2015

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 2015 on pages 22 to 25. The Annual Report and Accounts 2015 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.

·         Housing market

·         New UK housing market entrants

·         Acquisitions and growth initiatives

·         Professional services

·         Client contracts

·         Information technology infrastructure

·         Information security

·         Regulatory and legal

·         Employees

The recent Group Risk Appetite Assessment exercise includes an evaluation of continually evolving aspects of risk management. Recent examples include the capture of anticipated post-Brexit impacts on the residential housing market and articulation of established 'conduct risk' routines used to support delivery of appropriate customer outcomes. The Board has concluded that such aspects are included in the principal risk and uncertainties noted above. Therefore the principal risks and uncertainties of the Group remain the same as those included within the Annual Report and Accounts 2015.

Forward-Looking Statements

This statement may contain forward-looking statements with respect to certain plans, goals and expectations relating to the future financial condition, business performance and results of LSL. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of LSL, and they may cause the actual results or performance of LSL to be materially different from the results or performance implied by such statements. Any forward-looking statements will be by reference to the date of this statement only and must not be regarded as guarantees of future performance. Further, nothing in this statement should be construed as a profit forecast. Some of the factors which may affect LSL's actual future financial conditions, business performance and results are contained within the Group's Annual Report and Accounts 2015 on pages 22 to 25 and in this Statement, together with information on the management of the principal risks and uncertainties faced by LSL.

Definitions

Definitions for words and expressions referred to and included in this statement which are not expressly defined within, can be found in LSL's Annual Report and Accounts 2015 (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

 

Interim Group Income Statement

for the six months ended 30^th June 2016

		Unaudited Six Months Ended		Audited Year Ended
		30th June 2016	30th June 2015	31st December 2015
	Note	£'000	£'000	£'000
Revenue	3,4	151,367	140,159	300,594
Operating expenses:
Employee and subcontractor costs		(92,631)	(86,522)	(171,216)
Establishment costs		(10,257)	(10,826)	(19,012)
Depreciation on property, plant  and equipment		(2,565)	(2,666)	(5,296)
Other		(35,776)	(30,367)	(65,180)
		(141,229)	(130,381)	(260,704)
Other operating income	3	639	600	1,865
Gain/(Loss) on sale of property, plant and equipment		3	19	(44)
Group's share in post-tax profits/(loss) of joint ventures		535	(84)	1,156
Group operating profit before contingent consideration, exceptional costs, amortisation and share-based payments	4	11,315	10,313	42,867
Share-based payments		(746)	(397)	(871)
Amortisation of intangible assets		(2,065)	(186)	(1,803)
Contingent consideration	6	365	(2,142)	1,477
Exceptional costs	6	-	(83)	(258)
Group operating profit	4	8,869	7,505	41,412
Finance income	3	-	112	5
Finance costs		(502)	(1,403)	(2,817)
Net finance costs		(502)	(1,291)	(2,812)
Profit before tax	4	8,367	6,214	38,600
Taxation (charge)/credit
- related to exceptional costs		(33)	17	52
- other		(1,898)	(1,404)	(8,190)
	8	(1,931)	(1,387)	(8,138)
Profit for the period/year		6,436	4,827	30,462
Attributable to:
- Owners of the parent		6,439	4,804	30,414
- Non-controlling interest		(3)	23	48
Earnings per share expressed in pence per share:
Basic	5	6.3	4.7	29.7
Diluted	5	6.2	4.7	29.5
Adjusted - basic	5	8.6	7.2	31.5
Adjusted - diluted	5	8.5	7.2	31.3

 

Interim Group Statement of Comprehensive Income

for the six months ended 30^th June 2016

		Unaudited Six Months Ended		Audited Year Ended
		30th June 2016	30th June 2015	31st December 2015
		£'000	£'000	£'000
Profit for the period		6,436	4,827	30,462
Items to be reclassified to profit and loss in subsequent periods:
Reclassification adjustments for disposal of financial assets		-	-	(440)
Income tax effect		-	-	53
Revaluation of financial assets		2,998	8,855	5,130
Income tax effect		(469)	(1,771)	(580)
Net other comprehensive income to be reclassified to profit and loss in subsequent periods:		2,529	7,084	4,163
Total other comprehensive income, net of tax		2,529	7,084	4,163
Total comprehensive income, net of tax		8,965	11,911	34,625
Attributable to     - Owners of the parent     - Non-controlling interest		8,968 (3)	11,888 23	34,577 48

 

Interim Group Balance Sheet

as at 30^th June 2016

		Unaudited Six Months Ended		Audited Year Ended
		30th June 2016	30th June 2015	31st December 2015
	Note	£'000	£'000	£'000
Non-current assets
Goodwill		152,009	135,954	136,395
Other intangible assets		33,969	23,734	30,517
Property, plant and equipment		20,204	20,863	19,393
Financial assets	9	31,869	31,976	28,871
Investments in joint ventures		8,246	9,036	8,778
Total non-current assets		246,297	221,563	223,954
Current assets
Trade and other receivables		37,452	39,070	35,366
Cash and cash equivalents		-	998	5,603
Total current assets		37,452	40,068	40,969
Total assets		283,749	261,631	264,923
Current liabilities
Financial liabilities	10	(20,409)	(8,990)	(15,777)
Trade and other payables		(50,507)	(47,659)	(50,102)
Current tax liabilities		(1,398)	(1,612)	(2,525)
Provisions for liabilities		(10,887)	(15,086)	(12,100)
Total current liabilities		(83,201)	(73,347)	(80,504)
Non-current liabilities
Financial liabilities	10	(68,219)	(75,032)	(52,511)
Deferred tax liability		(8,623)	(8,191)	(6,927)
Provisions for liabilities	11	(15,331)	(16,995)	(17,625)
Total non-current liabilities		(92,173)	(100,218)	(77,063)
Total Liabilities		(175,374)	(173,565)	(157,567)
Net assets		108,375	88,066	107,356
Equity
Share capital		208	208	208
Share premium account		5,629	5,629	5,629
Share-based payment reserve		3,773	3,275	3,564
Treasury shares		(5,462)	(6,341)	(5,988)
Fair value reserve		23,407	23,799	20,878
Retained earnings		80,638	61,336	82,880
Equity attributable to owners of parent		108,193	87,906	107,171
Non-controlling interests		182	160	185
Total equity		108,375	88,066	107,356

 

Interim Group Cash Flow Statement

for the six months ended 30^th June 2016

		Unaudited 30th June 2016				Unaudited 30th June 2015		Audited 31st December 2015
		£'000		£'000		£'000	£'000	£'000	£'000
Cash generated from operating activities
Profit before tax				8,367			6,214		38,600
Adjustments to reconcile profit before tax to net cash from operating activities
Exceptional operating income and costs and contingent consideration (non-cash)		(365)				2,142		(1,219)
Amortisation of intangible assets		2,065				186		1,803
Finance income		-				(112)		(5)
Finance costs		502				1,403		2,817
Share-based payments		746				397		871
				2,948			4,016		4,267
Group operating profit before amortisation and share-based payments				11,315			10,230		42,867
Depreciation		2,565				2,666		5,296
Dividend income		(293)				(309)		(835)
Share of results of joint ventures		(535)				84		(1,156)
(Gain)/Loss on sale of property, plant and equipment		(3)				83		(253)
				1,734			2,524		3,052
(Increase)/decrease in trade and other receivables		(1,178)				(2,727)		975
Decrease in trade and other payables		(1,107)				(3,413)		(1,026)
Decrease in provisions		(3,607)				(6,909)		(9,345)
				(5,892)			(13,049)		(9,396)
Cash generated from/(utilised by) operations				7,157			(295)		36,523
Interest paid		(979)				(890)		(1,852)
Tax paid		(3,386)				(415)		(5,613)
				(4,365)			(1,305)		(7,465)
Net cash generated from/(utilised by) operating activities				2,792			(1,600)		29,058

 

	Unaudited 30th June 2016		Unaudited 30th June 2015		Audited 31st December 2015
	£'000	£'000	£'000	£'000	£'000	£'000
Cash flows from investing activities
Cash acquired on purchase of subsidiary undertaking	1,542		773		774
Acquisition of subsidiaries and other businesses	(8,525)		(8,058)		(13,202)
Payment of contingent consideration	(2,352)		(162)		(4,015)
Investment in joint venture	-		-		-
Investment in financial assets	-		(88)		(1,178)
Cash received on sale of financial assets	-		-		297
Dividends received from joint ventures	-		-		1,499
Dividends received from financial assets	579		309		549
Interest received	-		112		5
Purchase of property, plant and equipment and intangible assets	(3,580)		(3,109)		(7,991)
Proceeds from sale of property,  plant and equipment	35		163		328
Net cash (used in)/ from investing activities		(12,301)		(10,060)		(22,934)
Cash flows from financing activities
Drawdown of loans	16,190		20,000		10,719
Repayment of loan notes	(1,720)		-		-
Payment of deferred consideration	(1,968)		-		-
Proceeds from exercise of share options	216		1,116		1,314
Dividends paid	(8,812)		(8,458)		(12,554)
Net cash from/(used in) financing activities		3,906		12,658		(521)
Net (decrease)/increase in cash and cash  equivalents		(5,603)		998		5,603
Cash and cash equivalents at the beginning of the year		5,603		-		-
Cash and cash equivalents at the end of the year		-		998		5,603

 

Interim Group Statement of changes in equity

for the six months ended 30th June 2016                                                                     

Unaudited six months ended 30^th June 2016

	Share capital	Share premium account	Share- based payment reserve	Treasury shares	Fair value Reserve	Retained earnings	Total equity	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1st January 2016	208	5,629	3,564	(5,988)	20,878	82,880	107,171	185	107,356
Revaluation of financial assets (net of tax)	-	-	-	-	2,529	-	2,529	-	2,529
Other comprehensive income for the period	-	-	-	-	2,529	-	2,529	-	2,529
Profit for the period	-	-	-	-	-	6,439	6,439	(3)	6,436
Total comprehensive income for the period	-	-	-	-	2,529	6,439	8,968	(3)	8,965
Exercise of options	-	-	(441)	526	-	131	216	-	216
Share-based payments	-	-	650	-	-	-	650	-	650
Dividend payment	-	-	-	-	-	(8,812)	(8,812)	-	(8,812)
At 30th June 2016	208	5,629	3,773	(5,462)	23,407	80,638	108,193	182	108,375

During the six month period to 30^th June 2016 a total of 150,082 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the Trust.  LSL received £216,000 on exercise of these options.

Unaudited six months ended 30^th June 2015

	Share capital	Share premium account	Share- based payment reserve	Treasury shares	Fair value Reserve	Retained earnings	Total equity	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1st January 2015	208	5,629	3,498	(7,922)	16,715	64,835	82,963	137	83,100
Revaluation of financial assets (net of tax)	-	-	-	-	7,084	-	7,084	-	7,084
Other comprehensive income for the period	-	-	-	-	7,084	-	7,084	-	7,084
Profit for the period	-	-	-	-	-	4,804	4,804	23	4,827
Total comprehensive income for the period	-	-	-	-	7,084	4,804	11,888	23	11,911
Exercise of options	-	-	(620)	1,581	-	155	1,116	-	1,116
Share-based payments	-	-	397	-	-	-	397	-	397
Dividend payment	-	-	-	-	-	(8,458)	(8,458)	-	(8,458)
At 30th June 2015	208	5,629	3,275	(6,341)	23,799	61,336	87,906	160	88,066

During the six month period to 30^th June 2015 a total of 450,928 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the Trust.  LSL received £1,116,000 on exercise of these options.

 

Audited year ended 31^st December 2015

	Share capital	Share premium account	Share- based payment reserve	Treasury Shares	Fair value Reserve	Retained earnings	Total equity	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1st January 2015	208	5,629	3,498	(7,922)	16,715	64,835	82,963	137	83,100
Disposal of financial assets (net of tax)	-	-	-	-	(387)	-	(387)	-	(387)
Revaluation of financial assets (net of tax)	-	-	-	-	4,550	-	4,550	-	4,550
Other comprehensive income for the year	-	-	-	-	4,163	-	4,163	-	4,163
Profit for the year	-	-	-	-	-	30,414	30,414	48	30,462
Total comprehensive income for the year	-	-	-	-	4,163	30,414	34,577	48	34,625
Exercise of options	-	-	(805)	1,934	-	185	1,314	-	1,314
Share-based payments	-	-	871	-	-	-	871	-	871
Dividend payment	-	-	-	-	-	(12,554)	(12,554)	-	(12,554)
At 31st December 2015	208	5,629	3,564	(5,988)	20,878	82,880	107,171	185	107,356

During the year ended 31^st December 2015, the Trust did not acquire any LSL shares.  During the period 551,446 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the Trust.  LSL received £1,314,000 on exercise of these options.

 

Notes to the Interim Condensed Group Financial Statements

The interim condensed group financial statements for the period ended 30^th June 2016 were approved by the LSL Board on 1^st August 2016. The interim financial statements are not the statutory accounts. The financial information for the year ended 31^st December 2015 is extracted from the audited statutory accounts for the year ended 31^st December 2015, which have been filed with the Registrar of Companies. The auditor's report was unqualified and did not contain an emphasis of matter paragraph, and did not make a statement under section 498 (2) or (3) of the Companies Act 2006.

1              Basis of preparation

The interim condensed consolidated group financial statements for the period ended 30^th June 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 Interim Financial Reporting (as adopted by the EU).  The interim condensed consolidated group financial statements have been prepared on a going concern basis.

The interim condensed consolidated group financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31^st December 2015 which are included in LSL's Annual Report and Accounts 2015.

With the exception of the transaction detailed in Note 10, there have been no other significant related party transactions in the period to 30 June 2016.

Significant accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated group financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31^st December 2015.

Judgements and estimates

The preparation of financial information in conformity with IFRS as adopted by European Union requires management to make judgements, estimates and assumptions that affect the application of policies and reporting amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next six months are largely the same as those as at 31^st December 2015. These assumptions are discussed in detail in the Group's Annual Report and Accounts 2015. The assumptions discussed are as follows:

·    Valuation in acquisitions

·    Impairment of intangible assets

·    Assessment of the useful life of an intangible asset

·    Professional indemnity (PI) claims

·    Contingent consideration

·    Valuation of financial assets

 

1.             Basis of preparation (continued)

Significant accounting policies (continued)

New standards and interpretations

There are no accounting standards or interpretations that have become effective in the current reporting period which have had a material effect on the net assets, results and disclosures of the Group.   The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. 

Going concern

The Group meets its day to day working capital requirements through a revolving credit facility.  The Group currently has a £100m credit facility which was extended in May 2016 and will now expire in May 2020.  As shown in Note 10, the Group had available £45m of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is expected to operate within the terms of its current facilities and that therefore it is appropriate to use the going concern basis of preparation for this financial information. 

2.      Seasonality of operations

Due to the seasonal nature of the residential housing market, turnover and operating profits are normally higher in the second half of the year.

3.      Revenue

                                                   Six months ended             Year Ended

	30th June 2016 £'000	30th June 2015 £'000	31st December 2015 £'000
Revenue from services	151,367	140,159	300,594
Operating revenue	151,367	140,159	300,594
Rental income	346	291	729
Dividend income	293	309	835
Gain on disposal of financial assets	-	-	301
Other operating income	639	600	1,865
Finance income	-	112	5
Total revenue	152,006	140,871	302,464

 

4.             Segment analysis of revenue and operating profit

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

·      The Estate Agency and Related Services segment provides services related to the sale and letting of residential properties.  It operates a network of high street branches. As part of this process, the Estate Agency Division also provides marketing and arranges conveyancing services.  In addition, it provides repossession asset management services to a range of lenders. It also arranges mortgages for a number of lenders and arranges protection and general insurance policies for a panel of insurance companies via the estate agency branches, Pink Homes Loans, First Complete and Linear Mortgage Network.  The financial services segment included within the Estate Agency Division includes two mortgage and insurance distribution networks providing products and services for sale via financial intermediaries. The results of this financial services segment, does not meet the quantitative criteria for separate reporting under IFRS and has therefore been aggregated with those of Estate Agency and Related Services.

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

Each segment has various products and services and the revenue from these products and services are disclosed in the LSL's Annual Report and Accounts 2015 within the Business Review section of the Strategic Report. 

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

 

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

Operating segments

The following tables presents revenue and profit information regarding the Group's operating segments for the six months ended 30^th June 2016, for the six months ended 30^th June 2015 and for the year ended 31^st December 2015.

Six months ended 30^th June 2016

Income statement  information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Segmental revenue	118,894	32,473	-	151,367
Segmental result:
- before exceptional costs, contingent consideration, amortisation and     share-based payments	6,882	8,078	(3,645)	11,315
- after exceptional costs, contingent	4,714	7,749	(3,594)	8,869
consideration, amortisation and     share-based payments
Finance income				-
Finance costs				(502)
Profit before tax				8,367
Taxation				(1,931)
Profit for the period				6,436

In the period ended 30^th June 2016, there is no revenue from one customer that accounts for 10% or more of the Group's total revenue (2015 - none). 

Balance sheet information
Segment assets - intangible	174,084	11,894	-	185,978
Segment assets - other	87,612	9,131	1,028	97,771
Total Segment assets	261,696	21,025	1,028	283,749
Total Segment liabilities	(55,785)	(38,403)	(81,186)	(175,374)
Net assets/(liabilities)	205,911	(17,378)	(80,158)	108,375

All of the joint venture interests of the Group are recorded in the Estate Agency and Related Services segment.  Unallocated net liabilities comprise plant and equipment (£9,000), other assets (£1,020,000), accruals (£923,000), financial liabilities (£8,553,000), deferred and current tax liabilities (£10,021,000), overdraft (£6,690,000) and revolving credit facility overdraft (£55,000,000).

 

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

Operating segments

Six months ended 30^th June 2015

Income statement  information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Segmental revenue	109,067	31,092	-	140,159
Segmental result:
- before exceptional costs, contingent consideration, amortisation and     share-based payments	6,343	7,598	(3,628)	10,313
- after exceptional costs, contingent	3,537	7,595	(3,627)	7,505
consideration, amortisation and     share-based payments
Finance income				112
Finance costs				(1,403)
Profit before tax				6,214
Taxation				(1,387)
Profit for the period				4,827

In the period ended 30^th June 2015, there is no revenue from one customer that accounts for 10% or more of the Group's total revenue (2014 - none). 

Balance sheet information
Segment assets - intangible	148,860	10,828	-	159,688
Segment assets - other	89,354	10,615	1,974	101,943
Total Segment assets	238,214	21,443	1,974	261,631
Total Segment liabilities	(63,598)	(44,290)	(65,677)	(173,565)
Net assets/(liabilities)	174,616	(22,847)	(63,703)	88,066

All of the joint venture interests of the Group are recorded in the Estate Agency and Related Services segment.  Unallocated net liabilities comprise certain property, plant and equipment (£14,000), cash and bank balances (£998,000), other assets (£962,000), accruals (£1,874,000), financial liabilities (£54,000,000) and deferred and current tax liabilities (£9,803,000).

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

Operating segments

Year ended 31^st December 2015

Income statement  information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Segmental revenue	236,525	64,069	-	300,594
Segmental result:
- before exceptional costs, contingent consideration, amortisation and     share-based payments	31,288	18,104	(6,525)	42,867
- after exceptional costs, contingent
consideration, amortisation and     share-based payments	29,347	17,459	(5,394)	41,412
Finance income				5
Finance costs				(2,817)
Profit before tax				38,600
Taxation				(8,138)
Profit for the year				30,462

In the period ended 31^st December 2015, there is no revenue from one customer that accounts for 10% or more of the Group's total revenue (2014 - none). 

	Estate agency and related  activities £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Balance sheet information
Segment assets - intangible	155,670	11,242	-	166,912
Segment assets - other	82,883	8,659	6,469	98,011
Total Segment assets	238,553	19,901	6,469	264,923
Total Segment liabilities	(43,052)	(42,461)	(72,054)	(157,567)
Net assets/(liabilities)	195,501	(22,560)	(65,585)	107,356

Unallocated net liabilities comprise plant and equipment (£9,000), other assets (£857,000), cash (£5,603,000), accruals (£1,554,000), financial liabilities (£15,548,000), deferred and current tax liabilities (£9,452,000), revolving credit facility (£45,500,000).

 

5.             Earnings per share (EPS)

Basic EPS amounts are calculated by dividing net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the period.

Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Six months ended 30^th June

		Profit after tax £'000	Weighted average number of shares	2016 Per share amount Pence	Profit after tax £'000	Weighted average number of shares	2015 Per share amount Pence
	Basic EPS	6,439	102,658,362	6.3	4,804	102,337,501	4.7
	Effect of dilutive share options		469,387		-	436,809	-
	Diluted EPS	6,439	103,127,749	6.2	4,804	102,774,310	4.7

Year ended 31st December 2015				Profit after tax £'000	Weighted average number of shares	2015 Per share amount Pence
Basic EPS				30,414	102,406,770	29.7
Effect of dilutive share options				-	791,256	-
Diluted EPS				30,414	103,198,026	29.5

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 2016 £'000	30th June 2015 £'000	31st  December 2015 £'000
Group operating profit before contingent consideration in acquisitions linked to employment, exceptional costs, share-based payments and amortisation	11,315	10,313	42,867
Add back non-controlling interest	3	(23)	(48)
Group operating profit before contingent consideration in acquisitions linked to employment, exceptional costs, share-based payments and amortisation (excluding non-controlling interest)	11,318	10,290	42,819
Net finance costs (excluding exceptional costs and unwinding of discount on contingent consideration)	(335)	(1,032)	(2,360)
Normalised taxation	(2,197)	(1,874)	(8,193)
Adjusted profit after tax(1) before exceptional costs, share-based payments and amortisation	8,786	7,384	32,266

5.      EPS (continued)

Six months ended 30^th June

	Adjusted profit after tax1 £'000	Weighted average number of shares	2016 Per share amount Pence	Adjusted profit after tax1 £'000	Weighted average number of shares	2015 Per share amount Pence
Adjusted basic EPS	8,786	102,658,362	8.6	7,384	102,337,501	7.2
Effect of dilutive share options		469,387		-	436,809	-
Adjusted diluted EPS	8,786	103,127,749	8.5	7,384	102,774,310	7.2

Year ended 31^st December 2015

				Adjusted profit after tax1 £'000	Weighted average number of shares	2015 Per share amount Pence
Adjusted basic EPS				32,266	102,406,770	31.5
Effect of dilutive share options				-	791,256	-
Adjusted diluted EPS				32,266	103,198,026	31.3

(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 20.00% (30^th June 2015: 20.25%; 31^st December 2015: 20.25%).

6.      Exceptional items and contingent consideration

	Six Months Ended		Year Ended
	30th June 2016	30th June 2015	31st  December 2015
Exceptional costs:	£'000	£'000	£'000
Loss on disposal of freehold properties	-	83	-
Administration centre closure costs including redundancy costs	-	-	258
Total operating exceptional costs	-	83	258
Deferred and contingent consideration on acquisitions	(365)	2,142	(1,477)
	(365)	2,142	(1,477)
Net exceptional (gain)/cost and contingent consideration	(365)	2,225	(1,219)

Contingent consideration on acquisitions

The credit for deferred and contingent consideration on the acquisition of Marsh & Parsons (in 2011) amounted to £142,000 (31^st December 2015: credit of £3,002,000 and 30^th June 2015: expense of £602,000). The contingent consideration credit recognised in the period relates to other acquisitions, a credit of £268,000 in LMS, and a charge of £45,000 in LSLi (31^st December 2015: a charge of £2,136,000 in LMS and a credit of £611,000 in LSLi and 30^th June 2015: charge of £1,431,000 in LMS and a charge of £109,000 in LSLi). 

 

7.      Dividends paid and proposed

Dividends per share

A final dividend in respect of the year ended 31^st December 2015, of 8.6 pence per share (December 2014: 8.3 pence per share), amounting to £8.8m was paid in the period ended 30^th June 2016.

An interim dividend has been announced amounting to 4.0 pence per share (June 2015: 4.0 pence).

Interim dividends are recognised when paid.

8.      Taxation

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

	Six Months Ended		Year Ended
	30th June 2016	30th June 2015	31st December 2015
	£'000	£'000	£'000
UK corporation tax:
- current year	1,881	1,429	7,787
- adjustment in respect of prior years	162	-	391
	2,043	1,429	8,178
Deferred tax:
Origination and reversal of temporary differences	(85)	(42)	(470)
Adjustment in respect of prior year	(27)	-	430
	(112)	(42)	(40)
Total tax charge in the income statement	1,931	1,387	8,138

Income tax charged directly to other comprehensive income is £469,000 (31^st December 2015: £527,000 and 30^th June 2015: £1,771,000) and relates to the revaluation of financial assets. Income tax credited directly to the share based payment reserve is £96,000 (30^th June 2015: £nil and 31^st December 2015: £ nil).

Effective from 1^st April 2017, the main rate of corporation tax will decrease to 19% and is expected to decrease to 17% effective from 1^st April 2020.  A reduction to 18% from 1^st April 2020 has already been substantially enacted in legislation and accordingly this is the rate at which deferred tax has been provided.

9.      Financial assets

	Six Months Ended		Year Ended
Available-for-sale financial assets	30th June 2016	30th June 2015	31st December 2015
	£'000	£'000	£'000
Unquoted shares at fair value	1,774	1,774	1,774
Quoted shares at fair value	30,095	30,202	27,097
	31,869	31,976	28,871
Opening balance	28,871	23,033	23,033
Acquisitions	-	88	1,178
Disposals	-	-	(470)
Fair value adjustment recorded through other comprehensive income	2,998	8,855	5,130
Closing balance	31,869	31,976	28,871

9.             Financial assets (continued)

The financial assets include unlisted equity instruments which are carried at fair value.  Fair value is judgemental given the assumptions required and have been valued using a level 3 valuation techniques (see note 14).  Financial assets also include shares in Zoopla which are listed on the London Stock Exchange and again are carried at fair value.  These shares are valued using a level 1 valuation technique.

Zoopla

Zoopla's share price at 30^th June 2016 was £2.66 per share.  The Directors consider the best estimate of the fair value of LSL's investment in Zoopla to be the share price which values the Group's stake in Zoopla at £30,095,000.  Subsequent to 30^th June 2016, LSL sold 1,040,000 shares in Zoopla for net proceeds of £2,972,000.

Other investments

The carrying value of the Group's investment in Vibrant Energy Matter (VEM) at 30^th June 2016 has been assessed as £912,000 (31^st December 2015: £912,000).

The carrying value of the Group's investment in GPEA Limited (GPEA) at 30^th June 2016 has been assessed as £862,000 (31^st December 2015: £862,000).

10.    Financial liabilities

	Six Months Ended		Year Ended
	30th June 2016	30th June 2015	31st December 2015
	£'000	£'000	£'000
Current
Overdraft	6,690	-	-
12% unsecured loan notes	-	-	10,033
2% unsecured loan notes	5,569	-	-
Deferred consideration	5,081	2,422	2,422
Contingent consideration	3,069	6,568	3,322
	20,409	8,990	15,777
Non-current
Bank loans - revolving credit facility (RCF)	55,000	54,000	45,500
12% unsecured loan notes	-	9,918	-
2% unsecured loan notes	2,000	-	-
Deferred consideration	-	465	447
Contingent consideration	11,219	10,649	6,564
	68,219	75,032	52,511

Contingent consideration -

	Six Months Ended		Year Ended
	30th June 2016	30th June 2015	31st December 2015
	£'000	£'000	£'000
Marsh & Parsons Growth Shares	1,746	5,103	1,518
LSLi contingent consideration	5,002	8,963	4,790
LMS	530	2,388	3,093
Group First Limited	6,581	-	-
Other	429	763	485
	14,288	17,217	9,886
Opening balance	9,886	13,730	13,730
Cash paid	(2,352)	(162)	(4,015)
Acquisition	6,581	1,248	1,178
Amounts recorded though income statement	173	2,401	(1,007)
Closing balance	14,288	17,217	9,886

10.    Financial liabilities (continued)

The 12% unsecured loan notes were issued as part satisfaction of the consideration for the acquisition of Marsh & Parsons in 2011.   £1.7m of these loan notes was redeemed in February 2016.  A variation to the 2011 loan notes was agreed on the retirement of Peter Rollings in March 2016.  The total principal amount of the 2011 Loan Note will be paid but at a reduced rate of interest of 2%.  The first instalment has been paid in July 2016, and a final payment of £2m is due in March 2018, subject to certain conditions being satisfied.

£1,746,000 (31^st December 2015: £1,518,000 and 30^th June 2015: £5,103,000) of contingent consideration relates to the Growth Shares acquired by the management of Marsh & Parsons subsequent to acquisition as an incentive to grow the Marsh & Parsons business.  Holders of Growth Shares have the option to require LSL to buy their Growth Shares at any time between 31^st March 2016 and 1^st April 2020, at their discretion, at a price determined by a multiple of EBITDA in the previous financial year. The payment of the consideration is contingent on the holder of the Growth Shares being continuously employed by the relevant company and consequently the expected value of the Growth Shares is charged to the income statement over the earn-out period.

£5,002,000 (31^st December 2015: £4,790,000 and 30^th June 2015: £8,963,000) of contingent consideration relates to payments to third parties in relation to the acquisition of LSLi and certain of its subsidiaries between 2007 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. In 2016, the contingent consideration has been recalculated based on the Directors' latest expectation using a discount rate of 6.5% (31^st December 2015 and 30^th June 2015: 6.5%).

£530,000 (31^st December 2015: £3,093,000 and 30^th June 2015: £2,388,000) of contingent consideration relates to payments to third parties in relation to the acquisition of LMS in September 2014.  This was paid in July 2016. 

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 2016	30th June 2015	31st December 2015
	£'000	£'000	£'000
Remuneration	3,800	6,718	3,362
Put options over non-controlling interests	530	5,662	3,093
Arrangement under IFRS 3	9,958	4,837	3,431
Closing balance	14,288	17,217	9,886
Contingent consideration profit and loss impact in the period relating to amounts accounted for as:
Remuneration	379	607	(2,739)
Put options over non-controlling interests	(268)	1,341	1,799
Arrangement under IFRS 3	(105)	194	(519)
Unwinding of discount on contingent consideration	167	259	452
Charge/(credit)	173	2,401	(1,007)

11.    Provisions for liabilities

Six months ended 30^th June:

	2016			2015
	Professional indemnity claim provision	Onerous leases	Total	Professional indemnity claim provision	Onerous leases	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1st January	29,672	53	29,725	38,719	192	38,911
Acquired in the period	-	17	17	-	-	-
Amount utilised	(3,954)	-	(3,954)	(7,901)	-	(7,901)
Amount released	-	(40)	(40)	-	(55)	(55)
Unwinding of discount	100	-	100	79	-	79
Provided in the period (including exceptional costs)	370	-	370	1,047	-	1,047
Balance at 30th June	26,188	30	26,218	31,944	137	32,081
Current	10,871	16	10,887	15,031	55	15,086
Non-current	15,317	14	15,331	16,913	82	16,995
	26,188	30	26,218	31,944	137	32,081

Year ended 31^st December 2015

	Professional indemnity claim provision	Onerous leases	Total
	£'000	£'000	£'000
Balance at 1st January	38,719	192	38,911
Amount utilised	(11,156)	(6)	(11,162)
Amount released	-	(133)	(133)
Unwinding of discount	159	-	159
Provided in the period (including exceptional costs)	1,950	-	1,950
Balance at 31st December	29,672	53	29,725
Current	12,056	44	12,100
Non-current	17,616	9	17,625
	29,672	53	29,725

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 cost provision includes amounts for claims already received from clients, claims yet to be received and any other amounts which may be payable as a result of legal disputes associated with provision of valuation services.

The provision is the Directors' best estimate of the likely outcome of such claims, taking account of the incidence of such claims and the size of the loss that may be borne by the claimant, after taking account of actions that can be taken to mitigate losses. The provision will be utilised as individual claims are settled and the settlement amount may vary from the amount provided depending on the outcome of each claim. It is not possible to estimate the timing of payment of all claims and therefore a significant proportion of the provision has been classified as non-current.

At 30^th June 2016 the total provision for PI Costs was £26.2m. The Directors have considered the sensitivity analysis on the key risks and uncertainties discussed above.

11.    Provisions for liabilities (continued)

Cost per claim

A substantial element of the provision relates to specific claims where disputes are on-going. These specific cases have been separately assessed and specific provisions have been made. The average cost per claim has been used to calculate the IBNR. Should the costs to settle and resolve these claims and future claims increase by 10%, an additional £2.2m 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 £0.3m.

Notifications

The Group has received a number of notifications which have not deteriorated into claims or loss. Should the rate of deterioration increase by 50%, an additional provision of £0.4m 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 June 2020. The final outcome depends upon the ability of the Group to sublet or assign the lease over the related properties.

12.    Analysis of Net Bank Debt

	Six Months Ended		Year Ended
	30th June 2016	30th June 2015	31st December 2015
	£'000	£'000	£'000
Interest bearing loans and borrowings
-       Current	20,409	8,990	15,777
-       Non-current	68,219	75,032	52,511
	88,628	84,022	68,288
Less: 12% unsecured loan notes	-	(9,918)	(10,033)
Less: 2% unsecured loan notes	(7,569)	-	-
Less: cash and short-term deposits	-	(998)	(5,603)
Less: deferred and contingent consideration	(19,369)	(20,104)	(12,755)
Net Bank Debt at the end of the period	61,690	53,002	39,897

Net Bank Debt at 30^th June 2016 was £61.7m.

13.    Financial instruments - risk management

The financial risks the Group faces and the methods used to manage these risks have not changed since 31^st December 2015.  Further details of the risk management policies of the Group are disclosed in Note 29 of the Group's Financial Statements for the year ended 31^st December 2015.

The Group has a current ratio of net bank debt (excluding loan notes) to EBITDA of 1.26 (31^st December 2015: 0.83 and 30^th June 2015: 1.25). 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.

14.    Fair values of financial assets and financial liabilities

Set out below is a comparison by category of carrying amounts and fair values of all of the Group's financial instruments that are carried in these financial statements:

	30th June 2016	30th June 2015	31st Dec 2015
	Book and Fair value	Book and Fair value	Book and Fair value
	£'000	£'000	£'000
Financial assets
Cash and cash equivalents	-	998	5,603
Available-for-sale financial assets	31,869	31,976	28,871
Financial liabilities
Interest-bearing loans and borrowings:
Floating rate borrowings	(55,000)	(54,000)	(45,500)
Contingent consideration	(14,288)	(17,217)	(9,886)
Deferred consideration	(77)	(2,887)	(2,869)
12% unsecured loan notes	-	(9,918)	(10,033)
2% unsecured loan notes	(7,569)	-	-

The fair value of the Zoopla investment is made with reference to the share price as at the period end as this is a listed investment (listed on the London Stock Exchange).  The fair values for the remaining financial instruments have been calculated by discounting the expected future cash flows at interest rates prevailing for a comparable maturity period for each instrument.

Fair value hierarchy

As at 30^th June 2016, 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 2016	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
Assets measured at fair value
Financial assets	31,869	30,095	-	1,774
Liabilities measured at fair value
Contingent consideration	14,288	-	-	14,288
Deferred consideration	77	-	-	77
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings: Floating rate borrowings	55,000	-	-	55,000
2% unsecured loan notes	7,569	-	-	7,569

14.    Fair values of financial assets and financial liabilities (continued)

	30th June 2015	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
Assets measured at fair value
Financial assets	31,976	30,202		1,774
Liabilities measured at fair value
Contingent consideration	17,217			17,217
Deferred consideration	2,887			2,887
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings: Floating rate borrowings	54,000	-	54,000	-
12% unsecured loan notes	9,918	-	9,918	-

·	31st Dec 2015	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
Assets measured at fair value
Financial assets	28,871	27,097	-	1,774
Liabilities measured at fair value
Contingent consideration	9,886	-	-	9,886
Deferred consideration	2,869	-	-	2,869
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings: Floating rate borrowings	45,500	-	45,500	-
12% unsecured loan notes	10,033	-	10,033	-

The other investments totalling £1,774,000 are still valued using Level 3 valuation techniques. The Directors reviewed the fair value of the financial assets at 30^th June 2016.  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%, to £1.6 million.

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 10. 

Fair values of the Group's interest-bearing borrowings and loans are determined by using DCF methodology using a discount rate that reflects the issuer's borrowing rate as at the end of the reporting period. The own non-performance risk as at 30^th June 2016 was assessed to be insignificant.

15.    Acquisitions

During the period the Group acquired nine lettings businesses for a total consideration of £4.0m. The fair value of the identifiable assets and liabilities of these businesses as at the date of acquisition have been provisionally determined as below: 

	Fair value recognised on acquisition
	£'000
Intangible assets	3,834
Total identifiable net assets acquired	3,834
Purchase consideration	3,975
Goodwill	141

In February 2016, the Group, through a wholly owned subsidiary, acquired 65% interest in Group First Limited, who provide mortgage and protection brokerage services to the purchasers of new homes through its subsidiaries, Mortgages First Limited and Insurance First Brokers Limited. The consideration for the initial investment is £9.1m cash with 50% paid on completion, and a further 50% payable in 2017. The remaining 35% is subject to put and call options which are exercisable between 2018 and 2020.  The contingent consideration is management's best estimation of the probable discounted payout (using a rate of 6.5%), based upon current forecasts over the earn-out period.  Due to the nature of the payment terms, the contingent consideration is considered to be a capital payment for accounting purposes.  The fair value of the identifiable assets and liabilities of as at the date of acquisition have been determined as below: 

	Fair value recognised on acquisition
	£'000
Intangible assets	809
Property, plant and equipment	847
Trade and other receivables (No impairment identified)	127
Cash and cash equivalents	1,542
Trade and other payables	(1,527)
Current tax	(216)
Deferred tax liabilities	(38)
Total identifiable net assets acquired	1,544
Purchase consideration	15,681
Goodwill	14,137

Purchase consideration discharged by:

Cash	4,550
Deferred consideration	4,550
Contingent consideration	6,581
	15,681

The acquisition accounting above is considered provisional as LSL is still reviewing the estimates of the likely payments under the contract, but the calculation above represents the Directors best estimate at 30^th June 2016.  In addition, work is on-going to identify acquired intangibles in the Group.  This work will be finalised in the Group's Financial Statements for the year ended 31^st December 2016 and at that stage any deferred tax liability will be recognised.  None of the goodwill is expected to be deductible for tax purposes

15.    Acquisitions (continued)

The goodwill of Group First Ltd comprises certain intangible assets that cannot be individually separated and reliably measured from the acquiree due to their nature.  These items include an experienced management team with a good record of delivering a quality service to customers, the expected value of synergies and the potential to significantly grow the business. Group First Ltd has contributed £795,000 profit before tax and £2,750,000 revenue in the period since acquisition.  If it had been acquired at the beginning of the year then the consolidated revenue would have been £920,000 higher and the consolidated profit before tax would have been £222,000 higher. An analysis of cash-flow on acquisition is given in the table below.

From the date of acquisition to 30^th June 2016, the acquisitions in aggregate, including Group First, have contributed £3,032,000 of revenue and £982,000 profit before tax to the Group, excluding the impact of movements in the contingent consideration recorded through the profit and loss.  If all of these combinations had taken place at the beginning of the year, the consolidated revenue would have been higher by £1,200,000 and the consolidated profit before tax would have been higher by £409,000.  Transaction costs have been expensed.

	£'000
Transaction costs	52
Net cash acquired with the subsidiaries and other businesses	(1,542)
Purchase consideration discharged	8,525
Net Cash outflow on acquisition	7,035

 

INDEPENDENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30^th June 2016 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 15.  We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30^th June 2016 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

2^nd August 2016

 

END

 

 

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