PRELIMINARY ANNOUNCEMENT

RNS Number : 7623G

LSL Property Services

06 March 2018

For Immediate Release

6^th March 2018

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 2017.

	2017	2016	% change
Group Revenue - £m	311.5	307.8	+1
Group Underlying Operating Profit¹ - £m	37.5	34.6	+8
Group Underlying Operating Margin - %	12.0	11.3
Group Adjusted EBITDA²	42.7	40.1	+7
Group Operating Profit - £m	42.1	65.4	-36
Profit before tax - £m	40.1	63.5	-37
Net Exceptional gain - £m	9.3	32.2	-73
Basic Earnings Per Share - pence	32.6	49.2	-34
Adjusted Basic Earnings Per Share - pence³	28.3	25.9	+9
Net Bank Debt⁴ at 31^st December - £m	30.0	20.3	-48
Final proposed dividend per share - pence	7.3	6.3	+16
Full year dividend per share - pence	11.3	10.3	+10

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4)

2 Group Adjusted EBITDA is Group Underlying Operating Profit¹ plus depreciation on property plant and equipment (as defined in Note 4)

3 Refer to Note 6 for the calculation

4 Refer to Note 9 for the calculation

· Robust performance in subdued market conditions with full year Group Underlying Operating Profit¹ up 8% to £37.5m (2016: £34.6m) and Group Adjusted EBITDA up 7%

· Continued momentum in the Estate Agency Division with 2% overall revenue growth and Underlying Operating Profit¹ up 10% year on year

· Strategic acquisition of a shareholding in Yopa (17.3%) for consideration of £20m after thorough market evaluation of digital opportunities

· Continued growth of recurring income with Lettings up 4% year-on-year

· Strong growth in Financial Services income of 16% (organic growth +14%)

· Residential Sales exchange income down by 9%

· Strong performance at Marsh & Parsons which recorded revenue growth of 2% year on year, including Lettings income up 10% against a challenging London market

· LSL continued its Marsh & Parsons branch expansion strategy in 2017, opening two new branches in outer prime Central London

· The Surveying Division delivered strong profit growth of 8% with strong operating margins (29.4%)

· Contract extensions for surveying and valuation services were signed with two major lenders during 2017

· 2017 Profit before tax of £40.1m was down compared to prior year (2016: £63.5m). The 2016 financials included an exceptional gain on the disposal of ZPG plc shares of £32.9m

· 2017 exceptional gain of £9.3m. Continued positive progress in settling historic PI claims with a £3.7m exceptional gain and in addition a gain of £5.6m on the sale of GPEA shares

· Strong Group operational cash-flows and low level of gearing

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

"The Group delivered a robust financial performance given the subdued market conditions. I am pleased that the business delivered underlying operating profit growth in both the Estate Agency and Surveying Divisions.

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

LSL's financial performance in 2018 has tracked closely to the Board's expectations and the Group is well placed to deliver a solid performance during the year."

For further information, please contact:

Ian Crabb, Group Chief Executive Officer
Adam Castleton, Group Chief Financial Officer
LSL Property Services plc	0207 382 0360
David Rydell Sophie Wills Gemma Mostyn-Owen
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 mortgage, pure protection and general insurance brokerage services. 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 positive progress for the Group in 2017. Group Underlying Operating Profit¹ of £37.5m in 2017 increased 8% compared to the prior year (2016: £34.6m) with Group Adjusted EBITDA² up 7%. Group Revenue in 2017 grew by 1% to £311.5m (2016: £307.8m).

The Group's business model and disciplined focus on its strategy has enabled LSL to successfully navigate the challenging residential property market conditions in 2017.

The LSL strategy has been consistently and successfully executed in 2017 and remains unchanged. The Board remain confident of the opportunities for further positive progress for the Group.

Dividend

The Board continues to support our previously communicated dividend policy, to apply a dividend pay-out ratio of between 30% to 40% of Group Underlying Operating Profit after interest and tax. The Board has reviewed the policy while considering the risks and capital management decisions facing the Group.

Adjusted Basic Earnings Per Share for 2017 was 28.3 pence, an increase of 9.3% on the prior year (2016: 25.9 pence). The Board has a positive view of the future prospects for the business whilst also being mindful of the uncertain economic and political landscape which has an impact on consumer sentiment. The proposed dividend payment is at the upper end of the range of our stated policy and a final dividend of 7.3 pence per share (2016: 6.3 pence per share) will be proposed to Shareholders at the forthcoming AGM, giving a total dividend for 2017 of 11.3 pence per share (2016: 10.3 pence per share).

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 measured by the number of branches³. The businesses are organised to deliver integrated Residential Sales, Lettings and Financial Services, as well as a range of additional residential property related services.

Consumer confidence was impacted by rising inflation, subdued wage growth and changes to buy-to-let regulations, leading to reduced housing transactions in 2017. Despite the subdued market backdrop, LSL's focus on its stated strategy delivered growth in both Financial Services income and Lettings income and improved productivity in the Surveying business. These self-help measures have protected LSL from the full impact of the challenging housing market in 2017.

We continued to invest in our brands in 2017 to drive future growth, and increased dedicated headcount to support our successful Lettings and Financial Services income streams and to grow our Land & New Homes business. During 2017 we also opened two new Marsh & Parsons branches in outer prime Central London.

In Financial Services, during 2017 the Group arranged total mortgage lending of £21.0bn (2016: £17.1bn). Measured by the number of appointed representatives, as at 5^th March 2018, LSL's overall combined network is the second largest in the UK⁴. Financial Services income represented 24% of total Group Revenue in 2017 (2016: 21%) and demonstrates LSL's growing position as a leading financial services distributor.

During 2017 and into 2018, we have assessed and continued to selectively acquire businesses and make strategic investments:

· Following LSL's strategic review of digital opportunities in the estate agency market, in September 2017 LSL made a 17.3% strategic acquisition of a shareholding in Yopa, an online hybrid estate agent. Following this investment, LSL and Yopa started collaborative activities as part of a strategic partnership.

· In January 2018 LSL acquired the entire issued share capital of Personal Touch Financial Services and its subsidiary company, Personal Touch Administration Services. Personal Touch Financial Services is a financial services business specialising in the provision of mortgage and other financial services products via its network of intermediaries. This acquisition supports LSL's stated strategy of enhancing its position as a leading mortgage distributor and is an excellent fit with our existing financial services businesses, which were rebranded to PRIMIS in February 2018. Details of the acquisition are included in this Report as a post balance sheet event.

Following the publication of the draft Tenant Fees Bill in November 2017, setting out the government's approach to banning letting fees paid by tenants, we are monitoring developments. Whilst the exact timing of the introduction of the legislation is uncertain, our current expectation is that it will be introduced in 2019.

Our Surveying Division continues to hold a market leading position, maintaining strong relationships with many of the UK's largest lenders. During 2017 LSL negotiated extensions to its contracts to supply UK residential surveying and valuation services to Barclays Bank PLC and Santander UK Plc. LSL's Surveying Division is one of the country's largest providers of residential valuation services nationwide and is one of the largest employers of surveyors in the UK⁴.

Corporate Governance and Board

The Board remains committed to high levels of corporate governance and during 2017, LSL has complied in all respects with the UK Corporate Governance Code (April 2016 edition). We are also closely monitoring the Government's review of corporate governance and the FRC's consultation in relation to the Code.

As Chairman, with the responsibility for leadership of the Board, I review its effectiveness on all aspects of its role and encourage feedback. During our annual evaluation exercise we reviewed the composition of our Board and its Committees and concluded that we have the appropriate balance of skills, independence and knowledge of the Group to enable the Board to discharge our duties and responsibilities effectively.

Details of our corporate governance arrangements and the recommendations arising from the evaluation exercise are contained within the Corporate Governance Report and details of the Directors are included in The Board section of the Annual Report and Accounts 2017.

Our people

Ultimately the success of our business model is attributable to, and underpinned, by our strong brands and excellence in the delivery of high levels of customer services by our colleagues throughout the Group. The total number of employees as at 31^st December 2017 was 5,084 (2016: 4,990). I would like to take this opportunity to thank all of our colleagues for the continued hard work and commitment which they have demonstrated throughout 2017.

Outlook

Market conditions in 2018 have been slightly softer than the equivalent period in 2017. LSL's financial performance in 2018 has tracked closely to the Board's expectations and the Group is well placed to deliver a solid performance during the year. LSL continues to execute on its stated strategy and is well placed to deliver increased Shareholder value.

LSL expects to see a modest reduction in the volume of house purchase transactions compared to the prior year, with the rate of House Price Inflation outside Greater London continuing to ameliorate. Mortgage costs continue to be low by historic standards and mortgage availability remains good. The medium to longer term fundamentals of the UK housing market remain solid.

We are positive regarding the outlook for the business, driven in part by LSL's ambition to continue to deliver a programme of self-help measures, including organic growth in Estate Agency in Financial Services Income and Lettings Income, with the aim of optimising organic growth. LSL will also continue to evaluate selective acquisitions and in 2018, LSL's ambition is to restart its lettings book acquisition programme.

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 placed to capitalise on market conditions to increase Shareholder value.

Simon Embley

Chairman

6^th March 2018

Note 1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4)

Note 2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation on property plant and equipment (as defined in Note 4)

Note 3 Your Move has 260 branches and has been internally verified as the largest single brand estate agent in the UK

Note 4 LSL estimates on the combined networks of PRIMIS and Personal Touch Financial Services

Group Chief Executive's Review

2017 Overview

The Group delivered a robust performance in 2017, particularly against the backdrop of a subdued residential property market during the year. I am pleased to report that in 2017, Group Revenue (+1%), Group Underlying Operating Profit (+8%) and Group Adjusted EBITDA (+7%) were all up year-on-year. Further, at the end of 2017 LSL's Net Bank Debt (£30m) and operational gearing¹ ratio (0.7x) both remained modest.

Group Revenue increased by 1% to £311.5m (2016: £307.8m). Group Underlying Operating Profit² was up 8% to £37.5m (2016: £34.6m). Group Adjusted EBITDA was up 7% to £42.7m (2016: £40.1m). 2017 Profit before tax of £40.1m was down compared to the prior year (2016: £63.5m). The 2016 financials included an exceptional gain on the disposal of ZPG plc shares of £32.9m.

In the Estate Agency Division, we continued to invest in the growing parts of our businesses and delivered strong year-on-year revenue growth in Lettings (+4%) and Financial Services (+16%). In the Surveying Division, we delivered strong profit growth (+8%), strong margins (29.4%) and we were pleased to announce contract extensions with Barclays Bank PLC (September 2017) and Santander UK Plc (December 2017).

During 2017 LSL completed the exploration and evaluation of options to capitalise on digital opportunities created by the growth in consumer acceptance of online and hybrid estate agency business models. Following this evaluation, in September 2017, LSL announced the strategic acquisition of a 17.3% shareholding in Yopa for a total consideration of £20m. LSL and Yopa have started collaborative activities as part of a strategic partnership.

The Market in 2017

The UK residential property sales market was subdued in 2017. Approvals for house purchases³ in 2017 were down by 1.5% with the drop in market transactions more pronounced in London and the South East⁴.

Approvals for house purchases were down 2.9% in the first half of 2017 compared to the same period in 2016 when an increase in Stamp Duty on 1^st April 2016 led to a spike in market activity in the period up to the change. In the second half of 2017, approvals for house purchases were broadly flat compared to the same period in 2016. Whilst approvals for house purchases in the third quarter of 2017 were relatively positive (+5.4%) compared to the same period in 2016 when consumer confidence was impacted by the June 2016 EU referendum result, approvals for house purchases were down in the final quarter of 2017 (-5.5%) compared to the same period in 2016.

Total mortgage approvals³ increased by 2.3% in 2017. This reflected an increase in remortgage approvals in the first half of 2017 (+3.6%) compared to the same period in 2016 reflecting low interest rates and the availability of remortgage products and also the second half of 2017 (+10.2%) reflecting a spike in remortgage activity following the interest rate increase announced by the Bank of England in November 2017.

Average house prices⁵ in England and Wales grew by 0.2% (2016: 3.1%) to £301,022 annually with a drop in Greater London (-4.3%) and the South East (-0.2%) offsetting increases elsewhere in the country. Excluding Greater London and the South East, the average increase was 2.3%.

Residential property values in Greater London decreased by 4.3%. Within prime Central London (5 prime boroughs) prices fell by 9.5% while the remainder of Greater London experienced a decrease of 1.3% in year-on-year house prices⁵.

The proportion of new sales instructions placed with online and hybrid estate agents has continued to grow, increasing from 3% of the market in the second half of 2015 to 7% in the second half of 2017⁶. Channel dynamics continue to evolve in 2017 with online and hybrid agents share growing in both the first and second half of 2017 compared to the same periods in 2016, to represent circa 7% of new instructions (H216: 6%). Their market share remained broadly flat in the second half of 2017.

Total gross mortgage lending in 2017 was £256bn⁷ (2016: £245bn). The proportion of mortgage lending in the market placed through intermediaries increased to 68% in 2017 (2016: 67%)⁸.

Following market declines in the repossessions market in the past few years, market repossession volumes again declined in 2017, reducing by 4% to 7,400⁹ total repossessions as interest rates remained low and was the lowest number since 1982.

Strategy

LSL remains committed to delivering on our stated strategy:

Estate Agency

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

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

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

· Complete selective acquisitions of both residential sales businesses and lettings books.

Surveying and Valuation Services

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

· Achieve further improvement in efficiency and capacity utilisation.

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

· Continue the graduate training programme.

In addition to delivering on our stated strategy, in the second half of 2017 we launched a new ways of working programme across our Estate Agency business to respond to the changing landscape and customer demands. We expect this to deliver improvements to our operational performance and result in enhancements to the quality of service provided to Estate Agency Division customers over the medium-term.

LSL performance in 2017

Estate Agency Division

Total Estate Agency income of £247.4m (2016: £243.1m) increased by 2%. This increase resulted from the consistent execution of our strategies with strong growth in both Lettings and in Financial Services income, where we continued to invest in additional people to support growth.

During 2017 eight owned branches and three franchises were selectively closed as part of the ongoing management and optimisation of LSL's branch estate. LSL does not expect either a rationalisation from the current number of its Estate Agency brands or any material change to the size of its branch estate in the foreseeable future.

Residential Sales exchange income

Residential Sales exchange income decreased by 9% to £76.6m (2016: £83.8m) with average fees per unit down 1%. Exchange volumes fell by 7%, back 19% in the first quarter compared to the increased activity in the first quarter of 2016. This was attributable to the change in Stamp Duty on 1^st April 2016, followed by a relatively flat second and third quarter in 2017 compared to the same periods in 2016. However the fourth quarter saw a subdued end to the year reflecting on-going market conditions in 2017.

Lettings income

We remain committed to our strategy of increasing recurring Lettings income. In 2017 we delivered growth in Lettings income of 4% (organic growth 3%). Lettings Income increased as a proportion of the Estate Agency business and represented 30% of total Estate Agency Division income in 2017 (2016: 29%).

To drive recurring income growth, we have previously acquired lettings books which have been successfully integrated into our Estate Agency networks. Lettings book acquisitions were paused during the second half of 2016 and into 2017 following the EU referendum. Our ambition is to recommence lettings book acquisitions during 2018.

Financial Services

Total Financial Services income grew strongly again with 16% year-on-year growth in 2017. Adjusting for the acquisition of Group First in February 2016, we delivered organic growth of 14% as we continued to roll out our model across the Estate Agency business and delivered growth from our intermediary networks. Financial Services Income increased as a proportion of the Estate Agency businesses and represented 30% of total Estate Agency Division income in 2017 (2016: 26%) reflecting our continuing strategy to enhance LSL's position as a leading distributor of mortgage and non-investment insurance products.

In 2017, LSL further strengthened its position as a leading distributor of mortgage and non-investment insurance products and delivered strong growth in the value of mortgage completions which were up to £21.0bn in 2017 (2016: £17.1bn). Further, measured by the number of appointed representatives, as at 5^th March 2018, LSL's overall combined network is the second largest in the UK¹⁰.

Marsh & Parsons

LSL estimates that residential sales volumes in the prime Central London market fell by more than 15% in 2017 with prime Central London house prices falling by 9.5%. Given the overall challenging prime Central London market, Marsh & Parsons delivered a positive top line performance with revenue up by 2% in 2017 to £34.3m (2016: £33.5m).

Marsh & Parsons Residential Sales income fell by 5% in 2017 which represents a solid performance in light of the overall prime Central London market conditions. We are pleased with the Lettings performance with income growth of 10% (9% adjusting for branch openings). Lettings revenue now represents 59% of Marsh & Parson's total revenue (2016: 56%).

Expenditure at Marsh & Parsons increased by 4% during 2017 including the investment in additional Lettings headcount to support revenue growth, additional investment in headcount for New Homes, full year costs for branches opened in 2016 and the opening of two new branches in 2017. These increases have been partly offset by the gain on sale of leasehold premises (£0.7m in the first half of 2017). Full year operating profit fell by 12% to £3.9m (2016: £4.4m).

We continued with our branch expansion strategy in 2017, opening two new branches during the year in the outer prime Central London locations of Brixton and Islington. We are pleased with the performance of these new branches. This takes our total number of Marsh & Parsons branches to 27 as at 31^st December 2017.

Our ambition is to expand to 36 branches in the medium term. Outer prime Central London has not been as negatively impacted as prime Central London and Marsh & Parsons is looking to expand its branch footprint in outer prime Central London locations. Marsh & Parsons is also planning to open a new branch in Chiswick in the spring of 2018.

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

Underlying Operating Profit per owned branch in 2017 increased to £32,000 (2016: £30,500) reflecting the growth in Financial Services income and Lettings income offset by the impact of the challenging residential sales market conditions on Residential Sales exchange income.

LSL has increased Underlying Operating Profit per owned branch from £30,100 in 2013 to £32,000 in 2017. Our medium term ambition is to drive Underlying Operating Profit per owned branch to between £80,000 and £100,000 on the expectation of a normalised level of market transactions in the UK residential property sales market.

Our Lettings growth and Financial Services growth across the network continues to underpin this ambition and we will also focus on our Land & New Homes business. We will also plan to selectively deploy new technology to improve the consumer journey and increase efficiency.

Surveying Division

Surveying revenue was £64.1m (2016: £64.7m), a decrease of 1% on the previous year with the total number of jobs performed during the year of 309,499 (2016: 318,077) reflecting the overall management of the mix of jobs. Profit growth was strongly influenced by the successful continuation of investment in our IT platform, optimising efficiency and operational performance. This continued focus on optimising efficiency drove an increase in income per job to £207, an improvement of 2% year-on-year. We delivered strong growth in Underlying Operating Profit to £18.9m (2016: £17.5m) with an enhancement of profit margin to 29.4% (2016: 27.1%).

In 2017 we signed contract extensions with two of our largest customers, Barclays Bank PLC and Santander UK Plc.

The total number of qualified surveyors at 31^st December 2017 was 321², which is broadly in line with 2016. Our on-going graduate programme continues to be successful and assists in alleviating the impact of capacity constraints in the market.

Our customers

Our continued focus on providing the best service to our customers has been recognised in 2017 and 2018 with numerous industry awards including:

· Marsh & Parsons: International Property Awards (UK) 2017: Best Estate Agent, London - Gold Award, Best Estate Agency Marketing, London - Gold Award. The London Magazine Club Awards 2017: Advertising Campaign of the Year - Gold Award.

· Your Move: British Property Awards 2017: Gold Award for ten Your Move branches.

· Reeds Rains: Best Estate Agent Guide 2018 (*): Leamington Spa - Top 100 Agent, Rated Exceptional, Kenilworth Lettings - Rated Highly. British Property Awards 2017: Gold Award for two Reeds Rains branches.

· Davis Tate: Best Estate Agent Guide 2018 (*): Didcot Lettings - Top 100 Agent, Rated Exceptional, Henley Sales & Lettings - Top 100 Agent, Rated Exceptional (Lettings), Twyford Sales - Top 100 Agent, Burghfield Sales and Lettings - Rated Excellent, Pangbourne, Reading, Wallingford and Wantage Sales - Rated Highly, Abingdon, Reading and Wantage Lettings - Rated Highly. The 2017 allAgents Awards: Best Estate Agent - 17 Gold Awards in various locations, Best Letting Agent - 20 Gold Awards in various locations.

· Frost's: Best Estate Agent Guide 2018(*): Harpenden Sales and Lettings - Top 100 Agent, Rated Exceptional.

· Goodfellows: Best Estate Agent Guide 2018(*): Morden Sales - Rated Exceptional, Wimbledon Sales (under Finch & Co - Goodfellows) - Rated Excellent, Carshalton Beeches, Cheam Village, Raynes Park and Mithcam Sales - Rated Highly, Raynes Park Lettings - Rated Highly. The 2017 allAgents Awards - Best Estate Agent - 9 Gold Awards in various locations, Best Letting Agent - 4 Gold Awards in various locations.

· JNP: Best Estate Agent Guide 2018(*): High Wycombe Sales - Rated Highly, Princes Risborough Sales - Rated Highly, Hazlemere Sales - Rated Excellent, Stokenchurch Sales - Rated Exceptional. British Property Awards 2017: Gold Award for Princes Risborough branch.

· Thomas Morris: Best Estate Agent Guide 2018(*): Biggleswade Sales - Top 100 Agent, Rated Exceptional, St Neot's Sales - Rated Exceptional, Sawtry Sales - Rated Excellent. The Negotiator Awards: Medium UK Estate Agency of the Year - Gold Award. Relocation Agent Network Awards: Customer Relocation Award - Winner, Best Regional Agent Award - East Anglia and Essex Regional Winner. Agents Giving Awards 2017: Outstanding Contribution Award. The Guild of Property Professionals Awards: East Anglia - Winner. Fine & Country Awards 2017: St.Neots, East Anglia Regional Award - Winner. The 2017 allAgents Awards: Best Estate Agent, East of England - Gold Award.

· e.surv Chartered Surveyors: Awarded: ISO27001 Information Security Global Standard.

Re-awarded: ISO 9001:2015 Global Quality Management Systems. Awarded: RoSPA Quality Safety Award, Level 3. Awarded: BS 18001 Occupational Health & Safety Award.

· PRIMIS (Advance Mortgage Funding): Financial Adviser Service Awards 2017 - 5 Star Award.

· LSL Financial Services: Precise Mortgage Awards: Best Distribution Group 2017.

(*) As judged and announced in 2017

Balance Sheet and Exceptionals

The Group has a strong balance sheet with closing Net Bank Debt at 31^st December 2017 of £30.0m (2016: £20.3m) and a gearing level at 0.70 times Group Adjusted EBITDA¹ (2016: 0.51 times).

In relation to the PI Costs provision, the Group continued to make positive progress in addressing historic claims and there has been a net £3.7m exceptional gain (H117: £1.1m, H217: £2.6m).

In July 2017 LSL disposed of its investment in GPEA for cash (£3m) and shares in eProp Services plc with an exceptional gain of £5.6m.

Post Balance Sheet events

In January 2018, LSL acquired the entire issued share capital of Personal Touch Financial Services and its subsidiary company, PTAS. Personal Touch Financial Services is a financial services business specialising in the provision of mortgage and other financial services products via its network of intermediaries.

This acquisition supports LSL's stated strategy of enhancing its position as a leading financial services distributor and growing long-term profitability in the provision of residential property services in the UK by identifying value enhancing opportunities. LSL has deep sector expertise in the provision of financial services and Personal Touch Financial Services is an excellent fit with our existing Financial Services businesses.

In January 2018, LSL extended its banking facility until May 2022. The facility comprises a £100m revolving credit facility (RCF) (2016: £100m).

Our people

I would like to take this opportunity to thank all my colleagues across our business for their professionalism and dedication during 2017. I look forward to working with my colleagues to deliver a successful year in 2018.

Outlook

Ian Crabb

Group Chief Executive Officer

6^th March 2018

Note 1- Operational gearing is defined as Net Bank Debt divided by adjusted EBITDA (Group Adjusted EBITDA is Group Underlying Operating Profit (Note 4) plus depreciation on property plant and equipment)

Note 2- Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4)

Note 3- Bank of England for "House Purchase Approvals" and "Total Mortgage Approvals" - December 2017 released January 2018

Note 4- LSL estimates and including Land Registry regional data (Oct 2017)

Note 5- December 2017 LSL Property Services/ACADATA HPI

Note 6- LSL sources/data analysis

Note 7- UK Finance "Gross mortgage lending estimate" - January 2018

Note 8- UK Finance, new mortgages sold by intermediaries - February 2018

Note 9- UK Finance "Possessions on mortgaged properties" - January 2018, released February 2018

Note 10- Which Network? January 2018

Business Review - Estate Agency Division

Financial	2017 £m	2016 £m	% change
Residential Sales exchange income	76.6	83.8	-9
Lettings income	73.9	71.4	+4
Financial Services income	74.4	64.1	+16
Asset Management income	6.3	6.6	-4
Other income¹	16.2	17.2	-6

Total income	247.4	243.1	+2
Operating expenditure	(220.5)	(218.6)	-1
Underlying Operating Profit²	26.9	24.5	+10

KPIs
Exchange units	25,176	27,193	-7
Underlying Operating Margin (%)	10.9	10.1
Fees per unit £	3,042	3,083	-1

Market data
House purchase approvals (000s)³	796	808	-1
Total mortgage approvals (000s)³	1,525	1,530	-
UK housing transactions (000s)⁴	1,220	1,235	-1
Repossessions⁵	7,400	7,700	-4

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

2 Refer to Note 4 for the calculation.

3 Bank of England, "Mortgage approvals for house purchases" and "Total mortgage approvals" - December 2017, released January 2018.

4 HMRC Stats, "Monthly property transactions completed in the UK with value of £40,000 or above" - December 2017, released January 2018.

5 UK Finance "Possessions on mortgaged properties" January 2018, released February 2018.

Estate Agency Division performance

Year-on-year income growth in the Estate Agency Division was 2%. Lettings income and Financial Services income showed positive growth with Residential Sales performance reflecting market conditions.

Residential Sales exchange income

Residential Sales exchange income decreased by 9% to £76.6m (2016: £83.8m) with average fees per unit decreased by 1%. Residential Sales exchange volumes fell by 7%.

Lettings income

Lettings income grew in each quarter of the year as LSL continued to focus on this recurring revenue stream. Total Lettings growth for the year of 4% comprised organic growth of 3% and a full year of lettings books acquired in 2016 as well as the positive impact of the opening of additional Marsh & Parsons branches in 2016 and 2017.

Financial Services income

Total Financial Services income is delivered through the Estate Agency Division's branches, Group First (acquired in 2016) and the intermediary networks of PRIMIS. Total Financial Services income grew strongly again with 16% year-on-year growth in 2017, with income growth across all Estate Agency brands, Group First and also in the intermediary network businesses.

Other income

Other income fell by 6% year-on-year in large part due to a fall in conveyancing income due to lower residential transaction volumes.

Asset Management

Asset Management maintained its position in a smaller repossessions market.

Estate Agency Division operating margin

The Estate Agency Division Underlying Operating Margin was 10.9% in 2017 (2016: 10.1%).

Regulation - Financial Services

PRIMIS is the trading name of both First Complete and Advance Mortgage Funding, and both companies are directly authorised by the FCA in relation to the sale of mortgage, pure protection and general insurance products.

Your Move, Reeds Rains, First2Protect, Mortgages First, Insurance First and Embrace Mortgage Services along with the LSLi subsidiaries are all appointed representatives of First Complete.

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.

In 2018, LSL acquired Personal Touch Financial Services which is also directly authorised by the FCA in relation to mortgage, pure protection, general insurance and investment products.

First Complete acts as principal for most of the estate agency businesses within LSL's Estate Agency Division, enabling their employed financial advisers to offer Financial Services to customers of the branch networks. Advance Mortgage Funding (previously trading as Pink Home Loans) and Personal Touch Financial Services both operate intermediary networks, providing products and services to financial services intermediaries.

LSL's Financial Services businesses are also members of the Association of Mortgage Intermediaries (AMI) which is an industry representative and trade body and the Financial Services businesses are subject to the Financial Ombudsman Service and contribute to the funding of the Financial Services Compensation Scheme through regulatory fees and charges.

The Financial Services businesses have dedicated compliance teams and the Financial Services activities are subject to the oversight of the Financial Services Risk Committee and Financial Services Management Committee.

Regulation - Residential Sales and Lettings

The Estate Agency Division's branches adhere to the Codes of Practice issued by industry professional and regulatory bodies, including The Property Ombudsman (TPO) and/or the Association of Residential Lettings Agents (ARLA)/National Association of Lettings Agents (NALS). Membership of these bodies is in addition to observing compliance with relevant legislation, such as Data Protection, the Consumer Protection Regulations and 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 has also on behalf of all its Estate Agency businesses entered into a primary authority agreement with York Trading Standards Office.

LSL from time to time also enters into direct dialogue with the regulators and consumer groups. During 2017 LSL has been monitoring and responding to the wide range of consultations published by the Government as part of its review of the housing market which commenced at the start of 2017 and will continue during 2018.

The Estate Agency Division has dedicated compliance teams and is subject to oversight by the Estate Agency Management Committee.

Branch numbers

Breakdown of LSL's Estate Agency branches as at 31^st December 2017 and 31^st December 2016:

	Owned	Franchised	Total 2017	Total 2016
Your Move	198	62	260	267
Reeds Rains	114	40	154	157
LSLi	62	2	64	65
Marsh & Parsons	27	0	27	25
Total	401	104	505	514

The total number of branches reduced by nine in 2017, following the closure of eight owned branches and three franchises and the opening of two new branches in Marsh & Parsons. Of the eight owned branches closed in the year, four were in Your Move, three in Reeds Rains, and one in LSLi. All closed branch operations and employees were transferred into existing local branches.

Business Review-Surveying Division

Financial	2017 £m	2016 £m	% change
Revenue	64.1	64.7	-1
Operating expenditure	(45.2)	(47.2)	+4
Underlying Operating Profit¹	18.9	17.5	+8

KPIs
Underlying Operating Margin (%)	29.4	27.1
Jobs performed (000s)	309	318	-3
Revenue from private surveys (£m)	2.4	2.3	+3
Income per job (£)	207	203	+2
Historic PI Costs provision (Balance Sheet) at 31^st December (£m)	15.9	20.7	+23
Number of qualified surveyors at 31^st December (FTE)²	321	323	-1

Total Mortgage Approvals ('000s)³	1,525	1,530	-

Notes:

1 Refer to Note 4 for the calculation.

2 Full Time Equivalent (FTE).

3 Bank of England, "Mortgage approvals for house purchases" and "Total mortgage approvals" 2017.

Surveying Division performance

Surveying revenue was £64.1m (2016: £64.7m), a decrease of 1% on the previous year with a total number of jobs performed during the year of 309,499 (2016: 318,077) reflecting the overall management of the mix of jobs.

Profit performance was enhanced by the on-going investment in the IT platform, as well as optimising efficiency and operational performance and cost control. Continued focus on optimising capacity drove an increase in income per job to £207, an improvement of 2% year-on-year. As a result, LSL delivered an increase in Underlying Operating Profit¹ to £18.9m (2016: £17.5m) with an enhancement of profit margin to 29.4% (2016: 27.1%).

In 2017 LSL successfully negotiated contract renewals with two of its largest lender customers.

The total number of qualified surveyors at 31^st December 2017 was 321², which was broadly in line with the 2016 position. The on-going graduate programme continues to be successful and assists in alleviating the impact of capacity constraints in the market. In 2018 LSL will continue to focus on its graduate training programme.

At 31^st December 2017 the total provision for PI Costs was £15.9m (2016: £20.7m). In 2017 LSL continued to make positive progress in addressing these historic claims. There was an exceptional gain of £3.7m during the year.

Financial Review

The key drivers of the financial performance of LSL in 2017 are summarised below:

Income statement

Revenue

Revenue increased by 1% to £311.5m in the year ended 31^st December 2017 (2016: £307.8m).

Operating expenses

Operating expenses increased by 0.5% to £276.8m (2016: £275.3m). Increases in the Estate Agency Division included additional headcount to support the growth of LSL's Financial Services businesses, Lettings and Land & New Homes and increased costs in Marsh & Parsons due to the two new branches opening in Brixton and Islington and the full year costs for the two Marsh & Parsons branches opened in 2016.

Group Underlying Operating Profit

Group Underlying Operating Profit¹ increased by 8.3% to £37.5m (2016: £34.6m) with an Underlying Operating Margin of 12.0% (2016: 11.3%). On a statutory basis, the Group Operating Profit decreased by 35.7% to £42.1m (2016: £65.4m). The 2016 financial results included an exceptional gain on the disposal of ZPG plc shares of £32.9m.

Group Adjusted EBITDA

Group Adjusted EBITDA² increased by 6.5% to £42.7m (2016: £40.1m) driven by an increased Group Underlying Operating Profit and a slightly reduced depreciation charge of £5.2m (2016: £5.5m).

Exceptional items

Total exceptional gains in 2017 were £9.3m (2016: £34.5m) comprising of £3.7m of exceptional gain relating to the PI Costs provision and an exceptional gain of £5.6m relating to the sale of the Group's share in GPEA in July 2017. The 2016 financials included an exceptional gain on the disposal of ZPG plc shares of £32.9m. Total exceptional costs in 2017 were £nil (2016: £2.3m).

PI Cost provision for PI claims and notifications

At 31^st December 2017, the total provision for PI Costs was £15.9m (2016: £20.7m). In 2017 the Group continued to make positive progress in addressing historic claims and there has been a net £3.7m exceptional gain.

Contingent consideration

In 2017 contingent consideration in the Income Statement amounted to a charge of £0.7m (2016: £3.8m credit). This included a charge relating to the Group First acquisition of £0.4m (acquired in 2016) and a charge of £0.3m in LSLi (2016: credit of £1.1m).

Amortisation

The amortisation charge was £4.1m (2016: £3.9m). This is slightly higher than 2016 as there was a full year charge for lettings book acquisitions made in the first half of 2016.

Net financial costs

Net financial costs amounted to £2.0m (2016: £1.9m) and are in line with the prior year. The finance costs related principally to interest and fees on the RCF. Additional costs relate to the unwinding of discounts on provisions and contingent consideration.

Taxation

The UK corporation tax rate reduced to 20% with effect from 1^st April 2015 and subsequently 19% with effect from 1^st April 2017. A future UK corporation tax of 17% has been enacted and is effective from 1^st April 2020 and this is the rate at which deferred tax has been provided (2016: 17%). Corporation tax is recognised at the headline UK corporation tax rate of 19.25% (2016: 20%).

The effective rate of tax for the year was 16.7% (2016: 20.5%). The most significant reason that LSL's effective tax rate for 2017 is lower than the headline UK tax rate is that the gain on the disposal of GPEA in the year is not taxable due to the application of the Substantial Shareholding Exemption. Adjusting for this item, the effective 2017 tax rate was 19.4%.

Deferred tax credited directly to other comprehensive income is £0.6m (2016: £3.8m). This is comprised of a credit of £0.9m and a charge of £0.3m and relates respectively to the disposal and revaluation of financial assets. Income tax credited directly to the share based payment reserve is £nil (2016: £0.1m).

In 2017 corporation tax payments of £11.1m (2016: £8.9m) were made which is greater than the current year corporation tax charge of £7.5m (2016: £12.7m). This is a result of the timing of the settlement of the corporation tax liability of the ZPG plc shareholding in the second half of 2016 - the corporation tax liability on these disposals was not settled until the quarterly instalment payments made in January and April 2017.

Basic Earnings Per Share

Basic Earnings Per Share was 32.6 pence (2016: 49.2 pence). Adjusted Basic Earnings Per Share³ is 28.3 pence (2016: 25.9 pence) an increase of 9.3% which is broadly in line with the increase in Group Underlying Operating Profit¹. The Group seeks to present a measure of underlying performance which is not impacted by the unevenness in profile of exceptional gains and exceptional costs, contingent consideration, amortisation and share-based payments. The Directors consider that the adjustments made to exclude the after tax effect of exceptional items, contingent acquisition consideration treated as remuneration, and amortisation provides a better and more consistent indicator of the Group's underlying performance.

Balance sheet

Joint ventures and other investments

The Group has two joint ventures; a 33.3% (2016: 33.3%) interest in TM Group, whose principal activity is to provide property searches, and a 50% (2016: 50%) interest in LMS whose principal activity is to provide conveyancing panel management services.

During 2017 LSL made three investments:

· In September 2017, LSL acquired a 17.3% shareholding in Yopa for a total consideration of £20m

· In October 2017 LSL acquired 19,675 ordinary shares in NBC Property Master for a total consideration of £65,000

· In November 2017, LSL invested £0.25m by way of a convertible loan note, in Global Property Ventures (trading as Zero Deposit) which distributes a tenancy deposit replacement product.

During the year, LSL disposed of its 18.1% investment (2016: 18.1%) in GPEA, which is a membership organisation with a national network of independently owned estate agents. The investment was disposed of for £5.7m (£3.0m cash and shares in eProp Services plc) in July 2017 and resulted in an exceptional gain of £5.6m.

Capital expenditure

Total capital expenditure in the year amounted to £5.0m (2016: £4.6m) and an additional £0.6m (2016: £1.4m) has been spent internally on developing new software which has been treated as an intangible asset.

Bank facilities

In January 2018, LSL extended its bank facility until May 2022. The facility includes a £100m RCF (2016: £100m). During the period under review, the Group complied with all of the financial covenants contained within the facility.

Net Bank Debt and cash-flows

As at 31^st December 2017 Net Bank Debt was £30.0m (2016: £20.3m) and Shareholders' funds amounted to £148.6m (2016: £128.8m) providing a balance sheet gearing of 20.2% (2016: 15.8%). The increase in Net Bank Debt was primarily the result of the investment in Yopa in September 2017 of £20.0m. The 2017 gearing level was 0.7 times³ adjusted EBITDA (2016: 0.51 times). The Group has a committed RCF until May 2022 and in 2017 the Group generated cash from operations of £41.5m (2016: £32.7m).

Net assets

The Group's net assets as at 31^st December 2017 were £148.6m (2016: £128.8m).

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. 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 2017.

Post balance sheet events

In January 2018, LSL acquired the entire issued share capital of Personal Touch Financial Services and its subsidiary company, PTAS. Personal Touch Financial Services is a financial services business specialising in the distribution of mortgage and other financial services products via its network of intermediaries.

In January 2018, LSL extended its bank facility until May 2022. The facility includes a £100m RCF (2016: £100m).

International Financial Reporting Standards (IFRS)

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

Note 1 - Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4 to the Financial Statements)

Note 2 - Group Adjusted EBITDA is Group Underlying Operating Profit as previously defined plus depreciation on property plant and equipment.

Note 3 - Refer to Note 9 for the calculation

Principal Risks and Uncertainties

LSL has an overall framework for the 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 and is supported by the Audit & Risk Committee) on a regular basis identifies, evaluates and manages the principal risks and uncertainties faced by LSL; as well as areas which could adversely affect its business, operating results and financial condition.

Development of risk appetite

During 2017, in line with the FRC's Guidance on 'Risk Management, Internal Control and Related Financial and Business Reporting', the Board continued to develop LSL's risk appetite framework to ensure continued compliance with the Code and FRC guidance. The Board has through this process expressed and reviewed the types and level of risk which it is willing to take or accept to achieve LSL's strategy and business plans and to support consistent, risk-informed decision making across the Group.

The development of the risk appetite began with the Directors approving a risk framework policy and defining individual risk appetite statements for LSL's principal risks and uncertainties 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. This includes monitoring risk measures and identification of actions needed to bring any specific outlying areas of risk within target levels. During 2017, a programme has been progressed to enhance the existing risk framework within each of the Group's subsidiary businesses, including the development of risk appetite measures by each subsidiary. This exercise has included each subsidiary business quantifying their highest ranked risk areas and introduced the use of graphical management information to facilitate the tracking of risk status versus tolerance by the subsidiary boards and divisional governance committees. The framework has also improved the visibility of action plans to address any core risk areas considered outside tolerance. These developments have in turn served to provide a more robust means for evaluating the capture and measurement of risk factors within the established risk appetite framework at Group level.

The framework covers 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 2018, LSL will continue to re-visit the status of this framework to ensure it remains in line with emerging best practice and continues to foster the maturity of risk appetite routines at both Group and subsidiary level.

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

On-going evolution of the risk management framework is carried out as part of an on-going cycle of continual improvement, and remains a key priority for the Audit & Risk Committee and the Board in 2018.

Developing the financial viability statement

Assessment of prospects

The Group's business model and strategy are central to an understanding of its prospects, and details are contained in the Annual Report and Accounts 2017.

Through organic growth, selective acquisitions and a delivery of high quality services to customers, the Group's key objective is to build market leading positions and ultimately deliver long term Shareholder value.

Prospects of the Group are assessed by the Board throughout the year at its meetings, including a particular focus during the strategic planning process. This process includes an annual review of the on-going plan, led by the Group Chief Executive Officer and Group Chief Financial Officer in addition to the relevant business functions involved.

The Directors participate fully in the annual planning process by means of a Board meeting and part of the Board's role is to consider whether the plan continues to take appropriate account of the changing external environment including macroeconomic, political, regulatory and technical changes.

This process allows the Board to produce strategic objectives and detailed financial forecasts over a three year period. The latest updates to the on-going plan were finalised in December 2017. This considered the Group's current position and its prospect of operating over the three year period ending 31^st December 2020, and reaffirmed the Group's stated strategy. Furthermore the Group's future prospects have been further strengthened with the extension of the RCF.

EU Referendum

The Board has been fully aware of the significance of the EU Referendum since the announcement of the referendum result in 2016. Following the referendum, 'Brexit' has been included as a sub-set entry within the Group's risk appetite framework. This process ensures EU Referendum developments are formally monitored, and the risk status is regularly reassessed with reactive action plans identified to respond to the effects of on-going uncertainties and the resolution of the UK/EU negotiations as they crystalise. These practices will continue throughout 2018, with linkage to viability assessment modeling and wider consideration of the likely impacts of other major economic and political events.

The Group's principal risks and uncertainties are set out on below. The Board reviewed LSL's principal risks and uncertainties when assessing the Group's prospects, and noted that none of these individual risks would, in isolation, compromise the Group's prospects.

Assessment of viability

Although the strategic plan reflects the Directors' best estimate of the prospects of the Group in accordance with provision C.2.2 of the Code, the Directors have assessed the viability of the Company over a longer period than the 12 months required by the 'going concern' provision.

For the purposes of assessing the viability of the Group, it was determined that a three year period ending on 31^st December 2020 should be used, as this corresponds with the Board's strategic planning cycle. This assessment has been made with reference to the Group's current position and prospects, the Board's risk appetite and the Group's principal risks and uncertainties.

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

The following scenarios were modelled:

· Severe downturn in the UK housing market caused by Brexit and/or political uncertainties.

· A data breach causing a regulatory fine and reputational damage, with the potential loss of customers.

· Changes to regulation and compliance and the subsequent impact on revenue.

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's recurring income and counter-cyclical businesses, notably Lettings and 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 wide geography which allows some protection from the impact of stress scenarios.

The results from the stress testing indicated that the Group would be able to withstand the financial impact of each scenario and therefore continue to operate and meet its liabilities, as they fall due, over the three year period ending 31^st December 2020.

Furthermore the Board also considered it appropriate to prepare the financial statements on the going concern basis, as explained in the Basis of Accounting paragraph in the Principal Accounting Policies section of the Annual Report & Accounts 2017.

The Audit & Risk Committee oversaw the process by which the Directors reviewed and discussed the assessment undertaken by the Management Team in proposing the viability statement.

The Directors' financial viability statement is contained in the Report of the Directors section of the Annual Report & Accounts 2017.

Risk management and internal controls framework

LSL's risk management and internal controls framework for 2017 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 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, including maintenance of detailed risk analysis;

c. the documentation and monitoring of risks are recorded and managed through risk appetite measures which undergo regular reviews and scrutiny by subsidiary boards, divisional governance committees and the Head of Risk and Internal Audit;

d. the Board regularly identifies, reviews and evaluates the principal risks and uncertainties 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, see the Audit & Risk Committee Report); and

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

The Group-wide risk appetite statement and risk framework policy will continue to be developed in 2018.

The risk framework includes the following:

a. a risk framework policy;

b. determination of risk appetite, with management and mitigation of risks in line with risk appetite tolerances;

c. assessment of prospects and viability;

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

e. going concern confirmation (for LSL's going concern disclosure see the Report of the Directors).

During 2017, the Directors carried out a robust assessment of the principal risks and uncertainties facing the Group, including those that threaten the Group's 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 judgment of the Board and has been supported by the Management Team.

The Directors also carried out a risk appetite assessment exercise which involved the evaluation of continually evolving aspects of risk management. During 2017, this included responses to the threat of external technology-based business models, articulation of risk appetite tolerances for key aspects of selective external contract renewals, identifying responses to a fast changing regulatory environment and consideration of major scenarios of further external political and economic change on the UK housing market.

The identified 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 uncertainties 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, this Report includes descriptions of principal risks and uncertainties 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 and uncertainties has also contributed to the Group's viability statement which is included within the Report of the Directors. The Directors have also considered the impact if risks coincide, namely a combination of non-principal risks and uncertainties could potentially represent a single compound principal risk or uncertainty.

The Group also faces other risks which, although important and subject to regular review, have been assessed as less significant and are not listed in this statement. 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 2017 is set out in the Audit & Risk Committee Report (Internal Controls) of the Annual Report and Accounts 2017.

Principal risks and uncertainties

Risk

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).

The housing market is also impacted by changes in national and global political and economic environments (e.g. Brexit vote in 2016).

The impact of this risk can be direct (such changes in Government policy or legislation arising from a change in Government) or indirect (such as changes in consumer behaviour/sentiment arising from changes in Government policy or legislation).

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

• Market share, product mix and segmentation initiatives.

• Development of counter-cyclical and recurring revenue income streams.

• Responsive investment and cost control measures during the housing market cycle.

• Investment in teams to deliver strategic projects.

• Balanced UK-wide geographical spread.

• Monitoring of wider macro-economic and political developments (including domestic and national developments).

New UK housing market entrants

Traditional business models and pricing structures for residential property services are exposed to new business models and technological advancements (e.g. online/hybrid estate agents, automated valuation models and automated financial services operating models).

• Competitor and industry benchmarking.

• Development of strategies in response to market disrupters, including exploring options to capitalise on digital opportunities.

• Development of Estate Agency business through new ways of working programme.

• Infrastructure investment, including investment in innovation, technology and upgrading and consolidating core operating systems to improve service delivery and customer experience.

• Service delivery enhancements, product/services differentiation and experimentation.

• Engagement of specialist external consultative support as necessary.

• Monitoring of investment, acquisition and joint venture opportunities.

• Marketing initiatives.

• Operation of staff incentive schemes to mitigate staff attrition.

Investment, acquisitions and growth initiatives

Realising appropriate targets for investment, acquisition and major project initiatives, including delivery of appraisals, due diligence and integration/implementation requirements, in line with LSL's strategy to complete selective acquisitions.

• Defined pre and post-acquisition reporting to the Board and Audit & Risk Committee.

• Establishment of structured authority levels.

• Responsive flexing of risk appetite during the housing market cycle.

• Flexible resource pool to support and deliver investments and acquisitions.

• Flexible resource pool to deliver integration/implementation activities following completion of acquisitions.

• Ability to selectively dispose of assets to protect gearing, as required.

• Engagement of specialist external consultative support as necessary.

• Established integration/implementation planning methodology.

• Post-acquisition and post-integration/implementation review programmes.

• Risk and Internal Audit engagements.

Sales/distribution:

Professional services

Exposure to major PI claims arising from any lapses in professional services, including surveying and valuation practices, financial services advice, and estate agency services.

Surveying Division

• Robust framework and monitoring routines to maintain valuation accuracy.

• Dedicated surveying risk team.

• Timely data capture of all claims and associated trends with regular scenario modelling undertaken.

• Utilisation of technology to monitor valuation trends, trigger alerts and 'real time' checks.

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

Estate Agency Division (including Financial Services)

· Defined responsibilities for claims management and operation of PI insurance together with management of underlying risk areas.

Group-wide

• 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 Estate Agency and Surveying businesses is dependent on entering into appropriate and relevant agreements and retaining contracts with key clients (e.g. lenders, portfolio landlords and house builders).

• Customer outcomes focused forums and initiatives.

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

• On-going investment in resources, innovation, technology and service standards to ensure LSL has the capacity to meet service level demands.

• Targeted marketing and training events for corporate clients.

• Monitoring of client dependency and compliance with contractual requirements.

• Robust control framework supporting the risk profiling of prospective clients, contract renewals (including contract terms) and the quality of professional services.

• In-house legal services team, with specialist external legal support engagement when necessary, together with dedicated claims management teams within business areas.

• Risk and 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.

LSL's strategy recognises the importance of investing in the Group's IT infrastructure to maintain both competitive advantages and deliver system security - all within the context of changing business models within the residential property services sector.

• Group-wide IT governance, policies and initiatives supported by a Group IT Director.

• Focus on investment and development of innovation within the Group's strategies.

• Dedicated in-house IT teams.

• Maintenance of infrastructure to maintain effective service delivery.

• On-going IT investment and development programme.

• Identifying and securing innovation and technology opportunities through the investment and acquisition strategy.

• Implementing business continuity and disaster recovery solutions.

• Monitoring of compliance with relevant contractual and regulatory requirements.

• Inter-Group IT governance forums.

• External consultative support as necessary.

• Risk and Internal Audit reviews.

• Oversight by the Information Security Governance Group.

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 and Governance Group and IT Teams with oversight responsibilities.

• Defined Group-wide base policy standards.

• Dedicated information security and data protection personnel.

Data security

• Group data protection policies and training in place.

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

• Implementation of regulatory changes - (e.g. General Data Protection Regulation via defined project teams).

Systems security

• Penetration testing programme.

• Benchmarking against and accreditation by best practice standards - e.g. ISO27001 accreditation for e.surv.

• Second and third-line risk-based reviews.

Regulatory and compliance

Compliance with legal and regulatory requirements, including relationship with regulators.

Regulations govern roles as an employer and as providers of services.

Any compliance breaches could result in sanctions and reputational damage (e.g. prosecutions or fines). This includes compliance with existing regulations and implementing new regulations (e.g. GDPR).

Regulatory and compliance risk extends to oversight of standards adopted by business partners (e.g. franchises, appointed representatives, joint ventures and minority investments).

The market and business operations are also impacted by regulatory reforms (e.g. Government reviews relating to the housing market, including the proposed tenant fee ban) which may have an effect on Group revenue and expenditures.

Regulatory costs, fees and charges continue to grow due to the rising funding requirements of the Financial Services Compensation Scheme (FSCS).

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

• Open dialogue with regulators and monitoring of emerging developments and regulatory reforms.

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

• Group policies including ethics (i.e. whistleblowing structures, anti-fraud and anti-bribery policies) and employee welfare.

• Subsidiary businesses have in place health and safety arrangements to ensure welfare of employees and visitors to Group premises.

• Group-wide forums with regulatory focus and oversight (e.g. Financial Services Management Committee, Financial Services Risk Committee and Information Security and Governance Group).

• Dedicated second line compliance teams in higher risk/regulated functions. Investment in recruitment of expertise within the compliance teams to ensure the Group is able to put in place procedures for regulatory compliance.

• Evolution and development of IT systems to strengthen oversight routines.

• Responsive complaints tracking of any emerging themes.

• In-house legal services team, with specialist external legal support engagement when necessary.

• Group Risk and Internal Audit reviews.

• Membership of industry trade bodies and participation in Government and Regulator consultations.

• Responsive business model changes to address impact of regulatory changes.

People:

Employees

Securing and retaining key strategic populations and controlling attrition in key business critical areas (e.g through e.surv's graduate training program), as well as ensuring the effective management of personnel standards and policies frameworks across varied Group businesses.

• Oversight by LSL Remuneration and Nominations Committees supported by the Group HR Director.

• Group remuneration policies and incentive schemes to retain key strategic populations.

• Regular benchmarking and appraisals of senior management.

• Succession planning reviews and targeted reviews in some areas.

• Dedicated in-house recruitment team within the Group HR team which is headed by a Group HR Director.

• Targeted retention and recruitment initiatives.

• Staff surveys and Group HR initiatives to focus on attrition, improve staff morale, relieve areas of pressure and improve operational efficiencies.

• Group-wide HR IT systems.

• Monitoring of statutory requirements and developments (including gender pay reporting).

• Employee policies and monitoring framework (e.g. health and safety).

• Development of a Group-wide culture, values and vision statement taking into account subsidiary company statements.

• Development of employee engagement initiatives as part of the Group's stakeholder engagement project.

• Clear Group policies and whistleblowing procedures to enable staff to confidentially raise concerns.

Group Income Statement

for the year ended 31^st December 2017

		2017	2016
	Note	£'000	£'000

Group Revenue	3	311,540	307,750


Employee and subcontractor costs		(186,307)	(182,687)
Establishment costs		(19,057)	(19,888)
Depreciation on property, plant and equipment		(5,216)	(5,475)
Other operating costs		(66,269)	(67,282)
Total operating expenses		(276,849)	(275,332)

Other operating income		555	1,165
Gain/(loss) on sale of property, plant and equipment		668	(9)

Income from joint ventures		1,583	1,049


Group Underlying Operating Profit	4	37,497	34,623

Share-based payments		(47)	(1,263)
Amortisation of intangible assets		(4,083)	(3,914)
Exceptional gains	5	9,337	34,531
Exceptional cost	5	-	(2,341)
Contingent consideration	5	(654)	3,785
Group operating profit	3	42,050	65,421

Finance costs		(1,952)	(1,896)
Net financial costs		(1,952)	(1,896)

Profit before tax		40,098	63,525

Taxation charge	8	(6,686)	(13,033)

Profit for the year		33,412	50,492
Attributable to
- Owners of the parent		33,414	50,493
- Non-controlling interest		(2)	(1)



Earnings per share expressed in pence per share:
Basic	6	32.6	49.2
Diluted	6	32.4	49.0

Group Statement of Comprehensive Income

for the year ended 31^st December 2017

	2017	2016
	£'000	£'000

Profit for the year	33,412	50,492

Items to be reclassified to profit and loss in subsequent periods:
Reclassification adjustments for disposal of financial assets	(5,593)	(33,022)
Income tax effect	951	5,914
Revaluation of financial assets	1,885	11,816
Income tax effect	(320)	(2,015)
Net other comprehensive (loss) to be reclassified to profit and loss in subsequent periods:
	(3,077)	(17,307)

Total other comprehensive (loss) for the year, net of tax	(3,077)	(17,307)

Total comprehensive income for the year, net of tax	30,335	33,185

Attributable to
- Owners of the parent	30,337	33,186
- Non-controlling interest	(2)	(1)

Group Balance Sheet Company No. 05114014

as at 31 December 2017

	2017	2016
	£'000	£'000

Non-current assets
Goodwill	151,901	151,901
Other intangible assets	29,729	33,249
Property, plant and equipment	17,763	18,842
Financial assets	25,282	4,603
Investments in joint ventures	9,556	8,762
Total non-current assets	234,231	217,357

Current assets
Trade and other receivables	31,357	32,263

Total current assets	31,357	32,263

Total assets	265,588	249,620

Current liabilities
Financial liabilities	(6,454)	(10,739)
Trade and other payables	(53,418)	(50,900)
Current tax liabilities	(3,662)	(7,581)
Provisions for liabilities	(2,850)	(5,742)
Total current liabilities	(66,384)	(74,962)

Non-current liabilities
Financial liabilities	(34,654)	(26,469)
Deferred tax liability	(2,698)	(3,801)
Provisions for liabilities	(13,276)	(15,622)
Total non-current liabilities	(50,628)	(45,892)

Total Liabilities	(117,012)	(120,854)

Net assets	148,576	128,766

Equity
Share capital	208	208
Share premium account	5,629	5,629
Share-based payment reserve	3,802	4,303
Treasury shares	(5,317)	(5,368)
Fair value reserve	494	3,571
Retained earnings	143,578	120,239
Equity attributable to owners of parent	148,394	128,582
Non-controlling interests	182	184

Total equity	148,576	128,766

The Financial Statements were approved by and signed on behalf of the Board by:

Ian Crabb Adam Castleton

Group Chief Executive Officer Group Chief Financial Officer

Group Statement of Cash-Flows

for the year ended 31^st December 2017

	2017	2016
	£'000	£'000
Profit before tax	40,098	63,525
Adjustments for:
Exceptional operating items and contingent consideration	(7,640)	(35,975)
Depreciation of tangible assets	5,216	5,475
Amortisation of intangible assets	4,083	3,914
Share-based payments	47	1,263
(Profit)/loss on disposal of fixed assets	(668)	9
Profit from joint ventures	(1,583)	(1,049)
Finance costs	1,952	1,896
Dividend income/rebates received via non-cash consideration	(1,503)	(492)
Operating cash flows before movements in working capital	40,002	38,566

Movements in working capital
Decrease in trade and other receivables	1,695	3,265
Increase / (decrease) in trade and other payables	5,261	(614)
Decrease in provisions	(5,440)	(8,561)
	1,516	(5,910)

Cash generated from operations	41,518	32,656
Interest paid	(1,268)	(1,948)
Income taxes paid	(11,113)	(8,861)
Net cash generated from operating activities	29,137	21,847

Cash flows used in investing activities
Cash acquired on purchase of subsidiary undertaking	-	1,593
Acquisitions of subsidiaries and other businesses	-	(8,451)
Payment of contingent consideration	(2,175)	(3,537)
Investment in financial assets	(20,315)	(2)
Cash received on sale of financial assets	3,024	35,991
Dividends received from financial assets	-	778
Purchase of property, plant and equipment and intangible assets	(5,489)	(6,064)
Proceeds from sale of property, plant and equipment	1,457	69
Net cash (expended)/generated on investing activities	(23,498)	20,377

Cash flows used in financing activities
Drawdown/(repayment) of loans	9,723	(25,243)
Repayment of loan notes	-	(7,294)
Payment of deferred consideration	(4,790)	(2,422)
Proceeds from exercise of share options	-	48
Dividends paid	(10,572)	(12,916)
Net cash expended in financing activities	(5,639)	(47,827)
Net increase/(decrease) in cash and cash equivalents	-	(5,603)
Cash and cash equivalents at the end of the year	-	-

Group Statement of Changes in Equity

for the year ended 31^st December 2017

		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 2017	208		5,629	4,303	(5,368)	3,571	120,239	128,582	184	128,766
Disposal of financial assets (net of tax)	-		-	-	-	(4,642)	-	(4,642)	-	(4,642)
Revaluation of financial assets (net of tax)	-		-	-	-	1,565	-	1,565	-	1,565
Other comprehensive income for the year	-		-	-	-	(3,077)	-	(3,077)	-	(3,077)
Profit for the year	-		-	-	-	-	33,414	33,414	(2)	33,412
Total comprehensive income for the year	-		-	-	-	(3,077)	33,414	30,337	(2)	30,335
Exercise of options	-		-	(46)	51	-	(5)	-	-	-
Share-based payments	-		-	(455)	-	-	502	47	-	47
Dividend payment	-		-	-	-	-	(10,572)	(10,572)	-	(10,572)
At 31^st December 2017	208		5,629	3,802	(5,317)	494	143,578	148,394	182	148,576

Group Statement of Changes in Equity

for the year Ended 31^st December 2016

	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 2016	208	5,629	3,564	(5,988)	20,878	82,880	107,171	185	107,356
Disposal of financial assets (net of tax)	-	-	-	-	(27,108)	-	(27,108)	-	(27,108)
Revaluation of financial assets (net of tax)	-	-	-	-	9,801	-	9,801	-	9,801
Other comprehensive income for the year	-	-	-	-	(17,307)	-	(17,307)	-	(17,307)
Profit for the year	-	-	-	-	-	50,493	50,493	(1)	50,492
Total comprehensive income for the year	-	-	-	-	(17,307)	50,493	33,186	(1)	33,185
Exercise of options	-	-	(524)	620	-	(218)	(122)	-	(122)
Share-based payments	-	-	1,263	-	-	-	1,263	-	1,263
Dividend payment	-	-	-	-	-	(12,916)	(12,916)	-	(12,916)
At 31^st December 2016	208	5,629	4,303	(5,368)	3,571	120,239	128,582	184	128,766

Notes to the Preliminary Results Announcement

The financial information in this preliminary results announcement does not constitute LSL's statutory financial statements for the year ended 31^st December 2017 but has been extracted from the Financial Statements included in LSL's Annual Report and Accounts 2017 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 2018 AGM. The auditors have reported on these financial statements. Their report was unqualified and did not contain a statement under section 498 (2), (3) or (4) of the Companies Act 2006.

1. Directors responsibility statement

Each of the current 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 of financial information

The Group Financial Statements have been prepared on a going concern basis and on a historical cost basis, except for available-for-sale financial assets that have been measured at fair value.

The accounting policies which follow set out those significant policies which apply in preparing the Financial Statements for the year ended 31^stDecember 2017. The Group's Financial Statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.

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 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, Advance Mortgage Funding, First Complete, Embrace Mortgage Services, Mortgages First, Insurance First, First2Protect and Linear Financial Services. The financial services revenue included within the Estate Agency Division includes two mortgage and insurance distribution networks providing products and services for sale via financial intermediaries. A significant proportion of the results of the Financial Services are inextricably linked to the Estate Agency business; they have therefore been aggregated with those of the Estate Agency and related service segment.

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

Each reportable 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 2017.

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.

Reportable segments

The following table presents revenue and profit information regarding the Group's reportable segments for the financial year ended 31^st December 2017 and financial year ended 31^st December 2016 respectively.

Year ended 31^st December 2017

	Estate Agency and Related Services	Surveying and Valuation Services	Unallocated	Total
Income Statement information	£'000	£'000	£'000	£'000

Segmental revenue	247,410	64,130		311,540
Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments	26,942	18,877	(8,322)	37,497
- after exceptional costs, contingent
consideration, amortisation and share-based payments	22,124	22,466	(2,540)	42,050

Finance costs				(1,952)
Profit before tax				40,098

Taxation				(6,686)
Profit for the year				33,412

	Estate Agency and Related Services	Surveying and Valuation Services	Unallocated	Total
Balance sheet information	£'000	£'000	£'000	£'000

Segment assets - intangible	169,113	12,517	-	181,630
Segment assets - other	75,453	7,305	1,200	83,958
Total Segment assets	244,566	19,822	1,200	265,588
Total Segment liabilities	(49,851)	(25,794)	(41,367)	(117,012)

Net assets/(liabilities)	194,715	(5,972)	(40,167)	148,576

Other segment items
Capital expenditure including intangible assets	5,177	312	-	5,489
Depreciation	(5,036)	(180)	-	(5,216)
Amortisation of intangible assets	(4,013)	(70)	-	(4,083)
Share of results of joint venture	1,583	-	-	1,583
Professional indemnity claim provision	-	(15,916)	-	(15,916)
Onerous leases provision	(210)	-	-	(210)
Share based payment	(152)	(85)	190	(47)

Unallocated net liabilities comprise plant and equipment (£9,000), other assets (£1,190,000), accruals (£3,028,000), financial liabilities (£4,979,000), deferred and current tax liabilities (£6,326,000), RCF (£27,000,000).

Year ended 31^st December 2016

	Estate Agency and Related Services	Surveying and Valuation Services	Unallocated	Total
Income Statement information	£'000	£'000	£'000	£'000

Segmental revenue	243,036	64,714	-	307,750
Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments	24,500	17,508	(7,385)	34,623
- after exceptional costs, contingent
consideration, amortisation and share-based payments	22,344	18,030	25,047	65,421

Finance costs				(1,896)
Profit before tax				63,525

Taxation				(13,033)
Profit for the year				50,492

	Estate Agency and Related Services	Surveying and Valuation Services	Unallocated	Total
Balance sheet information	£'000	£'000	£'000	£'000

Segment assets - intangible	172,736	12,414	-	185,150
Segment assets - other	56,574	6,873	1,023	64,470
Total Segment assets	229,310	19,287	1,023	249,620
Total Segment liabilities	(53,997)	(32,780)	(34,077)	(120,854)

Net assets/(liabilities)	175,313	(13,493)	(33,054)	128,766

Other segment items
Capital expenditure including intangible assets	(4,927)	(1,325)	-	(6,252)
Depreciation	(5,077)	(398)	-	(5,475)
Amortisation of intangible assets	(3,914)	-	-	(3,914)
Share of results of joint venture	1,049	-	-	1,049
Professional indemnity claim provision	-	(20,686)	-	(20,686)
Onerous leases provision	(678)	-	-	(678)
Share based payment	(200)	(562)	(501)	(1,263)

Unallocated net liabilities comprise plant and equipment (£8,000), other assets (£1,015,000), accruals (£436,000), financial liabilities (£5,759,000), deferred and current tax liabilities (£11,382,000), RCF (£16,500,000).

4. Adjusted performance measures

In addition to the various performance measures defined under IFRS, the Group reports a number of alternative performance measures that are designed to assist with the understanding of the underlying performance of the Group. The Group seeks to present a measure of underlying performance which is not impacted by the inconsistency in profile of exceptional gains and exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments. Share based payments are excluded from the underlying performance due to the fluctuations that can impact the charge, such as lapses and the level of annual grants. The four adjusted measures reported by the Group are:

· Group Underlying Operating Profit

· Adjusted Basic EPS

· Adjusted diluted EPS

· Group Adjusted EBITDA

Amortisation of intangibles assets not acquired in a business combination is not representative of the underlying costs of the business, and therefore is excluded from adjusted earnings.

Group Adjusted EBITDA has been introduced as a new alternative performance measurement in 2017 after careful consideration by the Board. The measure has been introduced to assist shareholders and investors when reading the Financial Statements given this is an established measure used across the sector in which LSL operates.

The Directors consider that these adjusted measures shown above give a better and more consistent indication of the Group's underlying performance. These measures form part of management's internal financial review and are contained within the monthly management information reports reviewed by the Board.

The calculations of adjusted basic and adjusted diluted EPS are given in Note 6 and a reconciliation of Group Underlying Operating Profit is shown below:

		2017	2016
	Note	£'000	£'000
Group operating profit	3	42,050	65,421
Share-based payments		47	1,263
Amortisation of intangible assets		4,083	3,914
Exceptional gains	5	(9,337)	(34,531)
Exceptional costs	5	-	2,341
Contingent consideration charge / (credit)	5	654	(3,785)
Group Underlying Operating Profit		37,497	34,623
Depreciation		5,216	5,475
Group Adjusted EBITDA		42,713	40,098

5. Exceptional items

	2017	2016
	£'000	£'000
Exceptional costs:
Branch/centre closure and restructuring costs including redundancy costs	-	2,341


Exceptional gains:
Gain on disposal of financial assets	(5,593)	(32,931)
Exceptional gain in relation to historic Professional Indemnity costs	(3,744)	(1,600)
	(9,337)	(34,531)

6. Earnings per share (EPS)

Basic EPS amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Parent Company 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 Company 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	2017 Per share amount Pence	Profit after tax £'000	Weighted average number of shares	2016 Per share amount Pence
Basic EPS	33,414	102,640,363	32.6	50,943	102,575,484	49.2
Effect of dilutive share options		635,058			519,565
Diluted EPS	33,414	103,275,421	32.4	50,943	103,095,049	49.0

There have been no other transactions involving Ordinary Shares or potential Ordinary Shares between the reporting date and the date of completion of the Financial Statements.

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

	2017 £'000	2016 £'000

Group operating profit before contingent consideration, exceptional items, share-based payments and amortisation (excluding non-controlling interest):	37,497	34,625

Net finance costs (excluding exceptional and contingent consideration items)	(1,468)	(1,410)
Normalised taxation	(6,936)	(6,643)
Adjusted profit after tax¹ before exceptional items, share-based payments and amortisation	29,093	26,572

Adjusted basic and diluted EPS

	Adjusted profit after tax¹ £'000	Weighted average number of shares	2017 Per share amount Pence	Adjusted profit after tax¹ £'000	Weighted average number of shares	2016 Per share amount Pence

Adjusted Basic EPS	29,093	102,640,363	28.3	26,572	102,575,484	25.9
Effect of dilutive share options		635,058			519,565
Adjusted Diluted EPS	29,093	103,275,421	28.2	26,572	103,095,049	25.8

Note

¹This represents adjusted profit after tax attributable to equity holders of the Parent Company. The normalised tax rate in 2017 is 19.25% (2016: 20%).

7. Dividends paid and proposed

	2017	2016
	£'000	£'000
Declared and paid during the year:
Equity dividends on ordinary shares:
2015 Final: 8.6 pence per share 2016 Interim: 4.0 pence per share		8,812 4,104
2016 Final: 6.3 pence per share	6,466
2017 Interim: 4.0 pence per share	4,106
	10,572	12,916
Dividends on Ordinary Shares proposed (not recognised as a liability as at 31^st December):
Equity dividends on Ordinary Shares:
Dividend: 7.3 pence per share (2016: 6.3 pence per share)	7,493	6,466

8. Taxation

(a) Tax on profit on ordinary activities

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

	2017	2016
	£'000	£'000

UK corporation tax - current year	7,537	12,703
- adjustment in respect of prior years	(345)	1,009
	7,192	13,712
Deferred tax:
Origination and reversal of temporary differences	(442)	(500)
Adjustment in respect of prior year	(64)	(179)
Total deferred tax (credit)	(506)	(679)
Total tax charge in the Income Statement	6,686	13,033

The UK corporation tax rate reduced to 20% with effect from 1^st April 2015 and 19% with effect from 1^st April 2017. A future UK corporation tax of 17% has been enacted and is effective from 1 April 2020, and this is the rate at which deferred tax has been provided (2016: 17%). Corporation tax is recognised at the headline UK corporation tax rate of 19.25% (2016: 20%).

The effective rate of tax for the year was 16.7% (2016: 20.5%). The effective tax rate for 2017 is lower than the headline UK tax rate for a number of reasons, but the most significant is that the gain on the disposal of GPEA Limited in the year is not taxable due to the application of Substantial Shareholding Exemption.

(b) Factors affecting tax charge for the year

The tax assessed in the profit and loss account is lower (2016: higher) than the standard UK corporation tax rate, because of the following factors:

	2017	2016
	£'000	£'000

Profit on ordinary activities before tax	40,098	63,525

Tax calculated at UK standard rate of corporation tax rate of 19.25% (2016 - 20.00%)	7,719	12,705
Non-taxable income from joint ventures and dividends	(153)	(95)
Other income not taxable	(369)	(510)
Other disallowable expenses	627	577
Impact of movement in contingent consideration charged/( credited) to the Income Statement	251	(757)
Capital gains (lower than)/in excess of accounting profit	(1,053)	183
Share-based payment relief	15	251
Impact of rate change on deferred tax	58	(151)
Prior period adjustments - current tax	(345)	1,009
Prior period adjustment - deferred tax	(64)	(179)
Total taxation charge	6,686	13,033

The major component of the disallowable expenditure is a permanent disallowance of depreciation on assets which do not qualify for capital allowances. This is a recurring adjustment with the tax impact of approximately £370,000 being broadly consistent with the prior year. Also included in this figure is an adjustment relating to non-recurring items of a disallowable nature, such as client entertaining and legal and professional fees incurred in relation to capital transactions.

9. Analysis of Net Bank Debt (excluding loan notes)

	2017	2016
	£'000	£'000

Interest bearing loans and borrowings
- Current	6,454	10,739
- Non-current	34,654	26,469
	41,108	37,208
Less: Unsecured loan notes	(2,000)	(2,000)
Less: deferred and contingent consideration	(9,129)	(14,952)
Net Bank Debt at the end of the year	29,979	20,256

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

10. Acquisitions during the year

Year ended 31^st December 2017

The Group made no acquisitions during the year.

The purchase price allocations for the acquisitions made in 2016 have now been finalised, with no changes made to the provisional purchase price allocations disclosed below.

11. Post Balance Sheet Events

Acquisition of Personal Touch Financial Services

In January 2018, LSL acquired the entire issued share capital of Personal Touch Financial Services Limited (PTFS) and its subsidiary company, Personal Touch Administration Services Limited (PTAS). PTFS is a financial services business specialising in the provision of mortgage and other financial services products via its network of intermediaries. The consideration for the acquisition is £4.8m plus an acquired intercompany debt of £0.6m and is made up of a payment of £2.8m which was paid on completion and a further payment of £2.0m which is deferred for 12 months.

The Group are currently in the process of allocating the purchase price in accordance with IFRS 3, Business Combinations, and as a result the initial accounting for this acquisition is incomplete.

Extension of the RCF

On 30^th January 2018 announced that it extended the maturity date of its existing £100 million banking facility until May 2022; this replaces the existing maturity date of May 2020.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR LLFLAVAIEIIT

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