PRELIMINARY ANNOUNCEMENT

RNS Number : 8486Y

LSL Property Services

28 February 2013

For immediate release

28 February 2013

LSL Property Services plc ("LSL")

PRELIMINARY ANNOUNCEMENT

LSL Property Services plc, a leading provider of residential property services incorporating both estate agency and surveying businesses, announces preliminary results for the year ended 31^stDecember 2012.

Highlights	2012	2011	% Change
Group Revenue £m	243.8	218.4	+12
Group Underlying Operating Profit⁽¹⁾ £m	35.1	31.1	+13
Overall operating margin %	14.4	14.2	+0.4
Like-for-like Group revenue ⁽²⁾ £m	216.6	215.7	+0
Like-for-like Group Underlying Operating Profit ^(1,2) £m	27.9	30.5	-9
Like-for-like operating profit margin %	12.9	14.2	-1.3
Profit before tax £m Underlying Profit before tax £m	6.7 32.5	17.6 29.3	-62 +11
Basic Earnings per share - pence	6.8	12.9	-47
Adjusted Basic Earnings per share - pence	23.8	21.0	+14
Cash inflow from operations £m Net Bank Debt £m Final proposed dividend per share - pence	32.6 26.6 6.4	24.3 35.7 5.9	+34 -25 +8
Full year dividend per share - pence	9.5	8.7	+9

§ Impressive growth in the Estate Agency Division

§ Investment in lettings, financial services and counter-cyclical income streams yielding strong returns

§ Solid first full year performance from Marsh & Parsons - major platform for growth

§ Surveying division constrained by impact of contract renewals and declining lender market share

§ Costs for professional indemnity (PI) claims have tracked as expected since June 2012

§ Extremely cash generative. Cash inflow from operations up 34% to £32.6m and £6.3m generated from disposal of freehold properties

§ Net Bank Debt⁽³⁾ reduced by 25% to £26.6m at 31^st December 2012 (31^st December 2011: £35.7m)

§ Full year dividend up 9% to 9.5 pence per share

______________________________

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

(2) Excluding Marsh & Parsons which was acquired in November 2011

(3) Refer to note 7 for the calculation

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

"LSL has made strong progress in 2012 despite continued challenging market conditions. The Group reported double digit revenue growth in 2012 and is in a stronger position than a year ago with the Estate Agency Division demonstrating significant organic growth potential. We remain committed to our strategy of driving organic growth in all parts of the business and plan to invest further in Lettings and to focus on growing market share in the Estate Agency division to maintain our excellent progress. We will also continue to invest in our Financial Services division and expand the provision of Surveying services to private buyers.

The Group continues to be extremely cash generative and maintains a strong balance sheet, having reduced the level of net debt by 25% to £26.6m. We remain confident that pursuing a strategy of investment in organic growth initiatives combined with acquisitions will deliver increased shareholder value into the medium term even without a recovery in market conditions."

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, Sophie McNulty, Helen Greenwood

Buchanan 0207 466 5000

Notes to Editors:

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

Chairman's Statement

Introduction

I am pleased to report that the Group made strong progress during 2012 with revenue up by 12%, Group Underlying Operating Profit up by 13% and adjusted Basic Earnings per share up 14%, despite there being no improvement in market transaction levels. The Estate Agency Division had an excellent year as strong like-for-like growth combined with a first full year contribution from Marsh & Parsons more than offset a difficult year in the Surveying Division due to the impact of major contract renewals. Since the exceptional provision for PI claims of £17.3m was reported in the 2012 half year accounts, the rate and average cost of claims have run in line with expectations.

The business is extremely cash generative and net bank debt at 31^st December 2012 has been reduced by 25% to £26.6m (2011: £35.7m). Investment to drive organic growth within the Estate Agency Division has continued during the year, particularly in Lettings, and two bolt-on acquisitions have been made in the South East.

I am delighted to report an increase in our proposed final dividend of 8% to 6.4 pence per share (2011: 5.9 pence). This increases the total dividend for the year by 9% to 9.5 pence per share (2011: 8.7 pence).

The quality of the Group's earnings has been transformed since the sharp decline in the housing market in 2007. This is evidenced by the extent to which profits are now driven by counter-cyclical and non-cyclical income from lettings and asset management. Increasing income from these activities remains a key strategic priority as well as increasing the Group's exposure to the prime Central London market.

In addition, the business is in a stronger position than a year ago. The Estate Agency division has demonstrated its significant organic growth potential, which we will exploit through further investment. We will continue to strengthen our position in the prime central London market, where it is planned to open a number of new Marsh & Parsons branches during the year.

Financial Results

Group revenue increased by 12% to £243.8m (2011: £218.4m) and Group Underlying Operating Profit increased by 13% to £35.1m (2011: £31.1m). Group Underlying Operating Margin increased from 14.2% to 14.4%. On a like-for-like basis, excluding Marsh & Parsons, Group revenue increased slightly to £216.6m (2011: £215.7m). On the same basis, Group Underlying Operating Profit decreased by 9% to £27.9m (2011: £30.5m) due to contract renewals and the impact of a challenging market in the Surveying Division.

The Estate Agency Division delivered a 138% increase in Underlying Operating Profit to £24.4m (2011: £10.3m). On a like-for-like basis, excluding Marsh & Parsons, Underlying Operating Profit increased by 78% to £17.2m (2011: £9.7m). This performance was delivered despite no significant improvement in transaction levels. House purchase approvals increased by 7% in the first half of the year and then decreased by 1% in the second half, resulting in a full year increase of 3% to 610,000 (2011: 593,000). Repossession volumes fell by 5% to 33,900 in the year (2011: 35,800). The Estate Agency Division benefitted from a strong full year contribution from Marsh & Parsons, excellent growth in Lettings and Financial Services, exchange income fee growth and increased market share in Asset Management.

The Surveying Division revenue was impacted, as expected, by key contract renewals and also by continued decline in market transaction levels, compounded by further reductions in market shares of certain key lender clients. Total mortgage approvals decreased by 6% to 1.16m (2011: 1.23m), including a 12% decrease in remortgages to 340,000 (2011: 387,000). Surveying Division revenue decreased by 19% and Underlying Operating Profit was £13.9m (2011: £23.7m) with Underlying Operating Margin of 22.4% (2011: 31.0%). However, the Surveying Division continues to provide industry leading service levels to clients which together with excellent growth in revenue from the provision of surveying services to private buyers, provide a sound platform for growth.

Since making the additional PI provision of £17.3m at the 2012 half year, PI costs have tracked in line with expectations for the period since 1^st July 2012. The run rates of new claims and costs per claim have been consistent with the assumptions made in setting the 'Incurred But Not Reported' (IBNR) element of the total provision which relates to costs estimated to be received in the future relating to valuations undertaken during the 2004 to 2008 high risk lending period. Setting the correct level of IBNR provision is highly subjective as it is extremely sensitive to small changes in assumptions relating to run rates of new claims and costs per claim.

Profit before tax, amortisation and exceptional costs increased by 13% to £35.1m (2011: £31.1m). Total exceptional costs of £17.7m (2011: £2.0m) included PI costs of £17.3m. In addition, a non-cash charge of £4.2m (2011: £0.2m) was made relating to employment related contingent consideration in acquisitions. Amortisation of intangible assets during the year reduced to £3.5m (2011: £8.5m) following the ending of the C&G contract for valuation and associated panel management services. Profit before tax was £6.7m (2011: £17.6m) and profit after tax was £7.0m (2011: £13.2m). On an adjusted basis, earnings per share increased by 14% to 23.8p (2011: 21.0p).

Cash generated from operations increased by 28% to £26.9m (2011: £21.3m) after capital expenditure of £5.7m (2011: £3.2m). Operating cashflow included PI payments made in the year of £7.7m (2011: £2.9m). The increase in PI cash costs was partly driven by the overall increase in PI claims during 2012 and also by an acceleration in the rate of negotiated settlements with some lender claimants.

Net Bank Debt at 31^st December 2012 reduced by 25% to £26.6m compared to £35.7m at 31^st December 2011 having invested £3.9m in acquisitions and making a further investment in Zoopla. Offsetting these investments were proceeds of £6.3m from the successful freehold disposal programme which generated an exceptional profit of £1.4m. The current level of debt is almost identical to that in December 2009 (£25.8m) and despite market volumes being 12% lower in 2012 compared to 2009, LSL operating profit has increased by 24% over the same period.

Net assets increased to £76.1m at 31^st December 2012 (2011: £72.4m) including a £10.7m valuation uplift following a review of the fair value of the investment in Zoopla.

Dividend

As a result of the improved operating performance of the Group, the reduction in Net Bank Debt and the Board's positive view of future prospects for the business, an increased final dividend of 6.4p per share (2011: 5.9p) will be proposed to shareholders at the forthcoming AGM, increasing the total dividend for 2012 by 9% to 9.5p per share (2011: 8.7p per share). The ex dividend date for the final dividend is 10^th April 2013 with a record date of 12^th April 2013 and a payment date of 10^th May 2013. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan.

Developments

The Estate Agency Division performed exceptionally well with all key income lines advancing strongly on a like-for-like basis against a broadly flat market backdrop. The business is making very good progress towards the medium term profit per owned branch target of £30k-£50k which we set in 2011. In 2012, profit per owned branch, excluding Marsh & Parsons, increased to £21k from £6k in 2011.

We have made significant investment in our Lettings business over the last two years, adding a total of 101 new colleagues, and this helped to deliver a revenue increase in the year of 23% to £35.8m (2011: £29.1m) excluding Marsh & Parsons. Residential Sales income, excluding Marsh & Parsons, increased by 6% to £58.1m (2011: £54.7m) mainly due to an increase in the average fee.

Total Financial Services income delivered through our Estate Agency Division branches and Financial Services intermediary networks increased by 15% during 2012 and has now increased by over 150% over the last three years as a result of the successful roll out of Financial Services to the ex Halifax Estate Agency Limited branches and the acquisition of new intermediary networks in 2010. In total the Group arranged mortgage lending of £7.1bn during 2012 (2011: £6.8bn) out of a total intermediary lending market estimated at £72bn.

Marsh & Parsons delivered a good result with instructions increasing by 2% and revenue by 2% to £27.3m (2011: £26.6m). Operating profit increased by 6% to £7.2m (2011: £6.8m). The new Earls Court office has performed well and a second opening in Kensington that had originally been planned for the fourth quarter opened in January 2013. The Group is targeting four new branch openings in 2013, including Kensington.

Our Asset Management business also suffered from a challenging market as repossession volumes fell by 5% to 33,900 (2011: 35,800). Despite this the business once again increased market share and revenue increased by 3% to £15.6m (2011: £15.2m). A new property management contract was won and came on stream during the year and investment is committed in 2013 to win further similar contracts.

As reported in July 2012, we have continued to make selective acquisitions and have added to our Estate Agency Division portfolio in the South East with the purchase of Davis Tate and Lauristons during 2012. Both businesses are performing well and have significant growth potential which is one of our key acquisition criteria. We will continue to search for similar acquisitions funded from our strong cashflows.

We increased our shareholding in Zoopla in advance of the merger with Digital Property Group and LSL now owns 4.8% of the new group. Operating performance has been extremely strong since the merger in the second half of 2012 and against this positive background the Board has reviewed the fair value of the shareholding in Zoopla and attributed a value equal to the price paid per share when LSL acquired an additional stake in Zoopla in April 2012. The exercise concluded that a fair value of the Zoopla group was £245m at 31^st December 2012 and as a result we have increased the valuation of our holding by £10.7m to £11.8m. We are excited that LSL has a strategic stake in a group which has such strong future prospects.

As expected, the Surveying Division has been impacted by the effect of key contract renewals. In addition, certain key lender clients have reduced their market share. However, we have continued to invest in the provision of industry leading service levels and have secured a number of contract renewals. We have now worked through the renewal of all legacy contracts and margins are expected to stabilise around current levels in the short term.

The main source of growth in the Surveying Division has been through the provision of surveying services for private buyers. This key strategic initiative which was started in December 2010 delivered an increase in revenue of 46% to £4.0m (2011: £2.8m) in the year. The fourth quarter revenue run rate was £5.0m per annum. The number of distribution channels has been expanded during 2012 and will be developed further in 2013.

Corporate Governance and Board

The Board is committed to high levels of corporate governance as defined by the UK Corporate Governance Code.

In respect of 2012, the Board has conducted an annual review of its effectiveness and that of its Committees, taking into account the balance of skills, experience, independence and knowledge of our businesses and we concluded that the Board and its Committees are effective and are able to discharge their respective duties and responsibilities effectively.

In addition, whilst no significant issues arose from the annual evaluation, a number of recommendations were made to further improve the effectiveness of the Board and these are being implemented.

During the year, the Nominations Committee considered at length the composition of the Board and I am delighted that Adrian Gill was appointed to the Board as an additional independent Non Executive Director with effect from 10th September 2012. Adrian brings very relevant experience to the Board having been on the Board of Connells Limited, one of the largest and most successful estate agency businesses in the UK.

Amongst our Non Executive Directors, we now have experience in strategy, estate agency, surveying, financial services, the residential housing sector, retail and marketing, operations, business services, entrepreneurial private and public companies, finance, customer and employee matters and corporate governance.

Other Board changes during the year included the retirement of Paul Latham, Non Executive Director on 1^st October 2012 and Alison Traversoni, Executive Director for Surveying who stepped down with effect from 31^st December 2012, for family reasons.

We recognise the benefits of gender diversity and the current Board composition includes one female Director, Helen Buck, who is an independent Non Executive Director. Whilst we remain of the view that the setting of targets for the number of female directors on the Board is not necessary and that we will continue to appoint on merit, I will ensure that our searches take into account diversity, including gender.

LSL has also in 2012 continued to review gender diversity across the Group building on the gender diversity survey undertaken and reported on in 2011. Further detail of this study and its conclusions are set out in our Corporate Social Responsibility Report.

As Chairman, with the responsibility for leadership of the Board I personally review its effectiveness on all aspects of its role and encourage feedback. This is in addition to regular evaluations of each Director to ensure that all Board members receive regular and relevant updates to assist them in their roles ensuring the continual refreshment of skills and knowledge.

People

The number of Group employees decreased slightly by 2% to 4,754 (2011: 4,831) due principally to the expiry of the C&G contract. We did however welcome a large number of new colleagues to the Group as a direct result of the success of our strategy of pursuing both organic and acquisitive growth. I would like to welcome to all new colleagues to the Group and to wish them every success in their careers with LSL.

The delivery of our strong financial results in 2012 was based on the commitment of all of our colleagues to providing the best possible service to all of our customers, invariably against challenging market conditions. I would like to thank all of our employees for their hard work and commitment during the year.

Current trading and outlook

Market conditions remained challenging during 2012 with transaction levels at less than half of historic norms. It is still too early to judge whether there will be a significant positive impact on the market from the Government's 'Funding for Lending' scheme. Overall the group retains a cautious view of the market.

LSL is committed to its strategy of driving organic growth in all parts of the business, which will more than offset the remaining first half year impact of the C&G contract in the Surveying Division. We intend to invest further to maintain our excellent progress in lettings but also to increase market share in estate agency, to maximise the new branch opening programme in Marsh & Parsons and to win new business in Corporate Lettings and Asset Management. We will also continue to grow Financial Services revenue and to expand the provision of Surveying services to private buyers. Trading to the end of February 2013 has been in line with expectations. Progress on all key initiatives has been running to plan.

The Group's balance sheet is strong with relatively low levels of gearing underpinned by strong cash generation. We will continue with a prudent approach to leverage but we still have considerable scope to pursue a strategy of further organic investment initiatives and selective acquisitions. The Board is confident that this strategy will deliver increased shareholder value into the medium term, even without a recovery in market conditions.

Roger Matthews

Chairman

28^th February 2013

Estate Agency and Related Services

The Estate Agency Division performed exceptionally well with all key income lines advancing strongly against a broadly flat market backdrop.

	Actual - including Marsh & Parsons			Like for Like - excluding Marsh & Parsons
Financial	2012 £m	2011 £m	% change	2012 £m	2011 £m	% change
Exchange fees	72.0	56.7	27	58.1	54.8	6
Lettings income	48.0	29.5	63	35.8	29.1	23
Asset Management income	14.3	13.9	2	14.3	13.9	2
Financial Services income	31.8	27.6	15	31.8	27.6	15
Other income¹	15.5	14.1	10	14.4	13.8	4

Total income	181.6	141.8	28	154.4	139.2	11
Operating expenditure	(157.2)	(131.5)	20	(137.2)	(129.5)	6
Underlying Operating Profit	24.4	10.3	138	17.2	9.7	78

KPIs
Exchange units	27,762	27,398	1	26,966	27,297	(1)
Market Share (%)	4.55	4.62	(1)	4.42	4.60	(4)
Underlying Operating Margin (%)	13.5	7.2	86	11.1	7.0	60
Fee per unit	2,596	2,070	25	2,154	2,005	7

1 'Other income' includes franchising income, conveyancing services, EPCs, Home Reports, utilities and other products and services to clients of the branch network.

Estate Agency Performance

It has been a year of transformation for LSL with the profitability of the Estate Agency Division, excluding Marsh & Parsons, growing to a level 31% higher than that delivered at the peak of the market in 2006 when transaction volumes were more than twice the volume of 2012. Furthermore the quality of the Estate Agency Division's earnings has also significantly improved over the period since 2007, given the extent to which profits are now driven by counter-cyclical and non cyclical income from Lettings, Asset Management and exposure to the prime Central London market through Marsh & Parsons.

The Estate Agency Division delivered a strong performance in 2012 with excellent growth in Lettings and Financial Services income streams. The number of mortgage approvals for house purchases increased by 7% in the first half of the year and then decreased by 1% in the second half, resulting in a full year increase of 3% to 610,000 (2011: 593,000) which compares to historic normalised levels of 1.2m.

Against this background, total Estate Agency Division income increased by 28% to £181.6m (2011: £141.8m) and on a like-for-like basis by 11% to £154.4 m (2011: £139.2m). Underlying Operating Profit increased by 138% to £24.4m (2011: £10.3m) and on a like for like basis by 78% to £17.2m (2011: 9.7m).

Estate Agency Division Branches

Your Move, Reeds Rains and the LSLi brands all continued to perform well during the year despite no significant improvement in transaction levels. Residential Sales income increased by 6% to £58.1m (2011: 54.8m) on a like-for-like basis due mainly to an increase in the average fee. Average fees increased by 7% on a like-for-like basis to £2,154 (2011: £2,005).

The Estate Agency Division has identified a number of key initiatives including investment in additional staff into the branches to continue to drive both market share growth as well as average fee during 2013. We will continue to increase our market share of higher value properties, which is challenging in the prevailing market conditions. LSL has had some success in this area already and it remains a major opportunity for the future.

Counter-Cyclical Income

The counter cyclical income streams of Lettings and Asset Management are particularly important to LSL in current market conditions. In 2012 LSL has continued to focus on growing Lettings income and additional 101 employees have been recruited over the last 2 years to help drive a 23.4% increase in like-for-like Lettings to £35.8m (2011: £29.1m). Excluding Marsh & Parsons, Lettings income was 61.7% of the level of Residential Sales in 2012 and LSL's objective is to raise Lettings income to a similar level to Residential Sales income, as has been achieved in Marsh & Parsons where the ratio is 87.4%.

Additional Lettings consultants will continue to be recruited in 2013 to further drive Lettings income. In addition, LSL's call centre 'The Bridge' which was launched in January 2011 to drive Residential Sales instructions, will be expanded in 2013 to also drive Lettings instructions.

Despite the uncertain economic conditions impacting the housing market, repossession volumes fell by 5.3% to 33,900 in 2012 (2011: 35,800). We are pleased that LSL's market share in Asset Management has increased during the year with revenue up by 2.3% to £14.3m (2011: £13.9m) in a declining market. LSL's Asset Management business is well positioned to capitalise on an increase in repossession volumes when they eventually occur.

The Group now benefits from total counter-cyclical income from Lettings and Asset Management of £62.3m compared to £43.5m in 2011 and only £12.8m in 2007 before the launch of LSL's Asset Management businesses.

Financial Services

Total Financial Services income delivered through to the Estate Agency Division's branches and intermediary networks increased by 15% during 2012 to £31.8m (2011:£27.6m). It has now increased by over 150% in the last three years as a result of the successful roll out of Financial Services to the ex HEAL¹ branches and the acquisition of new intermediary networks in 2010. In total the Group arranged mortgage lending of £7.1bn during 2012 (2011: £6.8bn) out of a total intermediary lending market estimated at £72bn.

¹Halifax Estate Agency Limited

Marsh & Parsons

Marsh & Parsons delivered a good first full year contribution with revenue increasing by 2% to £27.3m (2011: £26.6m²) and operating profit increasing by 6% to £7.2m (2011: £6.8m²).

During 2012, a new office was opened in Earls Court which is performing well. A second opening in Kensington, which was originally planned for the fourth quarter of 2012, actually opened in January 2013. The Group is targeting a further three new branch openings in 2013.

²Includes the results prior to the acquisition in November 2011

Developments

The main Estate Agency developments during 2012 were continued investment in Lettings, consolidating the success of 'The Bridge' call centre in driving new instructions to branches and securing a strong first year performance from Marsh & Parsons while continuing the branch roll out programme.

We have also invested significantly in Asset Management to win new property management contracts and successfully brought the first of these on stream during 2012.

In addition we have grown Financial Services income across our intermediary networks, trading as Pink, First Complete and Linear. We are in the process of rolling out a new common platform across these businesses which will improve customer service and increase operational efficiency.

During 2012, the Group has continued to make selective acquisitions and have added to our Estate Agency Division in the South East through the acquisitions of Davis Tate and Lauristons.

Looking forward to 2013 we will continue with the same strategy focusing in particular on investment in lettings and residential sales, rolling out new branches in Marsh & Parsons and investment in Asset Management. We will continue to identify selective acquisitions funded from our strong cashflows.

Regulation

First Complete and Advance Mortgage Funding are both directly authorised by the Financial Services Authority in relation to the sale of mortgage, pure protection and general insurance products. Your Move, Reeds Rains Financial Services and Reeds Rains along with the LSLi subsidiaries are all appointed representatives of First Complete, while Linear Mortgage Network is an appointed representative of Advance Mortgage Funding for mortgage and insurance business and also an appointed representative of Openwork Limited (Openwork) (for investment business). Reeds Rains is also an appointed representative of Letsure Limited for the sale of rent indemnity insurance.

As a result of Linear Mortgage Network's appointment by Openwork, LSL has a small indirect shareholding of Openwork.

Awards 2012 & 2013

The Estate Agency Division businesses, achieved the following industry awards demonstrating LSL's continued commitment to customer services.

LSL Land & New Homes

Estate Agency of the Year Awards 2012, sponsored by the Sunday Times:

- Best New Homes - Silver Award

The Bridge

South West Contact Centre Awards:

- Team Leader of the Year Award 2012

- Finalist in the Training Category

LSL Corporate Client Department

Mortgage Finance Gazette Awards 2013:

- Best Debt and Arrears Strategy (non-lenders) - Highly Commended

The Negotiator Awards 2012:

- Property Manager of the Year - Highly Commended

Mortgage Finance Gazette 2012:

- Excellence in Treating Customers Fairly (non lender) Award.

Your Move

Estate Agency of the Year Awards 2012, sponsored by the Sunday Times:

- Best Financial Services - Silver Award

- Prestige Agency - Bronze Award

Negotiator Awards 2012:

- Winner - Franchise of the Year

- Highly Commended - National Estate Agency of the Year

- Highly Commended - Residential Mortgage Broker of the Year

Lettings Agency of the Year Awards 2012, sponsored by the Sunday Times:

- Silver - Best Lettings Agency Franchise

- Silver - Best Student Lettings Agency

- Bronze - Best UK Large Lettings Agency

Reeds Rains

Estate Agency of the Year Awards 2012, sponsored by the Sunday Times:

- Best Financial Services - Silver Award

Lettings Agency of the Year Awards 2012, sponsored by the Sunday Times:

- Best Lettings Agency in Northern Ireland - Gold Award

Marsh & Parsons

Estate Agency of the Year Awards 2012, sponsored by the Sunday Times:

- Best Customer Service - Gold Award

- Best London Estate Agency (Medium) - Gold Award

- Best Website - Silver Award

The Negotiator Awards 2012:

- National Estate Agency of the Year - Winner

Lettings Agency of the Year Awards 2012, sponsored by the Sunday Times:

- Best Medium Lettings Agency in London - Gold Award

LSLi - Jon Cooke, MD

Estate Agency of the Year 2012 as Sponsored by the Sunday Times - Outstanding Contribution to Estate Agency:

Jon Cooke, LSLi MD received the Award in acknowledgement of his long term commitment to the estate agency industry. This includes his passion for ensuring a high standard of service to the public, his talent for providing diverse opportunities and advice to fellow estate agents and his philanthropic contribution to the community as demonstrated by his creation of the Zoopla British property Cycle event.

Intercounty

Estate Agency of the Year Awards 2012, as sponsored by the Sunday Times:

- South East Lettings Agency of the Year - Silver Award

Pink Home Loans

Financial Advisor 5 Star Awards - 2012 - winner of Mortgage category

Financial Advisor 5 Star Awards - 2011 - winner of Mortgage category

Mortgage Strategy Awards - 2012 - runner up in the Best Mortgage Network Category

Mortgage Strategy Awards - 2011 - finalist in the Best Mortgage Network Category

Linear Mortgage Network

Mortgage Strategy Awards 2012:

- Winner - Best Broker for Protection

- Finalist - Best Broker for General Insurance

Mortgage Strategy Awards 2011

- Winner - Best Broker for Protection

First Complete

Mortgage Strategy Awards 2012:

- Winner - Best Mortgage Network

- Finalist - Best Network

Mortgage Strategy Awards 2011:

- Finalist - Best Mortgage Network

Surveying and Valuation Services

The Surveying Division revenue was impacted, as expected, by key contract renewals and continued decline in market transaction levels.

Financial	2012 £m	2011 £m	% Change
Revenue	62.2	76.6	-19
Operating expenditure	(48.3)	(52.9)	-9
Underlying Operating Profit	13.9	23.7	-41

KPIs
Profit margin (%)	22.4%	31.0%
Jobs performed (000s)	408	500	(18%)
Revenue from private surveys (£m)	4.0	2.8	46.%
Income per job (£)	152	153	(1%)
PI insurance (Balance Sheet) provision at 31 Dec (£m)	24.2	9.6	151%
Number of surveyors	378	425	(11%)

Surveying Division Performance

Turnover fell by 19% to £62.2m (2011: £76.6m) with the total numbers of jobs performed reducing by 18% to 408,000 (2011: 500,000). This was driven by a decline in total mortgage approvals during 2012 which decreased by 6% to 1.16m, further adverse changes in lender market share and the impact of key contract renewals including the ending of a key contract in June 2012, due to a decision by the lender client to transfer their valuations and associated panel management instructions back in-house. Turnover from this contract declined by £7.0m to £5.5m (2011: £12.5m).

Against this difficult backdrop the Surveying Division has traded well. It has continued to provide industry leading service levels to clients and has made excellent progress in developing surveying services for private buyers which has delivered exceptional revenue growth of 46% to £4.0m in the year (2011: £2.8m). This provides us with a strong platform for future growth in this area.

Underlying Operating Profit was £13.9m (2011: £23.7m) and the Underlying Operating Profit Margin was 22.4% (2011: 31.0%) which reflected both the overall revenue decline and further investment in provision of high service levels for all lender clients. LSL has now successfully managed a difficult year of legacy contract renewals. As part of the investment in the business there was a switch towards the use of employed surveyors rather than contractors though the total number of employed surveyors decreased to 378 (2011: 425) as result of the expiry of the C&G contract.

Since making the additional PI provision of £17.3m at the 2012 half year, PI costs have tracked in line with expectations. The run rates of new claims and costs per claim have been consistent with the assumptions made in setting the 'Incurred But Not Reported' (IBNR) element of the total provision which relates to costs estimated to be received in the future relating to valuations done during the 2004 to 2008 high risk lending period. Setting the correct level of IBNR provision is highly subjective as it is extremely sensitive to small changes in assumptions relating to run rates of new claims and costs per claim.

Surveying Division Developments

The major growth initiative in the Surveying Division has been the expansion of provision of surveying services for private buyers. This key strategic programme was only started in December 2010 and delivered an increase in revenue of 46.0% to £4.0m (2011: £2.8m) in the year. The fourth quarter revenue run rate was £5.0m. The number of distribution channels has been expanded during 2012 and will be developed further in 2013.

e.surv Chartered Surveyors successfully renewed the Barclays Bank plc surveying and valuation services contract for a 30 month term commencing from 1^st January 2012. Following Lloyds Banking Group's decision to take the C&G contract in house, LSL has now worked through the renewal of all legacy contracts and the Board expects margins to stabilise around current levels in the short term. The Surveying Division serves key lender clients through both exclusive contracts and through panel management arrangements. LSL is continuing to invest in the Surveying business in order to maintain high service levels for all clients. During 2012 we have successfully trialled a new tablet computer for surveyors to use when performing valuations on site and this is now being rolled out across all of our surveyors. Feedback from both key lender clients and private customers has been consistently positive during 2012 and we are focused on meeting demanding key service measures. These include turnaround time for valuations reflecting LSL's use of innovative technology, including the new tablets, the flexibility of the panel management arrangements and assisting lenders in the management of the risk of mortgage fraud.

e.surv Chartered Surveyors Achievements/Awards 2012 & 2013

e.surv Chartered Surveyors, LSL's largest surveying business, has achieved a number of awards and accreditations:

Equity Release Awards 2012 - Best Surveyor.

Mortgage Strategy Awards 2012 - the Best Surveyor/Valuer.

Sunday Times - Best Companies 2012 - one to watch. e.surv Chartered Surveyors received this award in February 2012, having come extremely close to being in the top 100 in 2011.

IIP Accreditation - The Investors in People accreditation was once again achieved at the Head Office location in Kettering.

Managing Partners and European Leadership Awards 2012- Best Innovation in Client Service or Relationship Management Nominee:

Having been listed as a finalist at the MPF European Practice Management Awards for Risk Management in 2011, e.surv Chartered Surveyors has once again received a nomination in 2012. This time the nomination for the Managing Partners and European Leadership Awards relates to client services and relationship management. These awards recognise the integrated and embedded approach and active involvement to relationship management promoted by e.surv Chartered Surveyors.

BSi ISO 9001 Accreditation:

e.surv Chartered Surveyors once again secured an extension to its ISO 9001:2008, which was originally achieved in 1996. e.surv Chartered Surveyors again conformed 100% to the requirements of the internationally recognised standard, when independently reviewed by the leading global provider of standards and certification body, British Standards Institution (BSi). This also covers quality management systems, maintained by the International Organisation for Standardisation.

Financial Review

The key drivers of the financial performance of LSL in 2012 are summarised below:

Income statement

Revenue

Revenue increased by 12% to £243.8m in the year ended 31^st December 2012 (2011: £218.4m). On a like-for-like basis, excluding Marsh and Parsons, revenue increased slightly to £216.6m (2011: £215.7m).

Operating Expenses Excluding Exceptional Costs, Amortisation and Share Based Payment

Operating expenses increased by 12% to £211.1m (2011: £189.0m). This was mainly due to investment in the Estate Agency Division to support higher revenue. The average number of full time equivalent employees during the year was 4,113 (2011: 3,930).

Underlying Operating Profit

Group Underlying Operating Profit increased by 13% to £35.1m (2011: £31.1m) with the Underlying Operating Profit margin of 14.4% (2011: 14.2%).

Exceptional Items

Total net exceptional costs in 2012 were £21.4m (2011: £2.4m). The main exceptional costs in 2012 were PI costs of £17.3m; movements in the provision for contingent consideration on acquisitions which were expensed through the P&L of £4.2m; and redundancy and other associated branch closure costs including onerous lease provisions of £1.9m. These costs were offset by a gain on the sale of the freehold properties totalling £1.4m. In 2011, the main exceptional costs were acquisition costs of £1.6m associated with the purchase of Marsh & Parsons.

Provision for PI claims/notifications

During 2012 the Group has seen a deterioration in claims experienced relating to the 2004 to 2008 period, which was a period of relatively high risk lending characterised by higher house prices, high loan-to-value ratios and considerable levels of buy-to-let and sub-prime lending. As a result the provision for PI costs have been increased.

The PI provision was made up of a Specific Provision and 'Incurred But Not Reported' (IBNR). The Specific Provision was based on the Group's review of any notifications or claims which had been made against the Group as at 31 December 2012. The main factors considered in quantifying the specific provision were the likelihood that a claim would be successful, an assessment of the likely cost for each claim, including any associated legal costs, and whether any reduction in the claim is considered likely due to contributory negligence of the lender.

The IBNR provision, was based on management's estimates on the number of claims which would be received in the future with regard to work completed before 31 December 2012. The Directors have then applied an average cost per case, based on historical averages, to estimate the IBNR provision.

The increase in the PI provision was partly driven by lenders, most of whom are no longer active in the market, pursuing notifications and claims previously considered dormant. It has also been necessary to make additional provisions for existing claims which are being aggressively pursued by lenders who often use solicitors engaged on a no win, no fee basis. This trend has increased recently in advance of April 2013 when it is expected that the legislation governing civil litigation will change.

Both these factors have had a significant impact on the IBNR provision required for notifications and claims estimated to be received in the future for the 2004 to 2008 period. It should be noted this was the Directors' best estimate of future claims and the conclusions on the appropriate level of IBNR provision are sensitive to small changes in assumptions and are therefore highly subjective. The additional charge relating to the 2004 to 2008 risk years has been included as an exceptional item.

Further, we have however continued to build a provision for estimated PI costs relating to valuations completed since 2009, and an Income Statement charge has been made in these results and the charge has been considered as an operating expense rather than as an exceptional cost.

Contingent consideration

The revised version of IFRS 3 Business Combinations which is in place for acquisitions which occurred post 1^st January 2010, has tightened the criteria linking contingent consideration to service. In acquisitions in 2011 and 2012, contingent consideration arrangements have been accounted for as remuneration as the arrangements involved the vendors forfeiting amounts otherwise due if services were not provided.

The acquisition of Marsh & Parsons in November 2011 has resulted in an exceptional expense of £1.8m (2011: £0.1m) in 2012. Assuming the level of profits and new branch openings remain on forecast, this charge is expected to continue at this level until 31^st December 2015. The acquisitions of Davis Tate and Lauristons in 2012 resulted in an exceptional expense of £2.3m (2011: £nil), but the impact of these acquisitions on future years will be far smaller unless there are significant changes in the forecast profitability of these acquisitions.

Net Financial Costs

Net financial costs (excluding exceptional finance costs) amounted to £2.9m (2011: £1.8m). The finance costs related principally to interest and fees on the revolving credit facility, however, £0.8m (2011: £0.4m) of the costs relates to the unwinding of discounts on provisions.

Taxation

The effective rate of corporation tax for the year was 19.0% (2011: 26.3%) excluding prior year adjustments. The effective tax rate for 2012 and 2011 was impacted by non taxable income for joint ventures, the impact of a rate change on the deferred tax liability, contingent consideration recognised as an expense and the impact of temporary differences on certain non-qualifying properties no longer being recognised. Excluding these impacts the effective tax rate is 28.6% (2011: 31.7%).

Adjusted Basic Earnings Per Share

The Adjusted Basic Earnings Per Share³ was 23.8p (2011: 21.0p). The Directors consider this provides a better and more consistent indicator of the Group's underlying performance.

³ "Adjusted Basic Earnings Per Share" is defined at note 3 of the Financial Statements

Balance Sheet

Capital Expenditure

Total capital expenditure in the year amounted to £5.7m (2011: £3.2m). Most of the increase in capital expenditure was due to expenditure by Marsh & Parsons which was acquired in November 2011. The majority of this spend was associated with new office openings.

Financial Structure

As at 31^st December 2012 net bank debt was £26.6m (2011: £35.7m). LSL has a £75.0m revolving credit facility in place until March 2014 (2011: £75.0m). The net debt decrease followed the payment of £3.7m for various new acquisitions by the Estate Agency Divisions, £0.9m to increase the Group's stake in Zoopla, £2.2m repayment of other loans and in increase in dividend paid in the year of £0.3m.

The revolving credit facility expires in March 2014, the Directors have initiated discussions with a number of lenders to refinance the facility. The refinance request has been received positively by all lenders and the Directors do not believe that there will be any issues in extending the facility and will look to finalise negotiations in the first half of 2013.

Cash Flow

The Group produced £26.9m (2011: £21.1m) of operating cashflow after capital expenditure of £5.7m (2011: £3.2m). Cashflow was higher compared to the previous year due to the increase in GroupUnderlying Operating Profit. During the year the Group sold a number of freehold properties acquired as part of the Halifax Estate Agency acquisition. Net proceeds of £6.2m (2011: nil) were received generating an exceptional profit of £1.4m

Zoopla

In April 2012, the Group acquired a further 1.38% of Zoopla for £0.9m. In August 2012, Zoopla merged with Digital Property Group (DPG), owner of Findaproperty.com and Primelocation.com. As part of the merger, any warrants held in Zoopla were exercised so that the Group owned 4.81% of the post-merger entity. At 31^st December 2012, the Board reviewed the fair value of Zoopla and assessed the fair value to be £6.03 per share , in line with the price paid in April 2012. This valued the Zoopla Group at £245m, with the Group's share being £11.8m. This resulted in a £10.7m valuation uplift being recorded through the fair value reserve.

Net Assets

The net assets as at 31^st December 2012 were £76.1m (2011: £72.4m).

Treasury & Risk Management

LSL has an active debt management policy and due to the cash generative nature of the business, the Group's net bank debt position at 31^st December 2012 is £26.6m (2011: £35.7m). The Group has an interest rate swap in place which fixes the interest on borrowings up to £25.0m at an average LIBOR rate of 2.93%, which provides a degree of predictability on finance costs. LSL does not hold or issue derivatives or other financial instruments for trading purposes.

International Financial Reporting Standards (IFRS)

The Financial Statements have been prepared under IFRS as adopted by the European Union. LSL commenced reporting under IFRS from 1^st January 2005.

Principal Risks & Uncertainties

LSL's risk management arrangements form an integral part to its overall framework for the management of risks and maintaining internal controls. Through the framework, the Board continually identifies, evaluates and manages the principal risks and uncertainties faced by LSL and which could adversely affect its business, operating results and financial condition.

This risk management and internal controls framework includes:

a. Ownership of the risk management and internal controls framework by the Board, supported by the Company Secretary, Head of Risk & Audit and the Group Financial Controller;

b. A network of Risk Owners in each of LSL's businesses with specific responsibilities relating to risk management and internal controls;

c. The documentation and monitoring of risks are recorded and managed through standardised risk registers which undergo regular reviews and scrutiny by local boards and the Head of Risk & Audit;

d. The Board regularly reviews a consolidated risk register as part of the planning and reporting cycle to ensure that risks which impact the Group are identified, monitored and mitigated; and

e. Reporting by the Chairman of the Audit Committee to the Board on any matters which have arisen from the Audit Committee's review of the way in which the risk management and internal control framework has been applied together with any breakdowns in, or exceptions to, these procedures.

Listed below are the risks which the Board has identified as being significant, and therefore the principal risks and uncertainties faced by LSL, together with details of key mitigation initiatives, which are subject to regular review.

Principal Risk & Uncertainty	Mitigation
• The continued volatility and economic uncertainty within the UK. In particular, within the UK housing market, transaction volumes (both house purchase and remortgage) and house prices may adversely affect the profitability and cash flow of all our key brands and businesses.	The Board regularly focuses on counter-cyclical income streams to ensure that the growth in income in lettings and asset management set off the impact of reduced transaction numbers.
• The current economic uncertainty especially in the financial sector (both within the Eurozone and the UK) could also impact on lender behaviour and the availability of mortgage credit which will have a consequential impact on the housing market by impacting mortgage availability.	The Board regularly reviews trends in market volumes and decides whether any actions such as cost base reductions measures are required.
• LSL has an exposure to the Central London property market via Marsh & Parsons. While historically the London market has been more robust compared to the rest of the UK, there is a risk that the London market fails to grow or that LSL fails to maximise the potential growth.	Marsh & Parsons is a well managed business with a diversified strategy. It operates in all key segments of the London market. The Board closely monitors the company's performance. Further, regular reviews of trends in market volumes are undertaken and decisions made on any cost base reductions measures.
• Loss of key surveying or corporate services clients or contracts at their renewal date or significant reduction in volumes combined with pressure on fees, either as a result of adverse market conditions, market consolidation, competition or inadequate service delivery.	There has been an increased investment in customer services to retain existing clients and attract new ones. In addition, we are continuing to develop our private survey proposition to provide an alternative income stream.
• Liability for inaccurate professional services advice to clients (e.g. inaccurate valuations) together with the risk that LSL fails to maintain appropriate risk management arrangements.	Monitoring arrangements include oversight by the Board (including regular review of the PI provision) and appropriate quality controls and Internal Audit reviews of services provided on a sample basis. There are also specific operational controls implemented within the Surveying Division which include a risk based criteria for the identification of transactions to be reviewed by on-site specialists.
• Failure to effectively deliver and manage the market share and fee growth initiatives for Estate Agency.	Regular monitoring by the Board is undertaken on the Division's progress.
• Failure to comply with existing legislation/ regulation or changes to legislation/regulation and/or Government policy which may impact on business results or the UK housing market in general.	LSL business units are supported by the Compliance and Legal Services teams who closely monitor existing business practices and any reform proposals. Where appropriate Government departments and/or trade bodies are engaged in a dialogue.
• In response to the financial crisis, significant changes to financial services regulations, including the mortgage market review and retail distribution review are underway.	The Board is monitoring the impacts of these changes and assessing what changes to business practices may be required to ensure compliance with new legislation.
• Failure or interruptions of Information technology services on which the Group is reliant for operational performance and financial information	Dedicated in-house IT departments with specialist staffing. Maintenance of a formalised business continuity infrastructure and contingency plans in the event of system failure. Regular monitoring by subsidiary management, external specialists and Internal audit, with any system issues highlighted to the Board.
• Loss of senior management who are key to delivering the future growth strategy of the Group.	The Remuneration Committee reviews the remuneration policies of the Group on an annual basis to ensure staff are appropriately incentivised. In addition, the Nomination Committee considers succession planning for key staff on a regular basis.

LSL also faces other risks which, although important and subject to regular review, have been assessed as less significant and are not listed here. This includes some risks which were reported in previous years' Annual Report & Accounts and which through changes in external factors and careful management are no longer material to the Group as a whole.

However, many risk factors remain beyond the direct control of LSL and the risk management framework and procedures can only provide reasonable but not absolute assurance that the principal risks and uncertainties are managed to an acceptable level.

Further information relating to the management of these risks and uncertainties is set out in the Corporate Governance Review (Internal Controls) of the Annual Report & Accounts 2012.

Relationships

The Corporate Social Responsibility (CSR) statement in the Annual Report details the arrangements for all LSL companies in relation to:

· Employment (including Equal Opportunities);

· Health, Safety & Welfare;

· Environmental; and

· Social and Community Interests (including social and ethical issues).

Other than our shareholders, LSL's performance and value are influenced by other stakeholders, principally our customers, suppliers, employees, Government and our strategic partners. LSL's approach with all these parties is founded on the principles of open and honest dialogue based on a mutual understanding of needs and objectives.

For example:

• Lenders' relationships are managed via dedicated account managers.

• Employees are managed and consulted both on an individual basis and via representative groups with LSL recognising Unite as an employee representative body.

• Group companies participate in relevant trade associations and industry groups, such as Royal Institute of Chartered Surveyors (RICS), the Association of Mortgage Intermediaries (AMI), the National Association of Estate Agents (NAEA), the Association of Residential Lettings Agents (ARLA), National Federation of Property Professionals (NFoPP) and The Property Ombudsman (TPO), because these give us genuine access to customer views and decision makers in Government and other regulatory bodies.

• Further, the Group aims to build partnerships with the communities in which it operates and to offer support in addition to providing employment and training, using local services and suppliers where possible and paying taxes.

Environmental Matters

LSL recognises that the environment has an intrinsic value, central to the quality of life and underpins economic development. LSL understands that its stakeholders are interested in how LSL manages its impact on the environment and how it is performing. Further, stakeholders may also provide LSL with views and opinions which can strengthen LSL's approach to environmental management. Accordingly, LSL is committed to communicating on environmental matters with all interested parties .Appropriate guidance and training is also provided to all employees to ensure they have an awareness of their impact on the environment and the role that they play in managing the impact. During 2012, LSL began to prepare for Mandatory Emission Reporting and in relation to which LSL will commence reporting in 2014.

Group Income Statement

for the year ended 31^st December 2012

		2012	2011
	Note	£'000	£'000

Revenue	2	243,845	218,381

Operating expenses:
Employee and subcontractor costs		(142,224)	(124,786)
Establishment costs		(18,459)	(15,886)
Depreciation on property, plant and equipment		(3,499)	(2,581)
Other		(46,926)	(45,734)
		(211,108)	(188,987)

Rental income		1,120	1,044

Group's share of profit after tax in joint ventures		1,283	679

Group operating profit before contingent consideration, exceptional costs, amortisation and share-based payments		35,140	31,117

Share-based payments		(647)	(787)
Amortisation of intangible assets		(3,472)	(8,472)
Exceptional (cost)/profit	4	(17,684)	(2,048)
Contingent consideration	4	(4,152)	(166)
Group operating profit		9,185	19,644

Finance income		10	4
Finance costs		(2,891)	(1,874)
Exceptional finance costs	4	429	(182)
Net financial costs		(2,452)	(2,052)

Profit before tax		6,733	17,592

Taxation
- related to exceptional costs and contingent consideration		5,288	570
- others		(5,004)	(4,927)
	6	284	(4,357)

Profit for the year		7,017	13,235
Attributable to - Owners of the parent - Non-controlling interest		7,001 16	13,217 18


Earnings per share expressed in pence per share:
Basic	3	6.8	12.9
Diluted	3	6.8	12.9
Adjusted - basic	3	23.8	21.0
Adjusted - diluted	3	23.8	21.0

Group Statement of Comprehensive Income

for the year ended 31^st December 2012

	2012	2011
	£'000	£'000

Profit for the year	7,017	13,235

Revaluation of financial assets	10,677	-
Income tax effect	(2,456)	-
Other comprehensive income for the year, net of tax	8,221	-

Total comprehensive income for the year, net of tax	15,238	13,235

Attributable to - Owners of the parent - Non-controlling interest	15,222 16	13,217 18

Group Balance Sheet

as at 31^st December 2012

		2012	2011
	Note	£'000	£'000

Non-current assets
Goodwill	8	119,749	116,452
Other intangible assets		18,509	21,042
Property, plant and equipment		13,501	17,491
Financial assets		11,921	347
Investments in joint ventures		2,313	1,768
Total non-current assets		165,993	157,100

Current assets
Trade and other receivables		29,552	28,681
Current tax receivables		2,242	-
Cash and cash equivalents	7	225	435
Total current assets		32,019	29,116
Assets held for sale		1,097	-
Total assets		199,109	186,216

Current liabilities
Financial liabilities	7	(2,396)	(2,246)
Trade and other payables		(47,805)	(46,603)
Current tax liabilities		-	(3,372)
Provisions for liabilities		(2,305)	(706)
Total current liabilities		(52,506)	(52,927)

Non-current liabilities
Financial liabilities	7	(42,165)	(46,782)
Deferred tax liability		(5,464)	(4,772)
Provisions for liabilities		(22,895)	(9,352)
Total non-current liabilities		(70,524)	(60,906)

Total Liabilities		(123,030)	(113,833)

Net assets		76,079	72,383

Equity
Share capital		208	208
Share premium account		5,629	5,629
Share-based payment reserve		1,526	912
Treasury shares		(2,691)	(2,747)
Fair value reserve		8,221	-
Retained earnings		63,117	68,328
Equity attributable to owners of parent		76,010	72,330
Non-controlling interests		69	53

Total equity		76,079	72,383

Group Cash Flow Statement

for the year ended 31^st December 2012

	31 December 2012		31 December 2011
	£'000	£'000	£'000	£'000
Cash generated from operating activities
Profit before tax		6,733		17,592

Adjustments to reconcile profit before tax to net cash from operating activities

Exceptional operating costs and contingent consideration (excluding and gain on sale of assets)	23,262		2,214
Amortisation of intangible assets	3,472		8,472
Finance income	(10)		(4)
Finance costs	2,891		1,874
Exceptional finance costs	(429)		182
Share-based payments	647		787
		29,833		13,525
Group operating profit before amortisation and share-based payments		36, 566		31,117
Depreciation	3,499		2,581
Share of results of joint ventures	(1,283)		(679)
(Gain)//loss on sale of property, plant and equipment	(1,426)		8
		790		1,910
(Increase)/decrease in trade and other receivables	12		(2,054)
Decrease in trade and other payables	(2,078)		(4,491)
Decrease in provisions	(2,699)		(2,183)
		(4,765)		(8,728)
Cash generated from operations		32,591		24,299

Interest paid	(2,084)		(1,422)
Tax paid	(7,252)		(3,235)
		(9,336)		(4,657)
Net cash generated from operating activities		23,255		19,642

	31 December 2012		31 December 2011
	£'000	£'000	£'000	£'000
Cash flows from investing activities
Cash acquired on purchase of subsidiary undertaking	223		5,707
Acquisition of subsidiaries and other businesses	(3,926)		(46,826)
Investment in joint venture	(10)		(671)
Investment in financial assets	(897)		-
Dividends received from joint venture	748		332
Interest received	10		4
Purchase of property, plant and equipment and intangible assets	(5,680)		(3,243)
Proceeds from sale of property, plant and equipment	6, 290		-
Proceeds from sale of available-for-sale financial asset	-		1,962
Net cash expended on investing activities		(3,242)		(42,735)

Cash flows from financing activities
Proceeds/ (repayment) of loans	(10,962)		32,939
Purchase of treasury shares (net of consideration received on reissue of treasury shares)	-		(804)
Dividends paid	(9,261)		(8,945)

Net cash generated from/(used in) financing activities		(20,223)		23,190

Net increase/(decrease) in cash and cash equivalents		(210)		97
Cash and cash equivalents at the beginning of the year		435		338
Cash and cash equivalents at the end of the year		225		435

Group Statement of changes in equity

for the year ended 31^st December 2012

Year ended 31^st December 2012

	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 1^st January 2012	208	5,629	912	(2,747)	-	68,328	72,330	53	72,383
Profit for the year	-	-	-	-	-	7,001	7,001	16	7,017
Other comprehensive income	-	-	-	-	8,221	-	8,221	-	8,221
Total comprehensive income for the year	-	-	-	-	8,221	7,001	15,222	16	15,238
Put option over non-controlling interests	-	-	-	-	-	(2,928)	(2,928)	-	(2,928)
Reissuance of treasury shares	-	-	(33)	56	-	(23)	-	-	-
Share-based payments	-	-	647	-	-	-	647	-	647
Dividend payment	-	-	-	-	-	(9,261)	(9,261)	-	(9,261)
At 31^st December 2012	208	5,629	1,526	(2,691)	8,221	63,117	76,010	69	78,079

Year ended 31^st December 2011

	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 1^st January 2011	208	5,629	1,014	(3,139)	-	64,363	68,075	35	68,110
Profit for the year	-	-	-	-	-	13,217	13,217	18	13,235
Other comprehensive income	-	-	-	-	-	-	-	-	-
Total comprehensive income for the year	-	-	-	-	-	13,217	13,217	18	13,235
Purchase of treasury shares	-	-	-	(1,762)	-	-	(1,762)	-	(1,762)
Reissuance of treasury shares	-	-	(889)	2,154	-	(307)	958	-	958
Share-based payments	-	-	787	-	-	-	787	-	787
Dividend payment	-	-	-	-	-	(8,945)	(8,945)	-	(8,945)
At 31^st December 2011	208	5,629	912	(2,747)	-	68,328	72,330	53	72,383

Notes to the Preliminary Results

The financial information in this preliminary announcement does not constitute LSL's statutory financial statements for the year ended 31^st December 2012 but has been extracted from the Financial Statements, and as such, does not contain all information required to be disclosed in the financial statements prepared in accordance with IFRS.

Statutory financial statements for this year will be filed following the AGM. The auditors have reported on these financial statements. Their report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006

1. Basis of preparation

The accounting policies adopted are consistent with those of the previous financial year except for the adoption of new Standards and Interpretations as of 1^st January 2012 which are applicable to the Group, as noted below:

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

· Amendments to IFRS 7 - Disclosures - Transfers of financial assets

· Amendments to IAS 12 - Deferred Tax: Recovery of Underlying Assets

2. 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 housing. It operates a network of high street branches. As part of this process, the Estate Agency Division also provides marketing and arranges conveyancing services. In addition, it provides repossession asset management services to a range of lenders. It also arranges mortgages for a number of lenders and arranges pure protection policies such as life assurance and critical illness cover from a panel of insurance providers via the Estate Agency branch, First Complete, Pink and Linear networks. It also operates a Financial Services segment as a separate mortgage and insurance distribution business providing products and services to financial intermediaries. The results of this Financial Services segment, which does not meet the quantitative criteria for separate reporting under IFRS have been aggregated with those of Estate Agency and Related Services.

· The Surveying and Valuation Services segment provides a professional valuations and associated panel management service of housing to various lending corporations and surveying services to individual customers.

Each segment has various products and services and the revenue from these products and services are disclosed in the Annual Report & Accounts 2012 under the Business Review.

The Directors monitor 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.

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

Operating segments

The following table presents revenue and profit information regarding the Group's operating segments for the financial year ended 31^st December 2012 and financial year ended 31^st December 2011 respectively.

Year ended 31^st December 2012

Income statement information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000

Segmental revenue	181,627	62,218	-	243,845

Segmental result:
- before exceptional costs, contingent consideration amortisation and share-based payments	24,430	13,910	(3,200)	35,140
- after exceptional costs, contingent
consideration amortisation and share-based payments	20,168	(6,070)	(4,913)	9,185

Finance income				10
Finance costs				(2,891)
Exceptional finance costs				429

Profit before tax				6,733
Taxation				284
Profit for the year				7,017

Year ended 31^st December 2011

Income statement information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000

Segmental revenue	141,811	76,570	-	218,381

Segmental result:
- before exceptional costs, contingent consideration amortisation and share-based payments	10,280	23,722	(2,885)	31,117
- after exceptional costs, contingent
consideration amortisation and share-based payments	6,049	16,753	(3,158)	19,644

Finance income				4
Finance costs				(1,874)
Exceptional finance costs				(182)

Profit before tax				17,592
Taxation				(4,357)
Profit for the year				13,235

3. Earnings Per Share (EPS)

Basic Earnings Per Share 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 earnings per share 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.

	Profit after tax £'000	Weighted average number of shares	2012 Per share amount Pence	Profit after tax £'000	Weighted average number of shares	2011 Per share amount Pence
Basic EPS	7,017	102,912,662	6.8	13,217	102,889,561	12.9
Effect of dilutive share options	-	-	-	-	1,829	-
Diluted EPS	7,017	102,912,662	6.8	13,217	102,891,390	12.9

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

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:

	2012 £'000	2011 £'000
Group operating profit before contingent consideration in acquisitions linked to employment, exceptional costs, share-based payments and amortisation (excluding non-controlling interest):	35,124	31,099
Net finance costs (excluding exceptional costs and unwinding of discount on contingent consideration)	(2,623)	(1,766)
Normalised taxation	(7,963)	(7,773)
Adjusted profit after tax⁽¹⁾ before exceptional costs, share-based payments and amortisation	24,538	21,560

Adjusted basic and diluted EPS

	Adjusted profit after tax⁽¹⁾ £'000	Weighted average number of shares	2012 Per share amount Pence	Adjusted profit after tax⁽¹⁾ £'000	Weighted average number of shares	2011 Per share amount Pence
Adjusted Basic EPS	24,538	102,912,662	23.8	21,560	102,889,561	21.0
Effect of dilutive share options	-	-	-	-	1,829	-
Adjusted Diluted EPS	24,538	102,912,662	23.8	21,560	102,891,390	21.0

⁽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. Effective tax rate considered to calculate normalised taxation in 2012 is 24.5% (2011: 26.5%) to equity holders of the parent.

4. Exceptional items

	2012	2011
Exceptional costs:	£'000	£'000
Employee costs
Redundancy costs due to business reorganisation	955	266
Other
Acquisition related costs	(98)	1,629
Branch closure costs	245	-
Gain on disposal of freehold properties	(1,426)	-
Onerous leases	675	-
Impairment of brand	-	153
Provision for professional indemnity claims/notifications	17,333	-
Total operating exceptional costs	17,684	2,048
Contingent consideration on acquisitions linked to employment	4,152	166
	4,152	166
Finance costs
Movement in fair value of interest rate swap	(429)	182
	(429)	182
Net exceptional cost	21,407	2,396

5. Dividends paid and proposed

	2012	2011
	£'000	£'000
Declared and paid during the year:
Equity dividends on ordinary shares:
2010 Final: 5.9p	-	6,065
2011 Interim: 2.8p	-	2,880
2011 Final: 5.9p	6,070	-
2012 Interim: 3.1p	3,191	-
	9,261	8,945
Dividends on Ordinary Shares proposed (not recognised as a liability as at 31^st December):
Equity dividends on Ordinary Shares:
Dividend: 6.4p per share (2011: 5.9p)	6,666	6,070

6. Taxation

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

		2012	2011
		£'000	£'000

UK corporation tax	- current year	2,997	5,383
	- adjustment in respect of prior years	(1,407)	160
		1,590	5,543
Deferred tax:
Origination and reversal of temporary differences		(1,718)	(764)
Adjustment in respect of prior year		(156)	(422)
Total deferred tax credit		(1,874)	(1,186)
Total tax (benefit)/charge in the income statement		(284)	4,357

6. Taxation (continued)

Income tax charged directly to equity is £2,456,000 (2011: £nil) and relates to the revaluation of financial assets.

In March 2011 the UK Government announced proposals to reduce the main rate of corporation tax to 23% over 3 years with effect from 1^st April 2011. In March 2012, the UK government announced additional proposals to reduce the main rate of corporation tax to 22% from 1^st April 2014. As of 31^st December 2012 only the reductions to 23% had been enacted. Accordingly this is the rate at which deferred tax has been provided. If the subsequent reductions in the tax rate to 22% had been substantively enacted at 31^st December 2012 the deferred tax liability would have reduced by £239,000.

Factors affecting tax charge for the year

The tax assessed in the profit and loss account is lower (2011: lower) than the standard UK corporation tax rate, because of the following factors:

	2012	2011
	£'000	£'000

Profit on ordinary activities before tax	6,733	17,592

Tax calculated at UK standard rate of corporation tax rate of 24.5% (2011 - 26.5%)	1,650	4,662
Non taxable negative goodwill on acquisition	-	(24)
Non taxable income from joint ventures	(314)	(180)
Benefit of deferred tax asset not previously recognised	(49)	75
Disallowable expenses	295	622
Impact of movement in contingent consideration charge to Income Statement	1,017	-
Share-based payment relief	29	141
Temporary differences on non-qualifying properties no longer recognised	(1,060)	(380)
Impact of rate change on deferred tax	(289)	(390)
Others	-	94
	1,279	4,620
Prior period adjustments - current tax	(1,407)	159
Prior period adjustment - deferred tax	(156)	(422)
Total taxation (benefit)/charge	(284)	4,357

7. Analysis of net bank debt

	2012	2011
	£'000	£'000

Interest bearing loans and borrowings
- Current	2,396	2,246
- Non-current	42,165	46,782
	44,561	49,028
Less: 2% unsecured loan notes	-	(1,496)
Less: 12% unsecured loan notes	(8,660)	(8,660)
Less: other loan notes	-	(750)
Add: cash and short-term deposits	(225)	(435)
Less: deferred and contingent consideration	(9,028)	(1,939)
Net bank debt at the end of the year	26,648	35,748

During the year, the Group has repaid £10.4m (2011: borrowed £33.4m) of the revolving credit facility. The utilisation of this revolving credit facility may vary each month as long as this does not exceed the maximum
£75m facility (2011: £75m). In 2010 the banking facility was renewed and is repayable when funds permit or by March 2014.

8. Acquisitions during the year

The Group acquired the following businesses during the year

a. Davis Tate

In January 2012 the Group acquired 51% of Davis Tate, a 11 branch estate agency chain operating in 14 locations within the Thames Valley region for a cash consideration £1.6m. The remaining 49% is subject to put and call options which are exercisable in two tranches in 2013 and 2016 dependant on profit performance and in part continued employment of the vendors. Due to the nature of the payment terms, the deferred consideration is considered to be an employee expense and not a capital payment for accounting purposes.

The fair value of the identifiable assets, except for cash and cash equivalents, and liabilities of Davis Tate as at the date of acquisition have been determined as below:

	Fair value recognised on acquisition
	£'000
Intangible assets	236
Property, plant and equipment	39
Trade and other receivables	139
Cash and cash equivalents	239
Trade and other payables	(827)
Current tax liabilities	(159)
Total identifiable net liabilities acquired	(333)
Purchase consideration	1,633
Goodwill	1,966

Purchase consideration discharged by:

Cash	1,633
Deferred consideration	-
	1,633

	Analysis of cash flow on acquisition		£'000
Transaction costs (included in cash flows from operating activities)		-
Net cash acquired with the subsidiary (included in cash flows from investing activities)		239
Purchase consideration discharged in cash (included in cash flows from investing activities)		(1,633)
Net cash outflow on acquisition		1,394

Transaction costs have been expensed and are included under exceptional costs.

The goodwill of Davis Tate comprises certain intangible assets that cannot be individually separated and reliably measured from the acquiree due to their nature. These items include the high quality, dynamic and experienced management team with an outstanding record of delivering strong and profitable growth against the backdrop of challenging market conditions, the expected value of synergies and the potential to significantly grow the business.

8. Acquisitions during the year (continued)

b. Lauristons

In July 2012, the Group also acquired 85% of Lauristons, a 5 branch estate agency chain in South West London for a cash consideration of £1.8m. The remaining 15% is subject to put and call options exercisable in 2016 dependant on profit performance and in part continued employment of the vendors. Due to the nature of the payment terms, the deferred consideration is considered to be an employee expense and not a capital payment for accounting purposes.

The fair value of the identifiable assets, except for cash and cash equivalents, and liabilities of Lauristons as at the date of acquisition have been determined as below:

	Fair value recognised on acquisition
	£'000
Intangible assets	212
Property, plant and equipment	84
Trade and other receivables	744
Cash and cash equivalents	(16)
Trade and other payables	(376)
Total identifiable net assets acquired	648
Purchase consideration	1,802
Goodwill	1,154

Purchase consideration discharged by:	1,802
Cash	-
Deferred consideration	1,802

Analysis of cash flow on acquisition	£'000
Transaction costs (included in cash flows from operating activities)	-
Net cash acquired with the subsidiary (included in cash flows from investing activities)	(16)
Purchase consideration discharged in cash (included in cash flows from investing activities)	(1,802)
Net cash outflow on acquisition	(1,818)

Transaction costs have been expensed and are included under exceptional costs (see note 7).

The goodwill of Lauristons comprises certain intangible assets that cannot be individually separated and reliably measured from the acquiree due to their nature. These items include the high quality, dynamic and experienced management team with an outstanding record of delivering strong and profitable growth against the backdrop of challenging market conditions, the expected value of synergies and the potential to significantly grow the business.

8. Acquisitions during the year (continued)

c. Lettings acquisition by LSLi

During the year LSLi (through its subsidiaries) acquired the following lettings business:

· Assets of the lettings business of Reynolds(Wimbledon) Limited on 1^st March 2011 - additional consideration £17,000

· Assets of the lettings business of Goddard Management Ltd trading as A120 Lettings acquired on 30^th September 2011- additional consideration £47,000

· Assets of the Withers letting business on 4^th May 2012 for £79,000

· Assets of Appletons lettings business on 13^th August 2012 for £180,000;

The combined fair values of the indentifiable assets and liabilities as at the date of acquisition of the above acquisitions were:

	Fair value recognised on acquisition
	£'000

Property, plant and equipment	-
Total identifiable net assets acquired	-
Purchase consideration (discharged by cash)	323
Goodwill arising on acquisition	323

The goodwill of £0.3m for the above acquisitions comprises certain intangible assets that cannot be individually separated and reliably measured from the acquiree due to their nature. These items include the expected value of synergies and the potential to grow the business.

d. Acquisition by Linear Mortgage Networks

During the year, Linear Mortgage Networks acquired the assets of Mortgage Options Limited for £100,000 and the assets of Hoath Independent Financial Planning Limited for £46,000 as well as other miscellaneous customer contracts for £15,000. Apart from the customer contracts acquired there were no other separately identifiable intangible assets and so all of the consideration was allocated to customer contract intangible asset.

e. Lettings acquisition by Your Move

During the year, Your Move completed the acquisition of the NSK lettings business for a total cash consideration of £10,000. There were no separately identifiable net assets and all the consideration was towards goodwill.

From the date of acquisition to 31^st December 2012, the acquisitions in aggregate have contributed to £4.8m of revenue and £1.2m profit before tax of the Group. If all of these combinations had taken place at the beginning of the year, the consolidated revenue would have been higher by £6.5m and the consolidated profit before tax would have been higher by £1.4m.

Of the total goodwill arising on all acquisitions, an amount of £nil is expected to be deductible for tax purposes.

9. Annual General Meeting (AGM)

The AGM will be held at the London offices of LSL, 1 Sun Street, London EC2A 2EP on 2^nd May 2013 starting at 2.30pm.

Definitions

"Adjusted Basic Earnings Per Share" - defined at note 3 of the Preliminary Financial Statements

"Advance Mortgage Funding"- trading name of Advance Mortgage Funding Limited

"AGM" - Annual General Meeting

"Asset Management" - refers to LSL's repossessions asset management and property management for multi property landlords services

"ARLA" - Association of Residential Lettings Agents

"AMI" - Association of Mortgage Intermediaries

"Audit Committee" - LSL's audit committee

"Basic Earnings Per Share"- is defined at note 3 of the Preliminary Financial Statements

"Board" - the Board of Directors of LSL

"C&G" - trading style of Cheltenham & Gloucester plc

"Chairman" - Roger Matthews

"Chairman of the Audit Committee"- Mark Morris

"Code" - UK Code of C orporate Governance by the Financial Reporting Council (2010 and 2012)

"Company Secretary" - Sapna B FitzGerald

"Corporate Lettings" - refers to LSL's property management for corporate and multi property landlords

"Davis Tate" - trading name of Davis Tate Limited

"Director" - Executive Director or Non Executive of LSL

"EPS" - earnings per share is defined at note 3 of the Preliminary Financial Statements

"e.surv or e.surv Chartered Surveyors"- trading names of e.surv Limited

"Estate Agency or Estate Agency Division" - includes LSL's Residential Sales, Lettings, Financial Services, LPA fixed charge receiver and Asset Management businesses

"Estate Agency and Related Services"- refers to LSL's Estate Agency Division

"Executive Director "- refers to Steve Cooke, Simon Embley and David Newnes

"Executive Director for Estate Agency"- refers to David Newnes

"Financial Services" - refers to LSL's financial services (including mortgage and protection brokerage and the operation of intermediary networks

"First Complete" - trading name of First Complete Limited

"Group" - LSL Property Services plc and its subsidiaries

"Group CEO" - Simon Embley

"Group Finance Director"- Steve Cooke

"HEAL or Halifax Estate Agency" - refers to Halifax Estate Agencies Limited

"IBNR" - Incurred But Not Reported

"IFRS" - International Financial Reporting Standards

"Intercounty" - trading name of ICIEA Limited

"Lauristons" - trading name of Lauristons Limited

"Lettings" - refers to LSL's residential property lettings and property management services

"Linear or Linear Mortgage Network"- trading names of Linear Mortgage Network Limited

"LSL" - LSL Property Services plc

"LSL Corporate Client Department"- trading name of LSL Corporate Client Services Limited

"LSL Land & New Homes"- trading style used by members of the Estate Agency Division

"LSLi" - trading name of LSLi Limited

"Marsh & Parsons"- trading name of Marsh & Parsons Limited

"NAEA" - National Association of Estate Agents

"Net Bank Debt" - see note 7 for calculation

"NFoPP" - National Federation of Property Professional

"Nominations Committee"- Nominations Committee of LSL

"Non Executive Director"- refers to Helen Buck, Adrian Gill, Roger Matthews, Mark Morris and Mark Pain

"Openwork" -trading name of Openwork Limited

"PI" - professional indemnity

"Pink or Pink Home Loans"-trading names of Advance Mortgage Funding Limited

"Reeds Rains" - trading name of Reeds Rains Limited

"Reeds Rains Financial Services"- trading name of Reeds Rains Financial Services Limited

"Remuneration Committee"- Remuneration Committee of LSL

"Residential Sales" - refers to LSL's services for residential property sales

"RICS" - Royal Institution of Chartered Surveyors

"Surveying or Surveying Division" - includes LSL's surveying and valuation services businesses

"Surveying and Valuation Services" -refers to LSL's surveying division

"The Bridge" - LSL's call centre operation based in Southampton

"TPO" - The Property Ombudsman

"Underlying Operating Margin" - Group Operating Profit before exceptional costs, amortisation and share based payments shown as a percentage of turnover

"Underlying Operating Profit"- before exceptional costs, amortisation of intangible assets and share-based payments

"Your Move" - trading name of your-move.co.uk Limited

"Zoopla or Zoopla Group"- trading styles of Zoopla Property Group Limited

This information is provided by RNS

The company news service from the London Stock Exchange

END

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LSL Property Services (LSL)

Thursday, 23rd May 2024

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