PRELIMINARY ANNOUNCEMENT

RNS Number : 8719Q

LSL Property Services

03 March 2016

For immediate release

3^rd March 2016

LSL Property Services plc (LSL or Group)

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^st December 2015.

	2015	2014	% change
Group revenue £m	300.6	287.5	5%
Group Underlying Operating Profit¹ £m	42.9	42.0	2%
Group Underlying Operating Margin %	14.3	14.6
Profit before tax £m	38.6	31.9	21%
Basic Earnings Per Share- pence	29.7	24.5	21%
Adjusted Basic Earnings Per Share - pence²	31.5	30.5	3%
Net Bank Debt³ at 31^st December £m	39.9	34.7
Final proposed ordinary dividend per share (excluding special dividend) - pence	8.6	8.3
Full year ordinary dividend per share - pence	12.6	12.3	2%
Special dividend per share - pence	-	16.5	-

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

2 Refer to Note 4 for the calculation

3 Refer to Note 8 for the calculation

· A strong second half performance delivered full year Underlying Operating Profit of £42.9m; a record result for the Group

· Continued momentum in the Estate Agency Division with 5% overall revenue growth

· Lettings income growth of 12%, delivered through organic growth and selective acquisitions

· Growth in Financial Services income of 16%

· Marsh & Parsons delivered revenue growth of 9% and profit growth of 6% despite a challenging prime Central London market in 2015

· The Surveying Division delivered strong profit growth as a result of the full year benefit of both the 2014 mid-year contract renewals/wins and the Q4 2014 operational performance and productivity project

· Unwinding of PI Costs provision in line with expectations

· Strong operational cash flow, low level of gearing and dividend growth

· Acquisition of Thomas Morris estate agency and 30 lettings books during the year

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

"In my first year as Chairman, I am pleased to report the continued progress of the Group with record financial results posted in 2015. Group Underlying Operating Profit of £42.9m (2014: £42.0m) was higher than LSL achieved in the property market peak of 2007.

After a slower first half in the Estate Agency Division, reflecting the overall market, we remained committed to our strategy and delivered a strong second half. The Surveying Division delivered a strong performance with 3% revenue growth and double digit profit growth.

The Group has a robust balance sheet with relatively low levels of gearing and is very cash generative at an operational level. The business is well positioned to capitalise on the changing market conditions to increase Shareholder value."

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
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

Chairman's Statement

Introduction

In my first year as Chairman, I am pleased to report the continued progress of the Group with record financial results posted in 2015. Group Underlying Operating Profit¹ of £42.9m (2014: £42.0m) was higher than LSL achieved in the property market peak of 2007. Group revenue grew by 4.6% to £300.6m (2014: £287.5m) and profit before tax grew by 20.8% to £38.6m (2014: £31.9m).

Performance

After a slower first half in the Estate Agency Division, reflecting the overall market, we continued to execute on our strategy, delivering a strong second half. As a result, in 2015 we delivered full year growth of 12% in the counter-cyclical Lettings business, Financial Services revenue growth of 16% and revenue growth in Marsh & Parsons of 9% against a challenging prime Central London market.

The Surveying Division delivered an excellent performance with 3% revenue growth and double digit profit growth, as we saw a full year impact of 2014 mid-year contract renewals and wins as well as the Q4 2014 operational performance and productivity project.

Dividend

As a result of the growth in underlying Group profitability and the Board's positive view of future prospects for the business, an increase in the final dividend of 3.6% to 8.6 pence per share (2014: 8.3 pence per share) will be proposed to Shareholders at the forthcoming AGM, increasing the total dividend for 2015 by 2.4% to 12.6 pence per share (2014: 12.3 pence per share). The proposed dividend payment is at the upper end of our previously stated policy of applying a dividend payout ratio of between 30% to 40% of Group Underlying Operating Profit after interest and tax and reflects our confidence in the future.

The ex dividend date for the final dividend is 24^th March 2016 with a record date of 29^th March 2016 and a payment date of 6^th May 2016. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan.

Board Update

On 1^st January 2015, I was appointed as Chairman and Bill Shannon was appointed Deputy Chairman in addition to his role as Senior Independent Director. Further, during the year we appointed David Stewart and Kumsal Bayazit Besson to the Board as Non Executive Directors and members of the Nominations, Remuneration and Audit Committees in May and September respectively and Adam Castleton as Group Chief Financial Officer in November.

David Stewart has significant experience in strategy, operations, sales and marketing, finance and governance, particularly in the financial services sector. This includes his current appointments as a Non Executive Director on the boards of M&S Bank and Unum Limited.

Kumsal Bayazit Besson has significant experience in strategy, technology, operations and sales and marketing, particularly in the professional information solutions sector. This includes her current appointment as Regional President, Europe at Reed Exhibitions which is part of RELX Group plc.

Adam Castleton joined LSL from French Connection Group PLC. He previously held leadership roles at a number of market leading companies, including O2 UK, eBay and The Walt Disney Company. Adam has over 24 years' experience in finance, having started his career with Price Waterhouse where he qualified as a Chartered Accountant in 1989.

In December 2015, we announced that Mark Morris, who has been a Non Executive Director and member of the Nominations, Remuneration and Audit Committees since November 2006, will retire from the Board and its Committees and that David Stewart, will, subject to his election at the 2016 AGM, take on the role of Chairman of the Audit Committee with effect from the AGM, in addition to his existing appointments as a member of the Remuneration and Nominations Committees.

Corporate Governance

The Board remains committed to high levels of corporate governance and during 2015, LSL has complied in all respects with the UK Corporate Governance Code (September 2014 edition) save that due to my previous roles on the Board, I did not satisfy the independence requirement prior to my appointment as Chairman. Further details relating to my appointment are contained in the Corporate Governance Report of the Annual Report and Accounts 2015.

In respect of 2015, the Board has again 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. Following this exercise, we concluded that the Board and its Committees are effective and are able to discharge their respective duties and responsibilities appropriately.

The Board has during the year also reviewed its composition, which at the date of this Report includes five independent Non Executive Directors (due to reduce to four independent Non Executive Directors at the 2016 AGM) and three Executive Directors and myself as Chairman. Further, the Board continues to recognise the benefits of diversity in the boardroom, including gender and racial diversity. The current Board composition includes two female Directors, Helen Buck and Kumsal Bayazit Besson, who are both independent Non Executive Directors.

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 continue to ensure that our searches for new directors take into account diversity, including gender and race.

LSL remains committed to promoting diversity throughout the Group and in 2015 we continued to build on the diversity reviews conducted during the previous years. During 2015, we have commenced a range of employee training initiatives, including courses relating to gender bias training and assertiveness training. Further details of LSL's studies and its conclusions are set out in our Corporate Social Responsibility Report.

As Chairman, with the responsibility for leadership of the Board, I review its effectiveness on all aspects of its role and encourage feedback.

Our market position

LSL holds a market leading position in its core Estate Agency business comprising 12 Estate Agency brands, including Your Move, which is the largest UK single brand estate agent with 282 branches nationwide and has the UK's most visited estate agency website². The businesses are organised to deliver integrated Residential Sales, Lettings and Financial Services from a single operating structure.

We continue to invest in our brands and in January 2016 we launched a national media campaign to further invest in our Your Move Estate Agency brand. This demonstrates our commitment to supporting and protecting our valuable brands and has started well. We also invested in 2015 to drive future growth by increasing branch headcount to support our successful Lettings and Financial Services businesses and also in our growing Land and New Homes businesses.

We operate in a highly competitive residential property market, which is characterised by on-going new entrants. We continue to develop and evolve our offering to ensure our competitiveness in this marketplace.

Ultimately the success of our business model has always been underpinned by our strong brands and excellence in delivery by our knowledgeable local colleagues. In 2016 we will continue to invest in technology to widen the digital offering to our customers whilst improving our internal efficiency at the same time.

We continue to selectively acquire businesses. To drive growth in the counter cyclical Lettings business, we acquired 30 lettings books in 2015 (2014: 10), with internal disciplines in place to ensure successful integration into the Group. It is also pleasing to note the strong performance of Thomas Morris, a multi award winning seven branch estate agency which we acquired during the first quarter of 2015.

Post our 2015 year-end, we acquired a 65.0% interest in Group First Limited (GFL) in February 2016 which provides mortgage and protection brokerage services to the purchasers of new homes. This is a value enhancing opportunity which further strengthens LSL's relationships with its key housebuilder clients.

In Financial Services, the Group arranged total mortgage lending of £14.5bn (2014: £11.6bn), representing 6.6% of the overall market³. Measured by the number of appointed representatives, LSL's overall network is the second largest in the UK⁴. We continue to hold a leadership position in Surveying, maintaining strong relationships with many of the major lenders.

Our people

The number of Group employees at 31^st December 2015 was 5,181 (2014: 5,222) and our success is ultimately dependent on the customer service provided by our staff in all parts of our business across the entire UK. I would like to thank all of our staff for their continued hard work and commitment which they have demonstrated throughout 2015.

Current trading and outlook

We have started the year positively across the Group.

In the Estate Agency Division, trading is in line with expectations and there are good activity levels with quality buyers and good availability of mortgages. Whilst there remains a shortage of stock, our sales conversion remains strong and we are maintaining our market share. The January 2016 launch of the Your Move national media campaign has started well.

In our Surveying Division, trading is in-line with expectations and the technology refresh is progressing well.

The forthcoming year is expected to see a flat housing market in terms of transactions, with continuing house price inflation outside prime Central London.

Underpinned by a series of strategic initiatives, the business is well placed to deliver a solid performance in 2016. We are positive regarding the outlook for 2016, committed to driving profitable organic growth across the business, and will continue to evaluate selective acquisitions.

The Group has a robust balance sheet with relatively low levels of gearing and is very cash generative at an operational level. The business is therefore well placed to capitalise on the market conditions to increase Shareholder value.

Simon Embley

Chairman

3^rd March 2016

Note 1 Underlying Operating Profit is before exceptional gains and exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments

Note 2 Source: Hitwise December 2015

Note 3 Source: Council of Mortgage Lenders, Press Release 21^st January 2016

Note 4 Source: Which Network? "Network Performance Figures For The Whole of 2015"

Group Chief Executive's Review

2015 Overview

I am pleased to report that after the slower first half we continued to execute our strategy and worked tirelessly across the whole business to deliver a strong second half performance and what was ultimately a full year operating profit result higher than the property market peak of 2007.

We delivered on our financial commitments made at the time of the 2015 interim results announced in August 2015 and I would like to take this opportunity to thank all my colleagues across our business for delivering a record breaking result.

Group revenue increased by 4.6% to £300.6m (2014: £287.5m) with strong second half growth of 8.7%. Group Underlying Operating Profit increased by 2.0% to a record £42.9m (2014: £42.0m), with double digit profit growth in the second half in both the Estate Agency and Surveying Divisions.

The Market in 2015

The UK residential property services market in 2015 was a story of two halves.

As we reported at the 2015 interim results, the first quarter of 2015 faced very strong comparatives relative to the first quarter of 2014, which was a period characterised by strong growth ahead of the implementation of the Mortgage Market Review. The second quarter of 2015 was impacted by uncertainty around the General Election. As a result, in the first half of 2015 house purchase approvals were down by 3.3% year on year¹.

In the second half of 2015, there was a modest recovery in the market following the General Election and the comparatives were against a slowing market in 2014. Over the full year therefore house purchase approvals increased by 4.7%.

Total Mortgage Approvals¹ increased by 8.4% in 2015. This reflected a flat first half with accelerating market sentiment and volume growth in the second half in both approvals for house purchases which are typically three months before completion and also in remortgage approvals.

The prime Central London market in 2015 was impacted by a range of factors including the December 2014 Stamp Duty changes. There was little market recovery in prime Central London post the General Election.

Average house prices² in England and Wales grew 6.6% to £292,000 annually as stock shortages continued to have an impact. Excluding London and the South East, the average increase was 4.7%.

Residential property values in Greater London increased by 5.6%. Prime Central London (5 prime boroughs) fell by 8.7% impacted by a range of factors including the impact of the December 2014 Stamp Duty changes. Outside the top five prime Central London boroughs, London experienced an 11% increase in year-on-year house prices.

The proportion of mortgage lending in the market placed through intermediaries continued to increase during the year⁴.

Following market declines in the repossessions market in the past few years, market volumes again declined in 2015, reducing by 51% to 10,200³ total repossessions as interest rates remained low.

Strategy

We remain committed to the strategy we communicated in March 2015. The key components of our strategy are:

Estate Agency

· Drive operating profit per branch to between £80,000 and £100,000 in the medium term

· Expand the number of Marsh & Parsons branches to a total of 36 by 2019, particularly outside prime Central London

· Grow recurring and counter-cyclical income streams

· Selective acquisitions of both Estate Agency businesses and Lettings books

Surveying

· Optimise contract performance and revenue generation from B2B customers

· Achieve further improvement in efficiency and capacity utilisation

· Use technology to drive further improvements in profitability

LSL performance in 2015

Estate Agency Division

Total Estate Agency income of £236.5m (2014: £225.3m) increased by 5%. This increase resulted from the consistent execution of our strategy in 2015.

We continue to adapt our approach to maintain competitiveness. We launched the Your Move national media campaign in January 2016, moving the focus of our advertising spend away from more traditional local media. The campaign "it pays to be with Your Move", underlines the customer value from using an estate agent with Your Move's reach and size.

In 2016, we will continue to focus on further improving the digital communication with our customers and to improve the customer experience.

Residential Sales exchange income

Residential Sales exchange income grew 1% during the year. Whilst in the first half income fell by 5% reflecting the market conditions, the second half performance was strong with 7% growth, reflecting market stabilisation post the General Election and the investments we made in Estate Agency in the first half. Total exchange units were broadly flat in 2015 with an increase in fees per unit largely on the back of house price inflation.

Recurring Lettings income

We remain committed to our strategy of increasing recurring Lettings income. In 2015 we delivered growth in Lettings income of 12%. Lettings Income increased as a proportion of the Estate Agency business and represented 28% of total Estate Agency Division income in 2015 (2014: 26%).

We delivered organic Lettings growth of 5% and in addition, in-line with our strategy substantially increased the rate of Lettings book acquisitions, acquiring 30 Lettings books in 2015 for a total consideration of £9.6m⁵. This is a significant increase against 2014 when we acquired 10 Lettings books for a total consideration of £1.8m.

We have maintained consistent investment criteria for Lettings book acquisitions throughout the year and we have not changed our investment criteria as we have increased the rate of investment. The Lettings books have been successfully integrated into our networks.

Financial Services

Total Financial Services income grew strongly again with 16% year on year growth in 2015. We have also delivered over 16% compound growth since 2011 as we have rolled out our model across the Estate Agency business and delivered growth from our intermediary networks.

Post our 2015 year-end, we acquired a 65.0% interest in GFL in February 2016, which provides mortgage and protection brokerage services to the purchasers of new homes through its subsidiaries, Mortgages First Limited and Insurance First Brokers Limited. This investment supports LSL's strategy to grow long term profitability in the provision of residential property services in the UK, by identifying value enhancing opportunities. Further, the investment strengthens LSL's relationships with its key housebuilder clients.

Selective Estate Agency acquisitions

We remain committed to our strategy of evaluating selective acquisition of Estate Agency businesses.

In February 2015 we acquired Thomas Morris, a multi award-winning Estate Agency and Lettings business with seven branches in Cambridgeshire, Bedfordshire and Hertfordshire. We are pleased with the performance of the business in 2015 and also note that since acquisition, Thomas Morris has increased its Financial Services Income, an example of how we can add value to our acquisitions.

Marsh & Parsons

Given the overall challenging prime Central London market, I am pleased to report that Marsh & Parsons revenue grew 9% in 2015 to £35.3m (2014: £32.5m) and profit increased by 6% to £6.9m (2014: £6.5m).

This growth was a result of strong Lettings performance of 10%, growth in Land and New Homes and resilience in Residential Sales, with good results from the new offices opened previously in the outer prime Central London locations.

We continued with our branch expansion strategy in 2015, opening two branches during the year in the outer prime Central London locations of Shoreditch and Queens Park. We have continued with our strategy in 2016 and since the year-end have opened a branch in Tooting. We are pleased with the performance of these new branches.

Our ambition remains to expand to 36 branches by 2019. Outer prime Central London has not been as negatively impacted as prime Central London and Marsh & Parsons is looking to expand its new office footprint in outer prime Central London locations.

Estate Agency profit per branch (Your Move, Reeds Rains and LSLi)

LSL successfully increased operating profit per branch from £4,600 in 2011 to £45,600 in 2014. Our medium term strategy is to drive operating profit per owned branch to between £80,000 and £100,000 on the expectation of longer term stability in the UK residential property sector. Our Lettings growth and Financial Services growth across the network continues to underpin this strategy.

We invested in 2015 to drive future growth by increasing branch headcount to support our successful Lettings and Financial Services businesses and also in our growing Land and New Homes business. We increased our headcount in these growing businesses by over 100 colleagues during the year. This investment will support further growth and has resulted in a short-term fall in branch profitability by 7% in 2015.

Estate Agency operating margin was 13.2% (2014: 15.0%) reflecting these investments in the business and also the market decline in repossessions, impacting LSL's Asset Management business.

Surveying Division

During 2015 we continued to focus on optimising the profitability of our Surveying business.

The 2014 contract renewals and wins as well as the project undertaken in Q4 2014 to optimise operational performance and productivity have delivered full year benefits in 2015. With further optimisation of capacity management in 2015, profit margins have therefore improved in the year to 28.3% (2014: 21.4%). A technology refresh is also in progress to deliver further enhancements.

Income per job increased by 17% to £196 (2014: £167) and we performed 327,267 total jobs in 2015 (2014: 371,717) as we optimised the mix of our business. We will further support our graduate programme which continues to be successful.

Our customers

Our continued focus on providing the best service to our customers has been recognised in 2015 with numerous industry awards including:

· e.surv: What Mortgage? Awards 2015; Best Survey Provider-Winner

· e.surv: Equity Release Awards 2015; Best Valuer-Winner

· First Complete: Money Marketing Awards 2015; Best Mortgage Network-Winner

· Pink Home Loans: Financial Adviser Service Awards 2015; 5 star award

· Linear Financial Solutions: Mortgage Strategy Awards 2015; Best Broker for General Insurance-Winner

· Marsh & Parsons: Estate Agency of the Year Awards 2015, sponsored by The Times and Sunday Times; Best Marketing-Gold award, Best Medium Lettings Agency, London-Gold Award. The Negotiator Awards 2015; London Agency of the Year-Gold Award

Balance Sheet

The Group has a strong balance sheet with closing Net Bank Debt at 31^st December 2015 of £39.9m (2014: £34.7m) reflecting the acquisitions made during the year and a gearing level at 0.83 times adjusted EBITDA (2014: 0.74 times)⁶. The Group has a committed revolving credit facility until August 2017.

At 31^st December 2015, we held a 2.7% shareholding in Zoopla, valued at £27.1m.

In December 2014 we announced the need to further increase our PI Costs provision due to the historic market issues relating to the 2004 to 2008 high risk lending period and an additional reserve of £24.6m was provided and included as an exceptional item in 2014. In 2015 we 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 has been in line with our expectations during the year, and those assumed in setting the provision.

Outlook

We have started 2016 in line with our expectations across the Group and are well placed to deliver a solid performance during the year. We continue to consistently execute on our strategy and are well placed to deliver increased Shareholder value.

I look forward to working with all my colleagues to deliver another successful year in 2016.

Ian Crabb

Group Chief Executive Officer

3^rd March 2016

Note 1- Source: Bank of England for "House Purchase Approvals" and "Total Mortgage Approvals" 2015

Note 2-Source December 2015 LSL Property Services/ACADATA HPI

Note 3-Source Council of Mortgage Lenders arrears and repossessions data relating to properties taken into possession by first-charge mortgage lenders for 2015

Note 4-CML, new mortgages sold by intermediaries

Note 5- Total consideration of up to £9.6m when taking into account potential contingent consideration

Note 6- Adjusted EBITDA is Group Underlying Profit as previously defined plus depreciation on property plant and equipment

Business Review - Estate Agency Division

Financial	2015 £m	2014 £m	% change
Residential Sales exchange income	92.9	92.1	1
Lettings income	65.4	58.5	12
Asset Management income	7.8	11.7	(34)
Financial Services income	50.5	43.7	16
Other income¹	19.9	19.3	3

Total income	236.5	225.3	5
Operating expenditure	(205.2)	(191.4)	7
Operating profit²	31.3	33.9	(8)

KPIs
Exchange units	29,311	29,704	(1)
Exchange units³	28,251	29,111	(3)
Operating margin (%)	13.2%	15.0%
Fees per unit	3,170	3,101	2
Fee per unit³	3,087	2,968	4

House purchase approvals⁴	806	769	5
Total Mortgage approvals⁴	1,388	1,280	8
UK Housing Transactions (000s)⁵	1,231	1,219	1
Repossessions⁶	10,200	21,000	(51)

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

2 Operating profit is before exceptional items, contingent consideration, amortisation of intangible assets and share-based payments.

3 Exchange units and fee per exchange are on a like-for-like basis (excluding branch openings, acquisitions and closures).

4 Source: Bank of England, "Mortgage approvals for house purchases" and "Total mortgage approvals" 2015.

5 Source: HMRC Stats, "Monthly property transactions completed in the UK with value of £40,000 or above" 2015.

6 Source: Council of Mortgage Lenders arrears and repossessions data relating to properties taken into possession by first-charge mortgage lenders for 2015.

7 Source: Council of Mortgage Lenders, Press Release 21^st January 2016

Estate Agency Performance

Estate Agency Division Performance

Year-on-year income growth in the Estate Agency Division was 5%. All key income streams other than the counter-cyclical Asset Management business showed positive growth.

Residential Sales exchange income

Residential Sales exchange income grew 1% during the year. Whilst in the first half income fell by 5% reflecting the market, the second half performance was stronger with 7% growth, reflecting the market stabilisation post General Election and the investments in Estate Agency business made by LSL in the first half. Exchange units were broadly flat in 2015, with an increase in fees per unit, largely on the back of house price inflation.

Lettings income

Lettings income grew consistently throughout the year, as we put more dedicated Lettings staff into Estate Agency branches. Organic Lettings growth for the year was 5%. Combined with the Lettings acquisitions, overall growth was strong, at 12% for the full year. This followed growth of 12% in 2014 and reflects our continued focus on this recurring revenue stream.

Financial Services income

Total Financial Services Income delivered through the Estate Agency Division's branches, the intermediary networks of First Complete and Pink Home Loans and Linear Financial Solutions grew strongly again with 16% year-on-year growth in 2015. We have also achieved over 16% compound growth since 2011 as we have rolled out the model across the Estate Agency business.

In February 2016 the Group acquired a 65.0% interest in GFL which provides mortgage and protection brokerage services to the purchasers of new homes through its subsidiaries, Mortgages First Limited and Insurance First Brokers Limited.

The investment supports LSL's strategy to grow long term profitability in the provision of residential property services in the UK, by identifying value enhancing opportunities. Further, the investment strengthens LSL's relationships with its key housebuilder clients.

In total the Group arranged mortgage lending completions of £14.5bn during 2015 (2014: £11.6bn), with an estimated market share of 6.6% giving the Group an important position as a mortgage distributor for lender clients⁷.

Other income

Other income grew by 3% year-on-year mainly due to improved conveyancing and Land and New Homes income.

Marsh & Parsons

Marsh & Parsons delivered a strong performance in a challenging prime Central London market which was impacted by a number of factors including the 2014 Stamp Duty changes. The increase in the number of Marsh & Parsons branches outside prime Central London, strong exposure to the mid-market, strong recurring Lettings income which was up 10% and a growing Land and New Homes development business, all contributed to the delivery of 9% income growth and a 6% improvement in profit.

Asset Management

Asset Management delivered a robust performance in a shrinking market with revenues lower by 34% compared to the 51% market fall in repossessions to 10,200⁶ in 2015. With a strong market share, the Asset Management business is well positioned to capitalise on any future increase in repossession volumes. Asset Management is developing its corporate property management service offering to further enhance counter-cyclical revenues in the Group.

Estate Agency Division operating margin

The Estate Agency Division operating margin was 13.2% in 2015 (2014: 15.0%) which resulted from lower Asset Management profits, new Estate Agency branches opened, and headcount investment in Financial Services, Lettings and Land and New Homes.

2016 Strategy

During 2015, the Group has delivered on its strategy, continuing to make selective acquisitions and has added to the Estate Agency Division in the South East through the acquisitions of Thomas Morris and 30 lettings books.

LSL will continue to target the selective acquisition of Estate Agency and Lettings books and will focus on driving organic growth in Residential Sales, Lettings and Financial Services as well as rolling out new branches in Marsh & Parsons.

Regulation - Financial Services

First Complete and Pink Home Loans (the trading name of Advance Mortgage Funding) are both directly authorised by the FCA in relation to the sale of mortgage, pure protection and general insurance products. Your Move, Reeds Rains, First2Protect and Embrace Mortgage Services along with the LSLi subsidiaries are all appointed representatives of First Complete, while Linear Financial Solutions is an appointed representative of Advance Mortgage Funding for mortgage and insurance business and also an appointed representative of Openwork for investment business.

Regulation - Residential Sales and Lettings

The Estate Agency Division's branches adhere to the Codes of Practice issued by industry professional and regulatory bodies, The Property Ombudsman (TPO) and/or the Association of Residential Lettings Agents (ARLA). Membership of these bodies is in addition to observing compliance with relevant legislation, such as the Consumer Protection Regulations, the Consumer Rights Act, guidance material published by relevant regulators, including the Competition and Markets Authority (CMA) (and its predecessor the Office of Fair Trading (OFT)), the National Trading Standards Agency/Trading Standards Institute (TSI), HMRC and codes published by other relevant bodies, including the Advertising Standards Authority (ASA). LSL from time to time also enters into direct dialogue with the regulators and consumer groups, such as Which?. During 2015, LSL on behalf of all its Estate Agency businesses entered into a primary authority agreement with York Trading Standards Office.

Branch numbers

Breakdown of LSL's Estate Agency branches as at 31^st December 2015.

	Owned	Franchised	Totals
Your Move	215	67	282
Reeds Rains	124	43	167
LSLi	61	4	65
Marsh & Parsons	24	0	24
Total	424	114	538

The above branch numbers include two virtual branches

Business Review-Surveying Division

Financial	2015 £m	2014 £m	% change
Revenue	64.1	62.2	3
Operating expenditure	(46.0)	(48.9)	(6)
Operating profit¹	18.1	13.3	36

KPIs
Profit margin (%)	28.3%	21.4%
Jobs Performed (000's)	327	372	(12)
Revenue from private surveys (£m)	2.4	4.0	(40)
Income per job (£)	196	167	17
PI Costs provision (Balance Sheet) at 31^st December	29.7	38.7
Number of qualified surveyors at 31^st December (FTE)³	347	361	(4)

Total Mortgage approvals ('000s)²	1,388	1,280	8

1 Operating profit is before exceptional items, contingent consideration, amortisation of intangible assets and share-based payments.

2 Source: Bank of England, "Mortgage approvals for house purchases" and "Total mortgage approvals" 2015.

3 Full Time Equivalent (FTE)

Surveying Division Performance

Total mortgage approvals² increased in the year by 8.4% to 1.388m (2014: 1.280m) with a flat first half followed by an increase in the second half. This reflected the strong prior year growth in H1 pre the Mortgage Market Review launch and consumer confidence post the General Election in 2015.

Surveying turnover was £64.1m (2014: £62.2m), an increase of 3% on last year and the total number of jobs performed was 327,267 (2014: 371,717) reflecting management of the mix of jobs. Double digit profit growth was strongly influenced by the full year impact of the 2014 mid-year contract renewals and wins and the Q4 2014 operational performance and productivity project.

We also continued to focus on optimising capacity management in 2015, driving an increase in income per job to £196, an improvement of 17% year-on-year. As a result we delivered an increase in Operating profit to £18.1m (2014: £13.3m) with an enhancement of profit margin to 28.3% (2014: 21.4%).

The total number of qualified surveyors at 31^st December 2015 was 347³, a reduction of 4% year-on-year. LSL's on-going graduate programme continues to be successful and assists in alleviating the impact of skill constraints in the market. In 2016 LSL will continue to focus on improving our efficiency through optimising capacity management supported by use of better technology.

At 31^st December 2015 the total provision for PI Costs was £29.7m. In 2015 LSL 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 has been in line with our expectations during the year, and those assumed in setting the provision.

Financial Review

The key drivers of the financial performance of LSL in 2015 are summarised below:

Income statement

Revenue

Revenue increased by 4.6% to £300.6m in the year ended 31^st December 2015 (2014: £287.5m).

Operating Expenses

Operating expenses increased by 4.6% to £260.7m (2014: £249.3m). The increase was in the Estate Agency Division and was mainly as a result of acquisitions (e.g. Thomas Morris), new Marsh & Parsons branches and an investment in headcount to support growth in Lettings, Financial Services and Land and New Homes.

The average number of full time equivalent employees during the year was 4,677 (2014: 4,760).

Underlying Operating Profit

Group Underlying Operating Profit (before exceptional gains and exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments) increased by 2.0% to £42.9m (2014: £42.0m) with the Underlying Operating Margin of 14.3% (2014: 14.6%). On a statutory basis, the Group operating profit increased by 22.2% to £41.4m (2014: £33.9m).

Exceptional Items

Total net exceptional costs in 2015 were £0.3m (2014: £6.2m net exceptional costs). Exceptional costs in 2015 comprised the closure of an administration centre and the subsequent restructuring costs incurred which included redundancy costs.

In 2014, exceptional costs comprised of PI Costs of £24.6m, acquisition related costs of £0.3m and restructuring, redundancy and other associated branch closure costs including onerous lease provisions of £1.1m. These exceptional costs were partly offset by the gain on the sale of part of LSL's investment in Zoopla on its IPO totalling £19.8m.

Provision for PI claims and notifications

In December 2014, LSL announced the need to further increase the PI Costs provision due to the historic market issues relating to the 2004 to 2008 high risk lending period and an additional reserve of £24.6m was provided and included as an exceptional item in 2014.

At 31^st December 2015, the total provision for PI Costs was £29.7m. In 2015 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 has been in line with LSL's expectations during the year, and those assumed in setting the provision.

Contingent consideration

Certain contingent consideration arrangements have been accounted for as remuneration as the arrangements potentially involve the vendors forfeiting amounts otherwise due if continued services are not provided. These amounts are shown separately on the face of the Income Statement. Contingent consideration amounted to a credit of £1.5m in 2015 (2014: £0.4m credit).

Net Financial Costs

Net financial costs (excluding exceptional finance credit) amounted to £2.8m (2014: £2.2m). The finance costs related principally to interest and fees on the revolving credit facility. Additional costs relate to the unwinding of discounts on provisions and contingent consideration and interest on loan notes.

Taxation

The UK standard corporation tax rate has reduced from 21.0% as at 1st January 2015 to 20.0% from 1st April 2015 with further reductions to 19.0% from 1^st April 2017 and 18.0% from 1^st April 2020. The effective rate of tax for the year was 21.1% (2014: 21.2%). The effective tax rate for 2015 was decreased as a result of reducing the rate at which deferred tax is provided resulting from the reduction in the headline rate of corporation tax. Deferred tax charged directly to other comprehensive income is £0.5m (2014: credit of £2.7m); this is comprised of a credit of £0.05m and a charge of £1.0m and relates to the disposal and revaluation of financial assets (see Annual Report and Accounts 2015). There is also a credit arising as a result of the impact of rate change on deferred tax of £0.5m. Income tax credited directly to the share based payment reserve is £nil (2014: £nil).

In July 2015, the UK Government announced proposals to reduce the main rate of corporation tax to 19.0% from 1^st April 2017, and further reduced to 18.0%, effective from 1^st April 2020. As of 31^st December 2015 reductions to the main rate of corporation tax to 18.0% had been enacted. Accordingly, this is the rate at which deferred tax has been provided.

Adjusted Basic Earnings per Share

The Basic Earnings per Share was 29.7 pence (2014: 24.5 pence). The Adjusted Basic Earnings per Share (as calculated in Note 4 to the Financial Statements) is 31.5 pence (2014: 30.5 pence). The Directors consider that the adjustments made to exclude the after tax effect of exceptional items, contingent acquisition consideration treated as remuneration, and amortisation of acquisition intangibles provides a better and more consistent indicator of the Group's underlying performance.

Balance Sheet

Capital Expenditure

Total capital expenditure in the year amounted to £4.8m (2014: £8.6m) and an additional £3.2m (2014: £0.7m) has been spent internally on developing new software which has been treated as an intangible asset.

Bank Facilities

LSL refinanced its bank facility in 2013 with a £100.0m revolving credit facility in place until August 2017 (2014: £100.0m). Further details on the Group's financial commitments as well as the Group's treasury and risk management policies are set out in the Annual Report and Accounts 2015. During the period under review, the Group complied with all of the financial covenants contained within the facility.

Net Bank Debt and Cashflow

As at 31^st December 2015 Net Bank Debt was £39.9m (2014: £34.7m) and Shareholders' funds amounted to £107.4m (2014: £83.1m) giving balance sheet gearing of 37.1% (2014: 41.8%). The increase in Net Bank Debt arose mainly as a result of the increased number of acquisitions. The 2015 gearing level was 0.83 times adjusted EBITDA¹ (2014: 0.74 times). The Group has a committed revolving credit facility until August 2017. In 2015 the Group generated cash from operations of £36.5m (2014: £25.7m).

Zoopla

Subsequent to the 2015 interim date, Zoopla completed an anniversary offer allowing LSL to subscribe for a further 619,318 shares at the £2.20 IPO price with a 20.0% discount. These have been taken up by LSL. At the same time, a further 169,350 shares were sold through the anniversary member offer at £1.76 with proceeds of £0.3m net of associated costs included in other operating income. Zoopla's share price at 31^st December 2015 was £2.40 per share. The fair value of the Group's 2.7% stake in Zoopla is calculated to be £27.1m at 31^st December 2015.

Net Assets

The Group's net assets as at 31^st December 2015 were £107.4m (2013: £83.1m).

Treasury and Risk Management

LSL has an active debt management policy. LSL does not hold or issue derivatives or other financial instruments for trading purposes.

Post Balance Sheet Events

Subsequent to the year end the following transactions have been completed:

a. LSL acquired three small lettings book acquisitions for a total initial consideration of £1.82m.

b. On 17^th February 2016, Your Move acquired a 65.0% interest in GFL for an initial consideration of £9.1m, with 50% paid at completion and the remaining 50% to be in March 2017.

The Group is in the process of allocating the purchase price in accordance with IFRS 3. As a result the initial accounting for the acquisitions above are currently incomplete, so a fair value table of the identifiable assets and liabilities has not been presented.

International Financial Reporting Standards (IFRS)

The Financial Statements have been prepared under IFRS as adopted by the European Union.

Note 1- Adjusted EBITDA is Group Underlying Profit as previously defined plus depreciation on property plant and equipment

Principal Risks and Uncertainties

LSL has an overall framework for management of risks and internal controls to mitigate the risks. Through this framework, the Board, which has overall accountability and responsibility for the management of risk, on a regular basis identifies, evaluates and manages the principal risks and uncertainties faced by LSL, areas which could adversely affect its business, operating results and financial condition.

Development of risk appetite

During 2015, in line with the FRC's Guidance on 'Risk Management, Internal Control and Related Financial and Business Report' which was published in 2014 and which integrated and replaced the FRCs previous guidance on risk management and internal controls, the Board has developed LSL's approach to risk appetite to ensure continued compliance with the Code and FRC guidance. The Board has through this process expressed the types and level of risk which it is willing to take or accept to achieve LSL's plans and to support consistent, risk-informed decision making across the Group.

The development of the risk appetite began with the Directors defining the draft risk appetite statements for LSL's principal risks, and for key decisions made by the Board. These statements provide parameters within which the Board typically expect LSL's businesses to operate, facilitating structured consideration of the risk and reward trade-off for the decisions made around how the Group conducts business.

The discussions covered a wide range of risks, which reflect the nature of LSL's businesses and acknowledges that there is not a one size fits all approach to establishing risk parameters. During 2016, LSL will continue to develop the framework in line with emerging best practice, including evolution of existing objective measures defining risk appetite elements and analysis of how individual risk conditions interact with each other.

The Board will seek to establish clear parameters, whilst at the same time fostering an environment within which innovation and entrepreneurial activities thrive. Where there is any proposal to shift the Group significantly closer to or outside agreed risk parameters, this will be discussed and subject to Board approval before commencing any activities to ensure that appropriate mitigation controls are put into place.

Once finalised, LSL's risk appetite statements will be incorporated into our existing Group risk processes, and used to monitor business activities and decision making. Whilst good progress has been made in 2015, the continued development of the risk appetite framework remains a key priority for the Board in 2016.

Developing the financial viability statement

In developing the financial viability statement, it was determined that a three year period should be used, consistent with the period of the Group's strategic plan.

The Management Team reviewed the principal risks, and considered which of these risks might threaten the Group's viability.

A number of severe but plausible scenarios were considered and modelled in detail with input from a cross functional group of senior managers, including representatives from Finance.

The main focus of the scenario modelling related to the impact of a significant downturn in the property market as occurred in the 2008 to 2009 period. Modelling included the plans LSL put in place during that recessionary period. The skills and many of the personnel with experience to manage through such a scenario remain within the business which has helped this process and gives a degree of confidence to manage through a similar scenario.

Detailed assumptions for each scenario were built up and modelled by month across the three year period. The models measured the downside impact on revenue and the management action which would be taken to retain cash reserves and maintain the operating capacity of the business as a result of the stress scenarios.

Assumptions were also made for the potential growth of LSL counter-cyclical businesses, notably asset management, and the extent to which some activities, such as Lettings, tend to be less affected through the cycle. The modelling and assumptions took account of the broad range of services across a broad geography which allows some protection from the impact of stress scenarios.

The current £100.0m revolving credit facility is committed until August 2017. The Group expects to agree a new extended facility during 2016. External professional advice has also been sought and has confirmed the Directors' confidence that the refinancing will proceed as planned. This assumption has been included in LSL's financial plans and stress testing.

As set out in the Audit Committee's Report in the Annual Report and Accounts 2015 the Directors reviewed and discussed the process undertaken by the Management Team in proposing the viability statement.

The Directors' financial viability statement is contained in the Directors' Report within the Annual Report and Accounts 2015.

Risk management and internal controls framework

LSL's risk management and internal controls framework for 2015 included:

a. ownership of the risk management and internal controls framework by the Board, including a Risk Framework policy, supported by the Group Chief Financial Officer, the Company Secretary, Head of Risk and Internal Audit and members of the Group Finance team;

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 and Internal Audit;

d. the Board regularly identifies, reviews and evaluates the principal risks which may impact the Group as part of the planning and reporting cycle to ensure that such risks are identified, monitored and mitigated;

e. the development and application of LSL's risk appetite statement and associated framework (for further details on steps taken during the year, please see the Annual Report and Accounts 2015) and;

f. 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.

As stated above, LSL has in place a Group-wide risk appetite statement and framework which will continue to be developed in 2016. This framework includes the following:

a. assessment of principal risks and their management or mitigation;

b. assessment of prospects and viability;

c. review of effectiveness of the risk management and internal control systems; and

d. going concern confirmation (for LSL's going concern disclosure please refer to the Annual Report and Accounts 2015).

During the year, the Directors carried out a robust assessment of the principal risks facing the Group, including those that threaten the business model, future performance, solvency or liquidity. The Directors believe that the assessment which has been completed is appropriate to the complexity, size and circumstances of the Group, which is a matter of judgement of the Board and has been supported by the Management Team.

These risks may change over time due to changes in business models, performance, strategy, operational processes and the stage of development of the Group in its business cycle as well as with changes in the external environment. This robust assessment is focused on the principal risks and it differs from the review of the effectiveness of the systems of risk management and internal controls.

In accordance with the requirements of the Code the Annual Report and Accounts 2015 includes descriptions of principal risks together with a high level explanation of how they are being managed or mitigated. This includes clear descriptions of the risks together with an evaluation of the likelihood of a typical risk event crystallising and its possible impact. Mitigating steps and any significant changes to specific areas of risk are also referred to within the tabular summary.

As noted above, this robust analysis of principal risks has also contributed to the Group's viability statement which is set within the Annual Report and Accounts 2015. The Directors have also considered the impact if risks coincide, namely a combination of non-principal risks could potentially represent a single compound principal risk.

The Group also faces other risks which, although important and subject to regular review, have been assessed as less significant and are not listed overleaf. This may include some risks which are not currently known to the Group or that LSL currently deems as immaterial, or were included in previous Annual Report and Accounts and through changes in external factors and careful management, are no longer deemed to be as material to the Group as a whole.

However, these risks may individually or cumulatively also have a material adverse effect together with other risk factors which are beyond the direct control of LSL, and may have a material adverse impact on LSL's business, results of operations and/or financial condition. The risk management framework and procedures in place can only provide reasonable but not absolute assurance that the principal risks and uncertainties are managed to an acceptable level.

Further information relating to how LSL managed these risks and uncertainties during 2015 is set out in the Audit Committee Report (Internal Controls) in the Annual Report and Accounts 2015.

Principal Risk and Uncertainties

Description

Mitigation

Strategic:

UK housing market

Group performance is intrinsically linked to the overall performance of the UK housing market (including subsets - e.g. prime Central London)

· Daily, weekly and monthly monitoring of trading and market performance data.

· Market share, product mix and segmentation initiatives.

· Development of counter-cyclical and less cyclical income streams.

· Investment in acquisition teams.

· Responsive cost control measures to market deterioration.

· Balanced UK-wide geographical spread.

· Monitoring of wider macro-economic developments.

New UK housing market entrants

Traditional business models for property services are exposed increasingly to new business models and technological advancements - (e.g. web-based agents and Automated Valuation Models).

· Competitor/industry benchmarking.

· Monitoring of potential acquisitions and joint venture opportunities.

· Service delivery enhancements and experimentation.

· Marketing initiatives.

· Staff incentive schemes.

Acquisitions and growth initiatives

Realising appropriate targets for acquisition and major project initiatives, including delivery of appraisals, due diligence and integration/implementation requirements.

· Defined pre and post-acquisition reporting to the Board.

· Structured authority levels.

· Dedicated acquisition and post-acquisition teams.

· External consultative support as necessary.

· Established integration planning methodology.

· Post-acquisition and post-implementation reviews.

· Risk and Internal Audit engagements.

Sales/distribution:

Professional services

Exposure to major PI claims arising from any lapses in surveying and valuation practices.

· Board-level authorities for PI claims settlement payments and governance of underlying claims handling and accounting processes.

· Dedicated surveying risk team.

· Timely data capture of all claims and associated trends.

· Robust framework and monitoring routines to maintain valuation accuracy.

· Utilisation of technology to monitor valuation trends and trigger alerts.

· Risk and Internal Audit reviews.

· Experienced claims handling personnel supported by legal experts.

· Culture promoting effective sales conduct and open lines of communication with clients.

Client Contracts

The performance of the Surveying and Asset Management businesses is dependent on securing and retaining key lender contracts.

· Customer outcome focused forums and initiatives.

· Designated senior members of staff with responsibility for relationship management.

· Sufficient investment in resources to ensure LSL has the capacity to meet service level demands.

· Targeted marketing/hospitality events.

· Monitoring of compliance with lender contractual requirements.

· Robust control framework supporting the accuracy of surveys/valuations.

· Dedicated in-house Group Legal Services team.

· Risk & Internal Audit reviews.

Operations:

Information technology infrastructure

The Group has varied operations which require a robust IT infrastructure. The IT environment needs to remain adaptable to support growth initiatives, harness technological advancements and counter business continuity threats, including malicious and cyber related attacks.

· Board level IT governance, policies and initiatives.

· Dedicated in-house IT teams.

· Maintenance of infrastructure to maintain effective service delivery.

· On-going IT investment programme.

· Implementable business continuity and disaster recovery solutions.

· Monitoring of compliance with relevant contractual and regulatory requirements.

· Inter-Group IT forums.

· External consultative support as necessary.

· Risk and Internal Audit reviews.

Information security

Group operations involve the processing of high volumes of personal data, with potential for unintended data loss and exposure to increasing levels of external cyber-crime.

· LSL Information Security Governance Group.

· Dedicated LSL Information Security personnel.

· Group data protection policies and training.

· Tracking of data assets/data sharing, in line with authority levels.

· Penetration testing programme.

· Second and third-line risk-based reviews.

Regulatory and legal

Relationships with regulators and compliance with legal and regulatory requirements, including oversight of standards adopted by business partners (e.g. franchises and joint ventures).

· Top-down culture focused on fairness, transparency and successful customer outcomes.

· Open dialogue with regulators and monitoring of emerging developments.

· Group risk framework policy incorporating a 'three-line of defence' model to track compliance with regulations.

· Group ethics policies - e.g. whistleblowing structures and anti-fraud policy.

· Group-level forums with regulatory focus.

· Dedicated compliance teams in higher risk/regulated functions.

· Evolution of IT systems to strengthen oversight routines.

· Responsive complaints tracking of any emerging themes.

· In-house Group Legal Services team, with external consultative support when needed.

· Group Risk and Internal Audit reviews.

People:

Employees

Securing and retaining key strategic population and ensuring the effective management of personnel standards across varied Group businesses.

· Oversight by LSL Remuneration and Nominations Committees.

· Group remuneration policies and incentive schemes to retain key strategic population.

· Regular benchmarking and appraisals of senior management.

· Succession planning reviews.

· Dedicated in-house recruitment team.

· Staff surveys and Group HR initiatives to improve staff morale, relieve areas of pressure and improve operational efficiencies.

· Investment in Group-wide HR IT systems.

· Monitoring of statutory requirements and developments.

· Culture of transparency, clear Group policies and whistleblowing procedures should staff need to confidentially raise concerns.

Group Income Statement

for the year ended 31^st December 2015

		2015	2014
	Note	£'000	£'000

Revenue	3	300,594	287,498

Operating expenses:
Employee and subcontractor costs		(171,216)	(167,581)
Establishment costs		(19,012)	(18,852)
Depreciation on property, plant and equipment		(5,296)	(4,918)
Other		(65,180)	(57,938)
		(260,704)	(249,289)

Other operating income		1,865	2,404
(Loss)/Gain on sale of property, plant and equipment		(44)	13

Group's share of profit after tax in joint ventures		1,156	1,383

Group operating profit before contingent consideration, exceptional items, amortisation and share-based payments
		42,867	42,009

Share-based payments		(871)	(1,775)
Amortisation of intangible assets		(1,803)	(565)
Exceptional gains	5	-	19,841
Exceptional cost	5	(258)	(26,035)
Contingent consideration	5	1,477	405
Group operating profit	3	41,412	33,880

Finance income		5	14
Finance costs		(2,817)	(2,181)
Exceptional finance credits	5	-	230
Net financial costs		(2,812)	(1,937)

Profit before tax		38,600	31,943

Taxation
- related to exceptional items and contingent consideration		52	1,146
- others		(8,190)	(7,931)
	7	(8,138)	(6,785)

Profit for the year		30,462	25,158
Attributable to
- Owners of the parent		30,414	25,103
- Non-controlling interest		48	55



Earnings per share expressed in pence per share:
Basic	4	29.7	24.5
Diluted	4	29.5	24.3
Adjusted - basic	4	31.5	30.5
Adjusted - diluted	4	31.3	30.2

Group Statement of Comprehensive Income

for the year ended 31^st December 2015

	2015	2014
	£'000	£'000

Profit for the year	30,462	25,158

Items to be reclassified to profit and loss in subsequent periods:
Reclassification adjustments for disposal of financial assets	(440)	(20,568)
Income tax effect	53	4,114
Revaluation of financial assets	5,130	6,903
Income tax effect	(580)	(1,381)
Net other comprehensive income/(loss) to be reclassified to profit and loss in subsequent periods:
	4,163	(10,932)

Total other comprehensive income/(loss) for the year, net of tax	4,163	(10,932)

Total comprehensive income for the year, net of tax	34,625	14,226

Attributable to
- Owners of the parent	34,577	14,171
- Non-controlling interest	48	55

Group Balance Sheet

as at 31^st December 2015

	2015	2014
	£'000	£'000

Non-current assets
Goodwill	136,395	131,560
Other intangible assets	30,517	20,110
Property, plant and equipment	19,393	20,272
Financial assets	28,871	23,033
Investments in joint ventures	8,778	9,121
Total non-current assets	223,954	204,096

Current assets
Trade and other receivables	35,366	36,165
Cash and cash equivalents	5,603	-
Total current assets	40,969	36,165

Total assets	264,923	240,261

Current liabilities
Financial liabilities	(15,777)	(4,659)
Trade and other payables	(50,102)	(50,336)
Current tax liabilities	(2,525)	(373)
Provisions for liabilities	(12,100)	(16,539)
Total current liabilities	(80,504)	(71,907)

Non-current liabilities
Financial liabilities	(52,511)	(56,420)
Deferred tax liability	(6,927)	(6,462)
Provisions for liabilities	(17,625)	(22,372)
Total non-current liabilities	(77,063)	(85,254)

Total Liabilities	(157,567)	(157,161)

Net assets	107,356	83,100

Equity
Share capital	208	208
Share premium account	5,629	5,629
Share-based payment reserve	3,564	3,498
Treasury shares	(5,988)	(7,922)
Fair value reserve	20,878	16,715
Retained earnings	82,880	64,835
Equity attributable to owners of parent	107,171	82,963
Non-controlling interests	185	137

Total equity	107,356	83,100

Group Statement of Cash Flows

for the year ended 31^st December 2015

		31^st December 2015		31^st December 2014
	£'000	£'000	£'000	£'000
Cash generated from operating activities
Profit before tax		38,600		31,943

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

Exceptional operating items and contingent consideration	(1,219)		4,324
Amortisation of intangible assets	1,803		565
Finance income	(5)		(14)
Finance costs	2,817		2,181
Exceptional finance (credit)	-		(230)
Share-based payments	871		1,775
Total adjustments		4,267		8,601
Group operating profit before amortisation and share-based payments		42,867		40,544
Depreciation	5,296		4,918
Dividend income	(835)		(1,579)
Share of results of joint ventures	(1,156)		(1,383)
Loss/(Gain) on sale of property, plant and equipment and financial assets	(253)		(48)
		3,052		1,908
Decrease/(increase) in trade and other receivables	975		(449)
(Decrease) in trade and other payables	(1,026)		(4,263)
Decrease in provisions	(9,345)		(12,075)
		(9,396)		(16,787)
Cash generated from operations		36,523		25,665

Interest paid	(1,852)		(1,764)
Payment of contingent consideration relating to remuneration	-		(1,426)
Loan refinance costs paid			-
Tax paid	(5,613)		(1,339)
		(7,465)		(4,529)
Net cash generated from operating activities		29,058		21,136

Cash flows from investing activities
Cash acquired on purchase of subsidiary undertaking	774		250
Acquisitions of subsidiaries and other businesses	(13,202)		(4,963)

Payment of contingent consideration Investment in joint venture	17	(4,015) -		- (2,422)
Investment in financial assets	16	(1,178)		(1,155)
Cash received on sale of financial assets		297		20,838
Tax on Sale of Zoopla		-		(4,015)
Dividends received from joint venture		1,499		1,302
Dividends received from financial assets		549		1,579
Interest received	5	5		14
Purchase of property, plant and equipment And intangible assets	14,15	(7,991)		(9,244)
Proceeds from sale of property, plant and equipment	15	328		195
Net cash (expended)/ generated on investing activities			(22,934)		2,379
Cash flows from financing activities
Drawdown of loans		11,500		10,000
Repayment of overdraft		(718)		(1,830)
Repayment of loan notes		(63)		63
Payment of deferred consideration		-		-
Purchase of LSL shares by the employee Benefit trust (EBT) (Treasury Shares)		-		(5,621)
Proceeds from exercise of share options		1,314		1,690
Dividends paid	11	(12,554)		(28,286)

Net cash used in financing activities			(521)		(23,984)

Net increase/(decrease) in cash and cash equivalents			5,603		(469)
Cash and cash equivalents at the beginning of the year			-		469

Cash and cash equivalents at the end of the year	19		5,603		-

Group Statement of Changes in Equity

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 interests
									Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1^stJanuary 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 31^stDecember 2015	208	5,629	3,564	(5,988)	20,878	82,880	107,171	185	107,356

Year ended 31^st December 2014

									Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1^stJanuary 2014	208	5,629	2,475	(4,292)	27,647	67,567	99,234	82	99,316
Disposal of financial assets (net of tax)	-	-	-	-	(16,454)	-	(16,454)	-	(16,454)
revaluation of financial assets (net of tax)					5,522		5,522		5,522
Other comprehensive income for the year	0	0	0	0	(10,932)	0	(10,932)	0	(10,932)
Profit for the year	-	-	-	-	-	25,103	25,103	55	25,158
Total comprehensive income for the year	0	0	0	0	(10,932)	25,103	14,171	55	14,226
Investment in Treasury Shares	-	-	-	(5,621)	-	-	(5,621)	-	(5,621)
Exercise of options	-	-	(752)	1,991	-	451	1,690	-	1,690
Share-based payments	-	-	1,775	-	-	-	1,775	-	1,775
Dividend payment	-	-	-	-	-	(28,286)	(28,286)	-	(28,286)
At 31^stDecember 2014	208	5,629	3,498	(7,922)	16,715	64,835	82,963	137	83,100

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 2015 but has been extracted from the Financial Statements included in LSL's 2015 Annual Report & Accounts 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 2016 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. Directors responsibility statement

Each of the Directors confirms that, to the best of their knowledge, the financial statements, prepared in accordance with IFRS as adopted by EU standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidation taken as a whole; and the Directors' Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

2. 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 2015 which are applicable to the Group. For the Financial Statements for the year ended 31^st December 2015, there were no IFRS, amendments or IFRIC interpretations effective for the first time this financial year that had a material impact on the Group. This is with the exception of IFRS 16, for which we are currently evaluating the impact.

3. Segment analysis of revenue and operating profit

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

· The Estate Agency and Related Services segment provides services related to the sale and letting of residential properties. It operates a network of high street branches. As part of this process, the Estate Agency Division also provides marketing and arranges conveyancing services. In addition, it provides repossession asset management services to a range of lenders. It also arranges mortgages for a number of lenders and arranges pure protection and general insurance policies for a panel of insurance companies via the estate agency branches, Pink Homes Loans, First Complete, Embrace Mortgage Services, First2Protect and Linear Financial Solutions. 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 lending corporations and individual customers.

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

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.

Operating segments

The following table presents revenue and profit information regarding the Group's operating segments for the financial year ended 31^st December 2015 and financial year ended 31^st December 2014 respectively.

Year ended 31^st December 2015

	Estate Agency and Related Services	Surveying and Valuation Services	Unallocated	Total
Income statement information	£'000	£'000	£'000	£'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	29,347	17,459	(5,394)	41,412
consideration, amortisation and share-based payments

Finance income				5
Finance costs				(2,817)
Profit before tax				38,600

Taxation				(8,138)
Profit for the year				30,462

Year ended 31^st December 2014

	Estate Agency and Related Services	Surveying and Valuation Services	Unallocated	Total
	£'000	£'000	£'000	£'000
Income statement information
Segmental revenue	225,274	62,224	-	287,498
Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments	33,892	13,331	(5,214)	42,009
- after exceptional costs, contingent	52,310	(12,611)	(5,819)	33,880
consideration, amortisation and share-based payments

Finance income				14
Finance costs				(2,181)
Exceptional finance credits				230
Profit before tax				31,943
Taxation				(6,785)
Profit for the year				25,158

4. Earnings per share (EPS)

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

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 year 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	2015 Per share amount Pence	Profit after tax £'000	Weighted average number of shares	2014 Per share amount Pence
Basic EPS	30,414	102,406,770	29.7	25,103	102,479,989	24.5
Effect of dilutive share options		791,256		-	925,536	-
Diluted EPS	30,414	103,198,026	29.5	25,103	103,405,525	24.3

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.

The Directors consider that the adjusted earnings shown below give a better and more consistent indication of the Group's underlying performance:

	2015 £'000	2014 £'000

Group operating profit before contingent consideration in acquisitions linked to employment, exceptional costs, share-based payments and amortisation (excluding non-controlling interest):	42,819	41,954

Net finance costs (excluding exceptional costs and contingent consideration)	(2,360)	(2,167)
Normalised taxation	(8,193)	(8,554)
Adjusted profit after tax¹ before exceptional costs, share-based payments and amortisation	32,266	31,233

Adjusted basic and diluted EPS

	Adjusted profit after tax¹ £'000	Weighted average number of shares	2015 Per share amount Pence	Adjusted profit after tax¹ £'000	Weighted average number of shares	2014 Per share amount Pence

Adjusted Basic EPS	32,266	102,406,770	31.5	31,233	102,479,989	30.5
Effect of dilutive share options		791,256		-	925,536	-
Adjusted Diluted EPS	32,266	103,198,026	31.3	31,233	103,405,525	30.2

This represents adjusted profit after tax attributable to equity holders of the parent. The normalised tax rate in 2015 is 20.25% (2014: 21.5%).

5. Exceptional items and contingent consideration

	2015	2014
	£'000	£'000
Exceptional costs:
Branch closure and restructuring costs including redundancy costs	258	1,092
Acquisition related costs	-	373
Provision for professional indemnity claims/notifications	-	24,570
	258	26,035

Contingent consideration on acquisitions	(1,477)	(405)

Exceptional gains:
Gain on disposal of freehold properties	-	(35)
Gain on disposal of financial assets	-	(19,806)
	-	(19,841)
Exceptional finance credits:
Movement in fair value of interest rate swap	-	(230)
	(1,219)	5,559

6. Dividends paid and proposed

	2015	2014
	£'000	£'000
Declared and paid during the year:
Equity dividends on ordinary shares:
2013 Final: 7.2 pence per share	-	7,406
2014 Interim: 4.0 pence per share	-	4,074
2014 Special dividend: 16.5 pence per share 2014 Final: 8.3 pence per share 2015 Interim: 4.0 pence per share	- 8,458 4,096	16,806
	12,554	28,286
Dividends on Ordinary Shares proposed (not recognised as a liability as at 31^st December):
Equity dividends on Ordinary Shares:
Dividend: 8.6 pence per share (2014: 8.3 pence per share)	8,808	8,458

7. Taxation

(a) Tax on profit on ordinary activities

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

	2015	2014
	£'000	£'000

UK corporation tax - current year	7,787	6,460
- adjustment in respect of prior years	391	144
	8,178	6,604
Deferred tax:
Origination and reversal of temporary differences	(470)	98
Adjustment in respect of prior year	430	83
Total deferred tax (credit)/expense	(40)	181
Total tax charge in the income statement	8,138	6,785

The UK standard corporation tax rate has reduced from 21.0% as at 1^st January 2015 to 20.0% from 1^st April 2015 with further reductions to 19.0% from 1^st April 2017 and 18.0% from 1st April 2020. The effective rate of tax for the year was 21.1% (2014: 21.2%). The effective tax rate for 2015 was decreased as a result of reducing the rate at which deferred tax is provided resulting from the reduction in the headline rate of corporation tax. Deferred tax charged directly to other comprehensive income is £0.5m (2014: credit of £2.7m); this is comprised of a credit of £0.05m and a charge of £1.0m and relates to the disposal and revaluation of financial assets (see Note 16 to the Financial Statements). There is also a credit arising as a result of the impact of rate change on deferred tax of £0.5m. Income tax credited directly to the share based payment reserve is £nil (2014: £nil).

(b) Factors affecting tax charge for the year

The tax assessed in the profit and loss account is higher (2014: lower) than the standard UK corporation tax rate, because of the following factors:

	2015	2014
	£'000	£'000

Profit on ordinary activities before tax	38,600	31,943

Tax calculated at UK standard rate of corporation tax rate of 20.25% (2014 - 21.5%)	7,816	6,868
Non-taxable income from joint ventures and dividends	(403)	(641)
Benefit of deferred tax asset and brought forward losses not previously recognised	(32)	(249)
Disallowable expenses	381	394
Impact of movement in contingent consideration credited to the Income Statement	(295)	(87)
Share-based payment relief	57	281
Impact of rate change on deferred tax	(207)	(8)
Prior period adjustments - current tax	391	144
Prior period adjustment - deferred tax	430	83
Total taxation charge	8,138	6,785

8. Analysis of net bank debt (excluding loan notes)

	2015	2014
	£'000	£'000

Interest bearing loans and borrowings
- Current	15,777	4,659
- Non-current	52,511	56,420
	68,288	61,079
Less: Unsecured loan notes	(10,033)	(9,744)
Less: cash and short-term deposits	(5,603)	-
Less: deferred and contingent consideration	(12,755)	(16,617)
Net Bank Debt at the end of the year	39,897	34,718

During the year, the Group has drawn down £11.5m (2014: drawn down £10m) 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 £100.0m facility (2014: £100.0m).

9. Acquisitions during the year

The Group acquired the following businesses during the year:

a. Lettings books

During the period the Group acquired 30 Lettings books for a total consideration of £9,079,000. The identifiable net assets acquired consist of intangible assets £7,784,000, cash and cash equivalents £426,000 and goodwill of £869,000.

The combined fair values of the identifiable assets and liabilities at the date of above acquisition have been determined as below:

	Fair value recognised on acquisition
	£'000
Intangible Assets	7,784
Cash and cash equivalents	426
Total identifiable net liabilities acquired	8,210
Purchase consideration	9,079
Goodwill	869

Purchase consideration discharged by:

Cash	9,054
Contingent consideration	25
	9,079

Analysis of cash flow on acquisition	£'000
Transaction costs (included in cash flows from operating activities)	21
Net cash acquired with the subsidiary (included in cash flows from investing activities)	(426)
Purchase consideration discharged in cash (included in cash flows from investing activities)	9,054
Net cash outflow on acquisition	8,649

b. Thomas Morris

In February 2015, the Group acquired 80% of Thomas Morris Property Management Limited (Thomas Morris), a 7 branch estate agency chain in Cambridgeshire, Bedfordshire and Hertfordshire for an initial consideration of £4.1m. The remaining 20% is subject to put and call options which are exercisable between 2018 and 2020 dependent on profit performance. 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 Thomas Morris as at the date of acquisition have been determined as below:

	Fair value recognised on acquisition
	£'000
Intangible assets	1,209
Property, plant and equipment	28
Trade and other receivables	177
Cash and cash equivalents	348
Trade and other payables	(202)
Current tax liabilities	(224)
Total identifiable net liabilities acquired	1,336
Purchase consideration	5,301
Goodwill	3,965

Purchase consideration discharged by:

Cash		4,148
Contingent consideration		1,153
		5,301
Analysis of cash flow on acquisition	£'000
Transaction costs (included in cash flows from operating activities)	26
Net cash acquired with the subsidiary (included in cash flows from investing activities)	(348)
Purchase consideration discharged in cash (included in cash flows from investing activities)	4,148
Net cash outflow on acquisition	3,826

10. Annual General Meeting (AGM)

The AGM will be held at the London offices of LSL, 1-3 Sun Street, London EC2A 2EP on 28^th April 2016 starting at 4.30pm.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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