TIDMLSL
RNS Number : 8138R
LSL Property Services
05 March 2019
5(th) March 2019
LSL Property Services plc ("LSL" or "The Group")
PRELIMINARY ANNOUNCEMENT
LSL Property Services plc, a leading provider of residential
property services incorporating estate agency, financial services
and surveying and valuation businesses, announces preliminary
results for the year ended 31(st) December 2018.
2018 2017 % change
Group Revenue - GBPm 324.6 311.5 +4
Group Underlying Operating Profit(1) - GBPm 35.9 37.5 -4
Group Underlying Operating Margin - % 11.1 12.0
---------------------------------------------- ------ ------ ---------
Group Adjusted EBITDA(2) 41.6 42.7 -3
Group Operating Profit - GBPm 25.4 42.1 -40
Profit before tax - GBPm 23.1 40.1 -42
Net Exceptional (costs) / gain - GBPm (3.0) 9.3
Basic Earnings Per Share - pence 17.4 32.6 -47
Adjusted Basic Earnings Per Share - pence(3) 27.2 28.3 -4
Net Bank Debt(4) at 31(st) December - GBPm 32.1 30.0 +7
Final proposed dividend per Share - pence 6.9 7.3 -5
Full year dividend per Share - pence 10.9 11.3 -4
---------------------------------------------- ------ ------ ---------
-- Highly resilient Revenue and Underlying Operating Profit
performance in the context of challenging residential market
conditions. Group Revenue up 4%, Group Underlying Operating
Profit(1) down 4% to GBP35.9m (2017: GBP37.5m) and Group Adjusted
EBITDA down 3% to GBP41.6m (2017: GBP42.7m).
-- Proposed final dividend of 6.9p bringing full year dividend
to 10.9p per share at the upper end of the range of our stated
policy.
-- Leading market positions: market leader in Surveying, second
largest combined networks in Financial Services, and market leading
positions in Estate Agency.
-- Overall Estate Agency Division income up 3% year-on-year and
operating profit down 24% reflecting the effect of operational
gearing on lower Residential Sales exchange volumes which more than
offset the benefits from Financial Services income and Lettings
income growth.
-- Overall Surveying Division revenue up 9% year-on-year
benefitting from the new Lloyds Bank plc contract with operating
profit up 8%.
-- Write-down of LSL investment in Yopa by GBP12.2m
-- Net Bank Debt of GBP32.1m (2017: GBP30.0m) and low level of
gearing(5) at 0.8x EBITDA (2017: 0.7x).
Commenting on today's announcement, Simon Embley, Chairman,
said:
"The Group delivered a highly resilient revenue and Underlying
Operating Profit performance in 2018 despite challenging
residential property market conditions. We continue to deliver a
range of proactive self-help initiatives demonstrating the breadth
of opportunity across the Group.
Market conditions in 2019 have been notably softer than the
equivalent period in 2018, whilst LSL's financial performance so
far in 2019 has been marginally behind the Board's expectations.
Nevertheless, at this early stage in the year, the Board's current
expectation is that the Group will deliver a full year Underlying
Operating Profit in line with its prior expectations, as the
business is expected to continue to benefit from the range of LSL's
ongoing self-help measures.
We continue to remain cautious on the residential property
market outlook for 2019 given the current uncertainty over the UK
and global political and economic environment and the potential
impact on UK consumer confidence.
The Group has a robust balance sheet with relatively low levels
of gearing and is highly cash generative at an operational level.
The Board remain confident of the opportunities for further
positive progress for the Group."
Estate Agency Financials
P&L (GBPm) 2018 2017 Change
Financial Services income 87.4 74.4 17%
Lettings income 76.6 73.9 4%
Residential Sales exchange
income 69.9 76.6 -9%
Other Income 20.9 22.5 -7%
Total Revenue 254.8 247.4 3%
Operating Profit 20.6 26.9 -24%
Operating Margin 8.1% 10.9%
-- Strong growth in Financial Services income of 17% year on
year (organic growth 1%) reflecting the acquisition of two mortgage
brokers: PTFS and RSC
-- Steady growth of recurring income with Lettings income
increasing 4% year-on-year (organic growth: 3%)
-- Six lettings book acquisitions were made during 2018, in line
with LSL's stated strategy, for a total consideration of
GBP1.9m
-- Residential Sales exchange revenue down by 9% reflecting
challenging residential property market conditions
-- Marsh & Parsons delivered a good revenue performance
despite a challenging London market. Total revenue was down 2%
year-on-year as Lettings income continued to perform positively
with growth of 4% largely offsetting the 13% fall in Residential
Sales exchange revenue. Full year operating profit fell to GBP2.3m
(2017: GBP3.9m). Adjusted EBITDA was GBP3.4m (2017: GBP4.9m)
-- Reshaping of the Your Move and Reeds Rains branch networks commenced in February 2019.
-- LSL retains a strong position in its traditional Estate
Agency business. We continue to believe that traditional estate
agents will represent the substantial majority of the Residential
Sales and Lettings markets for the foreseeable future and that
Estate Agency branches will continue to remain core to providing
the service our customers expect
-- LSL has a 14.7% minority shareholding in Yopa. LSL's previous
carrying value of GBP20.0m for Yopa has been written down through
reserves by GBP12.2m to GBP7.8m as at 31(st) December 2018 to
reflect the Board's assessment of fair value
Surveying Financials
P&L (GBPm) 2018 2017 Change
Total Revenue 69.8 64.1 9%
Operating Profit 20.4 18.9 8%
Operating Margin 29.3% 29.4%
-- The Surveying Division delivered strong revenue and operating
profit performance with revenue growth of 9%, operating profit
growth of 8% and strong operating margins of 29.3% (2017: 29.4%).
Revenues included a material contribution in the second half from
the successful commencement of the Lloyds Bank plc surveying and
valuation services relationship.
-- Continued positive progress in settling historic Professional
Indemnity (PI) claims with an exceptional provision release of
GBP2.2m in 2018 as claims were settled below previous
expectations
Change to segment reporting
-- To reflect the growth and increased importance of LSL's
Financial Services businesses, effective from 1(st) January 2019,
LSL will report three segments: Estate Agency, Financial Services
and Surveying
This announcement has been determined to contain inside
information.
For further information, please contact:
Ian Crabb, Group Chief Executive
Officer
Adam Castleton, Group Chief Financial
Officer
LSL Property Services plc 0207 382 0360
Helen Tarbet, Sophie Wills
Buchanan 0207 466 5000
Notes:
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)
2. Group Adjusted EBITDA is Group Underlying Operating Profit
plus depreciation on property, plant and equipment (as defined in
Note 4 to the Financial Statements)
3. Refer to Note 6 to the Financial Statements for the calculation
4. Refer to Note 10 to the Financial Statements for the calculation
5. Operational gearing is defined as Net bank Debt divided by Group Adjusted EBITDA(2)
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 support, and mortgage,
pure protection and general insurance brokerage services. Services
to mortgage lenders include: valuations and panel management
services, and asset management and property management services.
For further information, please visit LSL's website:
lslps.co.uk
Chairman's Statement
Introduction
The Group delivered a highly resilient revenue and operating
profit performance in 2018 despite challenging residential property
market conditions. Group Underlying Operating Profit(1) of GBP35.9m
in 2018 was 4% below the prior year (2017: GBP37.5m) with Group
Adjusted EBITDA(2) down 3%. Group Revenue in 2018 grew by 4% to
GBP324.6m (2017: GBP311.5m) reflecting overall growth in both
Divisions.
We continue to deliver a range of proactive self-help
initiatives demonstrating the breadth of opportunity across the
Group. These initiatives included the material contract win for the
supply of surveying and valuation services to Lloyds Bank plc, the
acquisitions in our Financial Services business of PTFS and RSC,
the acquisition of a c.35% holding in Mortgage Gym, a digital
mortgage marketplace business, and the recommencement of our
lettings book acquisition programme with six lettings books
acquired during the period.
The changes to the structure of the Your Move and Reeds Rains
estate agency branch networks and operations announced on 5(th)
February 2019 demonstrate our commitment to evolve our business
model to adapt to changes in the landscape and customer demands in
order to drive value for our Shareholders.
The Your Move and Reed Rains future focus on 144 keystone
branches is to create a platform that will benefit from their
larger scale, enabling us to invest in people and technology with
the aim of providing enhanced levels of service to our customers
whilst ensuring operational performance is optimised by competing
more effectively in local markets. Delivering the ways of working
programme into Your Move and Reeds Rains is expected to deliver
material improvement in Your Move and Reeds Rains operating profit,
assuming no material change in market conditions.
LSL retains a strong position in its traditional Estate Agency
business. We continue to believe that traditional estate agents
will represent the substantial majority of the Residential Sales
and Lettings markets for the foreseeable future and that Estate
Agency branches will continue to remain core to providing the
service our customers expect.
LSL has a 14.7% minority shareholding in Yopa. LSL's previous
carrying value of GBP20.0m for Yopa has been written down through
reserves by GBP12.2m to GBP7.8m as at 31(st) December 2018 to
reflect the Board's assessment of fair value.
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(1) 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 2018 was 27.2 pence, a
decrease of 4% on the prior year (2017: 28.3 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 6.9 pence per share (2017: 7.3 pence
per share) will be proposed to Shareholders at the forthcoming AGM,
giving a total dividend for 2018 of 10.9 pence per share (2017:
11.3 pence per share). The ex-dividend date for the final dividend
is 21(st) March 2019 with a record date of 22(nd) March 2019 and a
payment date of 7(th) May 2019. The last date for election is 5(th)
April 2019.
Corporate Governance and Board
The Board remains committed to high levels of corporate
governance and during 2018, LSL has complied in all respects with
the UK Corporate Governance Code (April 2016 edition). We note the
publication of the revised UK Corporate Governance Code and
Guidance on Board Effectiveness which was published in July 2018
and will apply to LSL from 1(st) January 2019. We have begun the
implementation of actions to reflect the 2018 Code in our corporate
governance arrangements, including the implementation of measures
to support greater stakeholder engagement (including workforce
engagement) and the development of LSL's culture, purpose and
values. Further details on the steps we are taking are contained in
our Corporate Governance Report.
In relation to 2018, as Chairman, I am responsible for
leadership of the Board, and I have together with my fellow
directors reviewed the effectiveness of the Board and its
Committees. The 2018 annual evaluation exercise had regard to the
requirements of both the 2016 and 2018 editions of the Code and its
associated guidance. In particular, we reviewed the composition of
the Board and its Committees and our succession arrangements.
Following this review we concluded that we have the appropriate
balance of skills, independence and knowledge of the Group together
to enable the Board to discharge its duties and responsibilities
effectively. The evaluation also considered other matters such as
leadership, division of responsibilities, meeting arrangements, and
included a review of the annual evaluation process itself.
Details of our corporate governance arrangements and the
recommendations arising from the 2018 evaluation exercise are
contained within the Corporate Governance Report of the Annual
Report and Accounts 2018 together with details of how we have
implemented recommendations which arose from the 2017 evaluation
exercise.
I would like to take this opportunity to thank Kumsal Bayazit
Besson who has been a Non Executive Director since September 2015
and who intends to resign from the Board and its Committees with
effect from the 2019 AGM. Kumsal has made a significant
contribution during her tenure as a Director and she is leaving LSL
to focus on her new role as CEO of Elsevier.
I would also like to welcome Darrell Evans, who joined the Board
and its Committees as a Non Executive Director on 28(th) February
2019. Darrell joins LSL with significant experience in Financial
Services and he is currently the Chief Commercial Officer at the
Co-Operative Bank plc.
The Nominations Committee will, on behalf of the Board, review
the Board's composition during 2019. Details relating to all our
Directors are included in The Board section of the Annual Report
and Accounts 2018 and our website.
Outlook
Market conditions in 2019 have been notably softer than the
equivalent period in 2018, whilst LSL's financial performance so
far in 2019 has been marginally behind the Board's expectations.
Nevertheless, at this early stage in the year, the Board's current
expectation is that the Group will deliver a full year Underlying
Operating Profit in line with its prior expectations, as the
business is expected to continue to benefit from the range of LSL's
ongoing self-help measures.
We continue to remain cautious on the residential property
market outlook for 2019 given the current uncertainty over the UK
and global political and economic environment and the potential
impact on UK consumer confidence.
The Board currently expects to see a material reduction in the
volume of house purchase transactions compared to the prior year.
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.
The final arrangements for the planned exit from the European
Union are uncertain. In the eventuality that the outcome leads to a
changed impact on consumer confidence and our business, we will
update our Shareholders.
Although Brexit and the current political environment continues
to create uncertainty, the Group has a robust balance sheet with
relatively low levels of gearing and is very cash generative at an
operational level.
LSL continues to execute on its stated strategy and we are
confident that LSL, with its market leading brands, broad portfolio
of residential property services and the benefits from the
proactive self-help measures, remains well positioned to perform
well given a range of potential market conditions, in order to
maximise Shareholder value. The Board remain confident of the
opportunities for further positive progress for the Group.
Simon Embley
Chairman
5(th) March 2019
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 plus depreciation on property plant and equipment (as
defined in Note 4 to the Financial Statements).
Group Chief Executive's Review
2018 Overview
In the context of challenging market conditions, the Group
delivered a highly resilient performance in 2018, underpinned by a
continuing range of self-help measures delivered across the
Group.
Group revenues for the year ended 31(st) December 2018 increased
by 4% to GBP324.6m (2017: GBP311.5m) reflecting overall growth in
both Divisions, with Estate Agency revenue up 3% and Surveying
revenue up 9%. Group Underlying Operating Profit(1) was down 4% to
GBP35.9m (2017: GBP37.5m), and Group Adjusted EBITDA(2) was down 3%
to GBP41.6m (2017: GBP42.7m). Profit before tax of GBP23.1m was
down 42% compared to the prior year (2017: GBP40.1m).
The Group has a strong balance sheet with closing Net Bank Debt
at 31(st) December 2018 of GBP32.1m (2017: GBP30.0m) and low level
of gearing(3) at 0.8 times Group Adjusted EBITDA (2017: 0.7 times).
The modest increase in Net Debt in 2018 is after incurring total
cash consideration of GBP11.8m for the funding of two Financial
Services acquisitions (PTFS and RSC), one Financial Services
investment (Mortgage Gym) and six lettings books acquisitions
during the year. LSL also maintained the payment of dividends to
Shareholders during the year.
The Group generated strong cash from operations of GBP36.9m
(2017: GBP41.5m) converting 103% of Group Underlying Operating
Profit to cash-flow from operations (pre PI and exceptionals)
(2017: 117%).
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 (+17%). In
the Surveying Division, we delivered strong operating profit growth
(+9%) and strong margins (29.3%).
During 2018, we continued to execute on our stated strategy and
made positive progress across the Group as follows:
-- In May 2018, we were pleased to announce the material
contract win for the supply of surveying and valuation services to
Lloyds Bank plc. The initial performance of this contract is in
line with expectations
-- During 2018, LSL continued its strategy to evaluate selective
acquisitions and completed two Financial Services related
acquisitions, PTFS and RSC which are both performing in line with
expectations. These acquisitions support LSL's stated strategy of
enhancing its position as a leading mortgage distributor and are an
excellent fit with our existing Financial Services businesses. LSL
also acquired a c.35% holding in Mortgage Gym, a digital mortgage
marketplace business in July 2018
-- During 2018, LSL restarted its lettings book acquisition
programme with six lettings books acquired during the period
Reshaping Your Move and Reeds Rains branch networks
The changes to the structure of the Your Move and Reeds Rains
estate agency branch networks and operations announced on 5(th)
February 2019 are proceeding in line with expectations. The Your
Move and Reeds Rains branch networks have been reduced from 308 to
144 keystone branches following the closure and merging of 81
neighbouring branches into the keystone branch network, the
franchising of 39 branches and the closure of 44 branches.
Delivering the ways of working programme into Your Move and
Reeds Rains is expected to deliver material improvement in Your
Move and Reeds Rains operating profit, assuming no material change
in residential property market conditions.
The Market in 2018
The UK residential property market was subdued in 2018.
Approvals for house purchases(4) in 2018 were down by 1.9% with the
decline in market transactions continuing to be more substantial in
London and the South East(5) . Total mortgage approvals(4)
increased by 0.6% in 2018, with the increase in remortgage
approvals of 3.9% offsetting the fall in house purchase approvals.
The increase in remortgage approvals included strong growth in the
first half of 2018 (+7.9%) compared to the same period in 2017
reflecting an increase in remortgage activity due to the widely
anticipated interest rate increase announced by the Bank of England
in May 2018. Second half mortgage activity in 2018 was broadly flat
against the same period in 2017.
Average house prices(6) in England and Wales grew by 0.1% (2017:
3.9%) to GBP305,284 with a decline in Greater London (-1.1%).
Excluding Greater London and the South East, the average increase
was 1.0%.
The proportion of residential housing stock available for sale
with online and hybrid estate agents sector continued to grow
modestly on a year-on-year basis, increasing from 7% in 2017 to 8%
in 2018(7) .
Total gross mortgage lending in 2018 was GBP269bn(8) (2017:
GBP261bn). The proportion of mortgage lending in the market placed
through intermediaries increased to 71% in 2018 (2017: 68%)(9)
.
Following market declines in the repossession market in the past
few years, market repossessions volumes declined in 2018, reducing
by 9.2% to 6,750(10) total repossessions as interest rates remained
historically low and this was the lowest number since 1981.
Our market position
LSL continues to hold market leading positions in its core
Estate Agency business comprising 12 Estate Agency subsidiaries:
Your Move, Reeds Rains, LSLi group (9 companies) and Marsh &
Parsons. We continue to believe that traditional estate agents will
represent the substantial majority of the Residential Sales and
Lettings markets for the foreseeable future and that our Estate
Agency branches will continue to remain core to providing the
service our customers expect.
In Your Move and Reeds Rains, the newly established keystone
network of 144 branches are situated in core locations across the
UK and generally have larger teams of dedicated experts in
Residential Sales, Lettings and Financial Services roles than the
average Your Move and Reeds Rains branches previously had in
place.
The ambition for these keystone branches is to create a platform
that will benefit from their larger scale, enabling us to invest in
people and technology with the aim of providing enhanced levels of
service to our customers whilst ensuring operational performance is
optimised by competing more effectively in local markets. Our
commitment to the new IT platform and investment in enhanced
technology is intended to give these Your Move and Reeds Rains
branches the opportunity to cover a wider geography and benefit
from further scale.
Marsh & Parsons continues to implement its well established
strategy of expanding its branch network with a focus on locations
outside prime Central London. During 2018 we opened one new Marsh
& Parsons branch in Chiswick, in outer prime Central London,
which is performing in line with expectations.
The LSLi group of companies today operate 57 owned branches and
they will continue with their existing strategy to develop the nine
well established local companies in their existing markets in the
South East of England. In addition, in 2019 the LSLi group of
companies will continue to actively evaluate opportunities for
lettings book acquisitions.
LSL has continued to monitor the progress of the Government's
review of tenant fees which sets out to ban letting fees paid by
tenants in the private rented sector and capping tenancy deposits
in England and Wales. The Government has confirmed that the
legislation will come into effect on 1(st) June 2019. In response
to the change in legislation, LSL has made the necessary
preparations to ensure these changes will be fully implemented
across all of LSL's Estate Agency brands. We have also put in place
a range of commercial measures in lettings across our Estate Agency
brands to optimise future organic revenue growth.
In Financial Services, during 2018 the Group arranged total
mortgage lending of GBP29.0bn (2017: GBP21.0bn). Measured by the
number of appointed representatives, as at 31(st) December 2018,
LSL's overall combined broker networks are the second largest in
the UK(11) . Financial Services income represented 27% of total
Group Revenue in 2018 (2017: 24%) demonstrating LSL's growing
position as a leading financial services distributor.
Our Surveying Division became the clear market leader in 2018,
maintaining strong relationships with many of the UK's largest
lenders. During 2018 LSL was awarded a material contract to supply
surveying and valuation services to Lloyds Bank plc. The five year
contract included the transfer to e.surv of the existing Lloyds
Bank plc surveyors and back-office employees. LSL's Surveying
Division is the UK's largest provider of residential valuation
services nationwide and is the largest employer of surveyors in the
UK(5) with 503 qualified operational surveyors as at 31(st)
December 2018.
Yopa
LSL retains a strong position in its traditional Estate Agency
business. We continue to believe that traditional estate agents
will represent the substantial majority of the Residential Sales
and Lettings markets for the foreseeable future and that Estate
Agency branches will continue to remain core to providing the
service our customers expect.
LSL has a 14.7% minority shareholding in Yopa. LSL's previous
carrying value of GBP20.0m for Yopa has been written down through
reserves by GBP12.2m to GBP7.8m as at 31(st) December 2018 to
reflect the Board's assessment of fair value.
Change to Segment reporting
LSL's Financial Services revenue has grown materially in recent
years, through both organic growth and selective acquisitions.
LSL's Financial Services Revenue CAGR over the 5-year period, 2014
to 2018, has been 19%, representing approximately 27% of total
Group revenue in 2018, compared to 14% in 2013.
The Board has carried out a review of the structure of the
financial information it requires in order to assess the
performance of the Group, allocate resources and assist in investor
understanding of the underlying performance trends and drivers of
value.
To reflect the growth and increased importance of LSL's
Financial Services businesses, the Board has decided to update the
Group segmental reporting effective from 1(st) January 2019.
The Group currently reports two segments: Estate Agency and
Related Services and Surveying and Valuation. Services. From 1(st)
January 2019 LSL will report three segments: Estate Agency;
Financial Services; and Surveying and Valuation Services. The
Financial Services segment will incorporate all LSL's Financial
Services businesses. The Estate Agency segment will primarily
incorporate the results from the Estate Agency networks (Your Move,
Reeds Rains, LSLi and Marsh & Parsons) and Asset Management.
The Surveying and Valuation Services segment is unchanged.
The 2018 and 2017 financial results contained within this
Preliminary announcement are on the previous segment reporting
basis.
Strategy
LSL remains committed to delivering on our stated strategy which
now includes the separate Financial Services segment:
Estate Agency
-- Ambition to achieve GBP80k-GBP100k profit per branch(12) in
the medium term based on the expectation of a normalised level of
market transactions
-- 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
-- Evaluate selective acquisitions of Residential Sales businesses and Lettings books
Financial Services
-- Enhance LSL's position as a leading distributor of mortgage
and non-investment insurance products
-- Consistent delivery of appropriate outcomes for consumers
with a focus on "best practice" standards of regulatory
compliance
-- Enhancement of technology solutions to improve the customer
experience and operational efficiency
-- Evaluate further selective Financial Services acquisitions
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
LSL performance in 2018
Estate Agency Division
Total Estate Agency income of GBP254.8m (2017: GBP247.4m)
increased by 3%. This increase resulted from the consistent
execution of our strategies with strong growth in both Lettings
income (+4%) and in Financial Services Income (total growth +17%,
organic growth +1%). Operating profit being down 24% reflects the
effect of operational gearing on lower residential exchange volumes
which more than offset the benefits from Financial Services income
and Lettings income growth
Residential Sales exchange income
Residential Sales exchange income decreased by 9% to GBP69.9m
(2017: GBP76.6m) due primarily to the final quarter of 2017
residential property market conditions impacting opening 2018
pipelines and subdued activity during 2018. Residential Sales
exchange income was also impacted by selective branch closures in
the final quarter of 2017 (2% of wholly owned branch network).
LSL has remained extremely disciplined in its Residential Sales
exchange fee strategy throughout 2018. Average LSL Estate Agency
Residential Sales exchange fee (GBP) per unit increased by 1% to
GBP3,071 (2017: GBP3,042).
Lettings income
In 2018 we delivered growth in Lettings income of 4% (organic
growth: 3%). Lettings income represented 30% of total Estate Agency
Division income in 2018 (2017: 30%).
In line with our stated strategy, we restarted our lettings book
acquisition programme during 2018 and acquired six lettings books
in 2018 for a total consideration of GBP1.9m. The lettings books
are performing in line with expectations and have been successfully
integrated into the Estate Agency network.
Financial Services
Total Financial Services income grew strongly again with 17%
year-on-year growth in 2018. Adjusting for the acquisitions of
Personal Touch Financial Services and RSC New Homes in the first
quarter of 2018, we delivered organic growth of 1% which was
slightly higher than the market as measured by Total Mortgage
Approvals. Financial Services income increased as a proportion of
the Estate Agency businesses and represented 34% of total Estate
Agency Division income in 2018 (2017: 30%) reflecting our
continuing strategy to enhance LSL's position as a leading
distributor of mortgage and non-investment insurance products.
In 2018, LSL further strengthened its position as a leading
distributor of mortgage and non-investment insurance products and
LSL delivered strong overall growth in the value of mortgage
completions which were up 38% to GBP29.0bn in 2018 (2017:
GBP21.0bn). LSL's market share is estimated to be 8% of the total
market value of mortgage completions(13) .
Marsh & Parsons
LSL estimates that Residential Sales volumes in the prime
Central London market reduced by 15% to 20% in 2018 with Greater
London house prices falling by 1.1%. Given the overall challenging
prime Central London market, Marsh & Parsons delivered a
resilient top line performance with revenue down by 2% in 2018 to
GBP33.5m (2017: GBP34.3m).
Marsh & Parsons Residential Sales income fell by 13% in 2018
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 4%. Lettings revenue now
represents 63% of Marsh & Parson's total revenue (2017:
59%).
Expenditure at Marsh & Parsons was broadly flat year-on-year
reflecting the increased staff costs of the Chiswick office opened
in April 2018 and the full year impact of the two office openings
in 2017, being largely offset by lower costs in a number of
expenditure categories. Full year operating profit fell to GBP2.3m
(2017: GBP3.9m). Adjusted EBITDA was GBP3.4m (2017: GBP4.9m).
Profit in 2017 included a gain on sale of property of GBP0.7m
(2018: GBPnil).
We continued with our branch expansion strategy in 2018, opening
one new branch during the year in the outer prime Central London
location of Chiswick. We are pleased with the performance of this
new branch. This takes our total number of Marsh & Parsons
branches to 28 as at 31(st) December 2018.
Our ambition remains to expand the number of Marsh & Parsons
branches to a total of 36 in the medium term, particularly outside
prime Central London. Outer prime Central London has not been as
negatively impacted by subdued market conditions as prime Central
London and Marsh & Parsons is looking to expand its branch
footprint in outer prime Central London locations.
Estate Agency profit per branch (Your Move, Reeds Rains and
LSLi)
Operating profit per owned branch in 2018 was GBP18,300 (2017:
GBP32,000) due to the impact of the challenging residential sales
market conditions on Residential Sales exchange income partly
offset by growth in Financial Services income and Lettings
income.
Surveying Division
The Surveying Division delivered strong revenue performance
increasing by 9% to GBP69.8m (2017: GBP64.1m), which included a
material contribution in the second half from the successful
commencement of the Lloyds Bank plc surveying and valuation
services relationship, up 25% year on year. The first half was down
6% year on year, impacted by market conditions and lender mix.
The Surveying Division delivered strong growth in operating
profit of 8% to GBP20.4m (2017: GBP18.9m) and continued to deliver
strong operating margins of 29.3% in 2018 (2017: 29.4%).
Total number of jobs performed during the year was 366k (2017:
309k) with income per job of GBP191 (2017: GBP207). The total
number of qualified operational surveyors at 31(st) December 2018
was 503, an increase of 182 over 2017 due primarily to the transfer
to e.surv of the existing Lloyds Bank plc surveyors as part of the
contract awarded to e.surv during May 2018, to supply surveying and
valuation services to Lloyds Bank plc. The initial performance of
the contract for the supply of surveying and valuation services to
Lloyds Bank plc is in line with expectations.
Our on-going graduate programme continues to be successful and
assists in alleviating the impact of capacity constraints in the
market.
In 2018 the Group continued to make positive progress in
addressing historic claims and there has been a net GBP2.2m
exceptional gain and reduced PI Costs payments of GBP1.7m during
2018 compared to the previous year (2017: GBP3.3m).
Our customers
Our continued focus on providing the best service to our
customers has been recognised in 2018 with numerous industry awards
including:
-- Marsh & Parsons: UK Property Awards 2018: Best Estate
Agency Marketing, London - Gold Award, Best Real Estate Agency
London - Gold Award, Best Lettings Agency, London - Gold Award.
International Property Awards 2018: Best Estate Agency Marketing,
UK - Gold Award, Best Estate Agency, UK - Gold Award, Best
International Real Estate Agency, UK - Gold Award. London Magazine
Club Awards 2018: Advertising Campaign of the Year - Silver Award.
Creative Pool Awards 2018: Bronze for Photography.
-- Davis Tate: Best Estate Agent Guide 2018: (*) Abingdon,
Burghfield, Shinfield and Wantage - Rated Highly (Sales) and Rated
Excellent (Lettings), Henley and Pangbourne - Rated Highly (Sales)
and Rated Exceptional (Lettings), Didcot and Reading - Rated Highly
(Lettings), Goring - Rated Excellent (Lettings), Wallingford -
Rated Excellent (Sales) and Rated Excellent (Lettings, Woodley -
Rated Exceptional (Sales) Sonning Common and Twyford - Rated
Exceptional (Sales) and Rated Exceptional (Lettings).
-- Frost's: The Negotiator Awards: Lettings Agency of the Year
(2-5 branches) - Gold Award. The ESTAS - Estate Agency of the Year
Awards: Letting Agent (rated by tenants), Hertfordshire and
Middlesex - Silver Award, Letting Agent (rated by landlords),
Hertfordshire and Middlesex - Silver Award.
-- Thomas Morris: Guild of Property Professionals 2018: Lettings
(East Anglia) - Gold Award, Sales (East Anglia) - Gold Award. Fine
& Country Awards 2018: Best Property Presentation and Best
Overall Operator. The ESTAS - Estate Agency of the Year Awards:
Best Local Agency in Central England, Letting Agent (rated by
tenants), East of England - Silver Award. The 2018 all Agents
Awards: Best Estate Agent in East of England - Gold Award.
Relocation Agent Network: Best Agent in East Anglia and Essex,
Customer Relocation Award - Winner. The Negotiator Awards 2018:
Lettings Agency of the Year (6-9 branches) - Gold Award, Estate
Agency of the Year (6-9 branches) - Gold Award, Community Champion
of the Year - Silver Award, East of England Agency of the Year -
Silver Award. Agents Giving Awards 2018: Best Team/Company
Fundraiser. Best Estate Agent Guide 2018(*) : East of England
(Lettings) - Gold Award, East of England (Sales) - Gold Award,
Outstanding Contribution To Estate Agency - Simon Bradbury.
-- e.surv Chartered Surveyors: Money Age Awards 2018: Mortgage
Surveyor of the Year. Mortgage Introducer Awards 2018: Best
Survey/Valuation Business
-- LSL Financial Services: Precise Mortgage Awards: Best
Distribution Group 2018. Lifetime Achievement Award - David
Copland.
(*) As judged and announced in 2018
Post balance sheet events
On 5(th) February 2019 LSL announced an Estate Agency Strategy:
ways of working programme update and work has now commenced on the
reshaping of the Your Move and Reeds Rains branch networks. As
disclosed on 5(th) February 2019, LSL expects to incur an
exceptional P&L charge of approximately GBP14m in 2019 and
GBP1m in 2020, with cash costs amounting to approximately GBP12m
over the three years from 2019 to 2021 including approximately
GBP9m cash costs in 2019.
The changes to the structure of the Your Move and Reeds Rains
estate agency branch networks announced on 5(th) February 2019 has
reduced the total number of Your Move and Reeds Rains branches from
404 to 279 of which 144 are owned keystone branches and 135 are
franchised.
Our people
The continued 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 in
our Estate Agency, Financial Services and Surveying businesses. I
would like to take this opportunity to thank all my colleagues
across our businesses for their professionalism and dedication
during 2018. I look forward to working with my colleagues to
deliver a successful year in 2019.
Outlook
Market conditions in 2019 have been notably softer than the
equivalent period in 2018, whilst LSL's financial performance so
far in 2019 has been marginally behind the Board's expectations.
Nevertheless, at this early stage in the year, the Board's current
expectation is that the Group will deliver a full year Underlying
Operating Profit in line with its prior expectations, as the
business is expected to continue to benefit from the range of LSL's
ongoing self-help measures.
We continue to remain cautious on the residential property
market outlook for 2019 given the current uncertainty over the UK
and global political and economic environment and the potential
impact on UK consumer confidence.
The Board currently expects to see a material reduction in the
volume of house purchase transactions compared to the prior year.
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.
The final arrangements for the planned exit from the European
Union are uncertain. In the eventuality that the outcome leads to a
changed impact on consumer confidence and our business, we will
update our Shareholders.
Although Brexit and the current political environment continues
to create uncertainty, the Group has a robust balance sheet with
relatively low levels of gearing and is very cash generative at an
operational level.
LSL continues to execute on its stated strategy and we are
confident that LSL, with its market leading brands, broad portfolio
of residential property services and the benefits from the
proactive self-help measures, remains well positioned to perform
well given a range of potential market conditions, in order to
maximise Shareholder value. The Board remain confident of the
opportunities for further positive progress for the Group.
Ian Crabb
Group Chief Executive Officer
5(th) March 2019
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 plus depreciation on property, plant and equipment (as
defined in Note 4 to the Financial Statements)
Note 3 - Operational gearing is defined as Net Bank Debt divided
by Group Adjusted EBITDA (Group Adjusted EBITDA is Group Underlying
Operating Profit (Note 4 to the Financial Statements) plus
depreciation on property plant and equipment).
Note 4 - Bank of England for "House Purchase Approvals" and
"Total Mortgage Approvals" - January 2019.
Note 5 - LSL estimates and including Land Registry regional data
- February 2019.
Note 6 - LSL Property Services/ACADATA HPI - February 2019.
Note 7 - LSL sources/data analysis.
Note 8 - UK Finance 'New mortgages by purpose of loan' -
February 2019 (excluding product transfers).
Note 9 - UK Finance 'New mortgages sold by intermediaries' -
February 2019.
Note 10 - UK Finance 'Possessions on mortgaged properties' -
February 2019.
Note 11 - Which-Network - network performance figures - January
2019.
Note 12 - The profit per branch methodology has been
consistently applied since the profit per branch ambition of
GBP80k-GBP100k was first announced by LSL in March 2014. Profit per
branch is calculated for Your Move, Reeds Rains and the LSLi owned
branches and excludes Marsh & Parsons.
Note 13- LSL's market share is calculated using gross mortgage
completions excluding product transfers
Business Review - Estate Agency Division
2018 2017 %
Financial GBPm GBPm change
------------------------------------- ------- ------- -------
Residential Sales exchange income 69.9 76.6 -9
Lettings income 76.6 73.9 +4
Financial Services income 87.4 74.4 +17
Asset Management income 5.5 6.3 -13
Other income(1) 15.4 16.2 -5
Total income 254.8 247.4 +3
Operating expenditure (234.2) (220.5) -6
Underlying Operating Profit(2) 20.6 26.9 -24
-------------------------------------- ------- ------- -------
%
KPIs 2018 2017 change
------------------------------------- ------- ------- -------
Exchange units 22,747 25,176 -10
Underlying Operating Margin (%) 8.1 10.9
Fees per unit GBP 3,071 3,042 +1
-------------------------------------- ------- ------- -------
Market data
------------------------------------- ------- ------- -------
House purchase approvals (000s)(3) 781 797 -2
Total mortgage approvals (000s)(3) 1,535 1,526 +1
UK housing transactions (000s)(4) 1,195 1,220 -2
Repossessions(5) 6,750 7,430 -9
Notes:
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 to the Financial Statements for the calculation.
3 Bank of England for "House Purchase Approvals" and "Total Mortgage Approvals" - January 2019.
4 HMRC Stats "Monthly property transactions completed in the UK
with value of GBP40,000 or above" - January 2019.
5 UK Finance 'Possessions on mortgaged properties' - February 2019.
Estate Agency Division performance
Year-on-year income growth in the Estate Agency Division was 3%.
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 GBP69.9m
(2017: GBP76.6m), average fees per unit increased by 1% to GBP3,071
(2017: GBP3,042). Residential Sales exchange volumes fell by
10%.
Lettings income
As in 2017, Lettings income grew in each quarter of the year as
LSL continued to focus on this recurring revenue stream. Lettings
growth for the year was 4% (organic: 3%).
Financial Services income
Total Financial Services income is delivered through the Estate
Agency Division's branches, Group First, RSC (acquired in March
2018), Personal Touch Financial Services (acquired in January 2018)
and the intermediary networks trading as PRIMIS and grew strongly
again with 17% year-on-year growth in 2018 (organic: 1%).
Other income
Other income fell by 5% year-on-year in large part due to a fall
in conveyancing income due to lower Residential Sales transaction
volumes.
Asset Management
Asset Management maintained its market position in a smaller
repossessions market.
Estate Agency Division operating margin
The Estate Agency Division Underlying Operating Margin was 8.1%
in 2018 (2017: 10.9%).
Branch numbers
Breakdown of LSL's Estate Agency branches as at 31(st) December
2018 and 31(st) December 2017:
Total Total
Owned Franchise 2018 2017
---------------- ----- ----------- ----- -----
Your Move 194 58 252 260
Reeds Rains 114 38 152 154
Sub total 308 96 404 414
LSLi 57 2 59 64
Marsh & Parsons 28 - 28 27
Total 393 98 491 505
The total number of Estate Agency branches reduced by fourteen
in 2018, following the closure of six owned branches and six
franchise branches and the opening of one new branch in Marsh &
Parsons and the merging of three into existing local branches.
The changes to the structure of the Your Move and Reeds Rains
estate agency branch networks announced on 5(th) February 2019 has
at the 5(th) March 2019 reduced the total number of Your Move and
Reeds Rains branches from 404 to 279 of which 144 are owned
keystone branches and 135 are franchised.
Your Move and Reeds Rains branch summary:
Branch numbers Branch
(31(st) Dec numbers
18) (5th Mar
19)
----------------- --------------- ----------
Total owned
branches 308 144
Total Franchise
branches 96 135
Total branches
(combined) 404 279
Business Review -Surveying Division
2018 2017 %
Financial GBPm GBPm change
-------------------------------------------- ------ ------ -------
Revenue 69.8 64.1 +9
Operating expenditure (49.4) (45.2) -9
Underlying Operating Profit(1) 20.4 18.9 +8
-------------------------------------------- ------ ------ -------
%
KPIs 2018 2017 change
-------------------------------------------- ------ ------ -------
Underlying Operating Margin (%) 29.3 29.4
Jobs performed (000s) 366 309 +18
Revenue from private surveys (GBPm) 2.1 2.4 -13
Income per job (GBP) 191 207 -8
Historic PI Costs provision (balance
sheet) at 31(st) December (GBPm) 12.4 15.9 -22
Number of qualified operational surveyors
at 31(st) December (FTE)(2) 503 321 +57
Total mortgage approvals ('000s)(3) 1,535 1,526 +1
-------------------------------------------- ------ ------ -------
Notes:
1 Refer to Note 4 to the Financial Statements for the calculation.
2 Full Time Equivalent (FTE).
3 Bank of England for "House Purchase Approvals" and "Total
Mortgage Approvals" - January 2019.
Surveying Division performance
Surveying Division revenue increased by 9% to GBP69.8m (2017:
GBP64.1m), with total number of jobs performed during the year of
365,504 (2017: 309,499).
First half revenue was down by -6% year on year, impacted by
market conditions and lender mix. In May 2018 the Surveying
Division announced the successful negotiation of a material
contract to supply surveying and valuation services to Lloyds Bank
plc, with e.surv becoming the lead supplier for the Lloyds Bank plc
group of companies with instructions commencing from September
2018. This led to an improved second half performance with revenue
up 25% year-on-year.
The decrease in income per job to GBP191 (2017: GBP207), a
reduction of 8% year-on-year, was offset by strong cost control
leading to improved profit performance. As a result, the Surveying
Division delivered an increase in Underlying Operating Profit(1) to
GBP20.4m (2017: GBP18.9m), maintaining profit margin at 29.3%
(2017: 29.4%).
The total number of qualified operational surveyors at 31(st)
December 2018 was 503(2) , an increase of 182 against the 2017
position due to the transfer of Lloyds Bank plc surveyors into
e.surv.
In 2019 the Surveying Division will continue to focus on its
successful graduate training programme, which assists in
alleviating the impact of capacity constraints in the market.
At 31(st) December 2018 the total provision for PI Costs was
GBP12.4m (2017: GBP15.9m). In 2018 Surveying Division continued to
make positive progress in addressing these historic claims. There
was an exceptional gain of GBP2.2m during the year.
Financial Review
Income Statement
Group Revenue
Revenue increased by 4.2% to GBP324.6m in the year ended 31(st)
December 2018 (2017: GBP311.5m).
Other operating income
Other income of GBP557k (2017: GBP555k) for the year ended
31(st) December 2018 was in line with previous year and comprised
of rental income.
Gain on sale of property, plant and equipment
There was a small gain of GBP34k (2017: GBP668k) in the year
ended 31(st) December 2018 resulting from the disposal of a
commercial property.
Income from joint ventures and associates
Income from joint ventures and associates was GBP259k (2017:
GBP1,583k) as challenging residential property market conditions
impacted the financial performance of the joint ventures and LSL
recognised its share of the early-stage costs of the newly acquired
interest in Mortgage Gym.
Total operating expenses
Total operating expenses increased by 4.6% to GBP289.6m (2017:
GBP276.8m). Increases in the Estate Agency Division were primarily
a result of the acquisition of PTFS and RSC in the first quarter of
2018. Surveying operating expenses were ahead of prior year in the
second half of 2018 due primarily to the transfer to e.surv of the
existing Lloyds Bank plc surveyors and back-office employees as
part of the contract awarded to e.surv during May 2018, to supply
surveying and valuation services to the Lloyds Bank plc group.
Group Underlying Operating Profit
Group Underlying Operating Profit(1) decreased by 4.3% to
GBP35.9m (2017: GBP37.5m) with an Underlying Operating Margin of
11.1% (2017: 12.0%).
On a statutory basis, the Group operating profit decreased to
GBP25.4m (2017: GBP42.1m) largely reflecting the impact of
exceptional items. In 2018 there were net exceptional cost of
GBP3.0m compared to the 2017 financial results which included an
exceptional gain on the disposal of LSL's share in GPEA (GBP5.6m)
and a net exceptional gain on historic PI claims (GBP3.7m).
Group Adjusted EBITDA
Group Adjusted EBITDA(2) decreased by 2.7% to GBP41.6m (2016:
GBP42.7m) with the decreased Group Underlying Operating Profit
being slightly offset by an increased depreciation charge of
GBP5.7m (2017: GBP5.2m).
Share-based payments
The share based payment charge of GBP349k (2017: GBP47k) in 2018
consists of a charge in the period of GBP1.3m offset by the lapse
of the 2016 LTIP scheme as well as adjustments for leavers in the
period.
Amortisation of intangible assets
The amortisation charge for 2018 was GBP5.3m (2017: GBP4.1m).
The increase in 2018 is mainly a result of the amortisation of
in-house software in both PTFS and e.surv.
Exceptional items
Total 2018 net exceptional cost of GBP3.0m including a GBP2.2m
PI Costs exceptional provision release (H1: GBP1.2m, H2 GBP1.0m) as
claims were settled below previous expectations and GBP5.2m of
exceptional costs, the majority of which were in relation to
initial one-off transition and integration costs for the contract
to supply surveying and valuation services to Lloyds Bank plc
(GBP3.2m) and also restructuring costs in the Estate Agency
Division including planned restructuring costs incurred following
the acquisition of PTFS (GBP2.0m).
The exceptional gain in 2017 consisted of a GBP5.6m gain on the
sale of the Group's share in GPEA and a GBP3.7m gain relating to
the historic PI Costs provision.
Net financial costs
Net financial costs amounted to GBP2.3m (2017: GBP2.0m). 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 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 (2017: 17%).
Corporation tax is recognised at the headline UK corporation tax
rate of 19% (2017: 19.25%).
The effective rate of tax for the year was 22.5% (2017: 16.7%).
The effective tax rate for 2018 is higher than the headline UK tax
rate for a number of reasons, including non-deductible costs in
relation to contingent consideration and the depreciation of assets
which do not qualify for capital allowances.
Deferred tax credited directly to other comprehensive income is
GBP0.0m (2017: GBP0.6m). Income tax credited directly to the share
based payment reserve is GBP0.0m (2017: GBP0.0m).
In 2018 corporation tax payments of GBP6.9m (2017: GBP11.1m)
were made which is greater than the current year corporation tax
charge of GBP5.9m (2017: GBP7.5m). This is a result of two
quarterly payments being made in the year in respect of the year
ended 31(st) December 2017 liability - which is higher than the
corporation tax charge for the year ended 31(st) December 2018.
Basic Earnings Per Share
The Basic Earnings Per Share was 17.4 pence (2017: 32.6 pence).
The Adjusted Basic Earnings Per Share(3) is 27.2 pence (2017: 28.3
pence), a decrease of 3.9% which is in line with the decrease in
Group Underlying Operating Profit(1) .
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 and amortisation
provides a better and more consistent indicator of the Group's
underlying performance.
Balance sheet
Goodwill
In 2018 goodwill has increased by GBP7.8m to GBP159.7m (2017:
GBP151.9m). The increase is due to the acquisitions of PTFS
(GBP0.3m), RSC (GBP7.1m) and the lettings book acquisitions
(GBP0.4m).
Other intangible assets and Property, plant and equipment
Total capital expenditure in the year amounted to GBP6.0m (2017:
GBP5.6m) which includes expenditure of GBP1.1m (2017: GBP0.6m) for
new software which has been treated as an intangible asset.
Financial Assets
LSL holds financial assets of GBP11.6m (2017: GBP25.3m); the
decrease in the year is a result of the revaluation of LSL's
shareholding in Yopa and the exercise and subsequent sale of the
ZPG warrants in October 2018.
LSL has a 14.7% minority shareholding in Yopa. LSL's previous
carrying value of GBP20m for Yopa has been written down by GBP12.2m
to GBP7.8m as at 31(st) December 2018 to reflect the Board's
accounting assessment of fair value. LSL has elected to recognise
any changes to fair value through the Statement of Other
Comprehensive Income (i.e. reserves) and not through the P&L
account in accordance with IFRS 9.
Joint ventures, investments and associates
The Group has two joint ventures and one associate: a 33.3%
(2017: 33.3%) interest in TM Group, whose principal activity is to
provide property searches, a 50% (2017: 50%) interest in LMS whose
principal activity is to provide conveyancing panel management
services. LMS and TM Group are held in the balance sheet at GBP8.2m
and GBP1.5m respectively (2017: GBP8.3m and GBP1.2m)
During the second half of 2018, LSL acquired a 34.69% interest
in Mortgage Gym, a digital mortgage marketplace, for cash
consideration of GBP4.1m. Mortgage Gym is held in the balance sheet
at a value of GBP3.6m as at 31(st) December 2018 (2017: nil)
reflecting the original investment of GBP4.1m and the post-tax loss
of GBP0.5m in the period.
Financial Liabilities
Net Bank Debt
As at 31(st) December 2018 Net Bank Debt was GBP32.1m (2017:
GBP30.0m) and Shareholders' funds amounted to GBP142.6m (2017:
GBP148.6m) with a balance sheet gearing of 22.5% (2017: 20.2%). The
increase in Net Bank Debt(4) incorporated acquisitions made in the
year (PTFS, RSC and six Lettings Books) which totalled GBP7.7m
along with the investment in Mortgage Gym of GBP4.1m. The 2018
gearing level was 0.8 times(5) Group Adjusted EBITDA (2017: 0.70
times).
Bank facilities
In January 2018, LSL extended its bank facility until May 2022.
The facility includes a GBP100m RCF (2017: GBP100m). During the
period under review, the Group complied with all of the financial
covenants contained within the facility.
Deferred and contingent consideration
Within financial liabilities LSL has GBP2.1m of deferred
consideration (2017: GBP0.1m) and GBP15.0m (2017: GBP9.1m) of
contingent consideration. The deferred consideration relates
primarily to the acquisition of PTFS and this has been settled
since the balance sheet date. The contingent consideration relates
primarily to Group First (GBP9.5m) and RSC (GBP4.8m).
Provisions for liabilities:
Professional indemnity (PI) claim provision
At 31(st) December 2018, the total provision for historic PI
Costs was GBP12.4m (2017: GBP15.9m). In 2018 the Group continued to
make positive progress in addressing historic claims and there has
been a net GBP2.2m exceptional gain.
Onerous lease
As at 31(st) December 2018 LSL held onerous lease provisions of
GBP130k (2017: GBP210k).
Net assets
The Group's net assets as at 31(st) December 2018 were GBP142.6m
(2017: GBP148.6m).
Statement of cash-flows
The Group generated strong cash from operations of GBP36.9m
(2017: GBP41.5m) converting 103% of Group Underlying Operating
Profit to cash-flow from operations (pre PI and exceptionals)
(2017: 117%). The decrease in conversion from 2017 is primarily
related to the increase in trade receivables of GBP3.8m (2017:
decrease of GBP1.7m) resulting from significant growth in the
surveying business in quarter four. Provisions also decreased by
GBP3.6m (2017: decrease of GBP5.4m) due to the positive progress in
addressing historic PI claims.
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 this Report.
Post balance sheet events
On 5(th) February 2019 LSL announced an Estate Agency Strategy:
ways of working programme update and work has now commenced on the
reshaping of the Your Move and Reeds Rains branch networks. As
disclosed on 5(th) February 2019, LSL expects to incur an
exceptional P&L charge of approximately GBP14m in 2019 and
GBP1m in 2020, with cash costs amounting to approximately GBP12m
over the three years from 2019 to 2021 including approximately
GBP9m cash costs in 2019.
International Financial Reporting Standards (IFRS)
The Financial Statements have been prepared under IFRS as
adopted by the European Union.
Notes:
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).
2. Group Adjusted EBITDA is Group Underlying Operating Profit
plus depreciation on property, plant and equipment (as defined in
Note 4 to the Financial Statements)
3. Refer to Note 6 to the Financial Statements
4. Refer to Note 10 to the Financial Statements for the calculation.
5. Operational gearing is defined as Net bank Debt divided by Group Adjusted EBITDA(2)
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 the Group; as well as
areas which could adversely affect its business, operating results
and financial condition.
Management of risk appetite
During 2018, in line with the FRC's Guidance on 'Risk
Management, Internal Control and Related Financial and Business
Reporting', the Board continued to manage the Group's risk appetite
through the risk appetite framework to ensure continued compliance
with the 2016 Code and the related FRC guidance (published in
2014). The Board through its established processes expresses and
reviews 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 risk appetite framework was developed following the approval
by the Directors of a risk framework policy which included 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
expects 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 the identification of actions needed
to bring any specific outlying areas of risk within target
levels.
During 2018, the Group has continued to take steps to enhance
the existing risk framework within each of the Group's subsidiary
businesses, including the maintenance of risk appetite measures by
each subsidiary. Each year, each subsidiary business quantifies
their highest ranked risk areas and routinely provide the Audit
& Risk Committee with graphical management information to
facilitate the tracking of risk status versus tolerance by the
subsidiary boards and divisional governance committees. The
framework continues to improve the visibility of action plans to
address any core risk areas considered outside tolerance.
Risk management activities in 2018 included a 'deeper-dive' on
information security risk and a business-wide questionnaire was
issued to enable the Audit & Risk Committee to compare how well
risk management practices are embedded at each subsidiary business,
with a view to identifying any areas for improvement. These
developments have in turn served to provide a more robust means for
evaluating the capture and measurement of risk factors within the
Group's established risk appetite framework.
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 2019, LSL will continue to review the framework to ensure it
remains in line with emerging best practice and continues to foster
the maturity of risk appetite routines at both LSL and its
subsidiary businesses.
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 is discussed and is 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 2019. Further, during 2018 the Audit & Risk Committee
and Board commenced a review of the Group's risk management
framework to ensure it reflects the requirements of the 2018 Code
and the FRC's Guidance on Board Effectiveness (also published in
2018) and this work will continue during 2019.
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 included in
Strategy and Business Model sections of the Annual Report and
Accounts 2018.
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
2018. This considered the Group's current position and its prospect
of operating over the three year period ending 31(st) December
2021, and reaffirmed the Group's stated strategy. Furthermore, the
Group's future prospects have been further strengthened with the
extension of the RCF which was renewed in January 2018 for a period
up to May 2022.
Brexit
Since the 2016 EU referendum result, LSL has been monitoring
Brexit developments to assess the impact on LSL. 'Brexit' is a
subset entry within the Group's risk appetite framework and in
addition during 2018 LSL has conducted a specific impact assessment
in relation to Brexit which was completed in line with FRC
guidance.
The impact assessment considered whether LSL will be impacted
directly by the outcome of the negotiations between the UK and the
EU, for example due to regulatory changes or due to changes that
may impact our employees or whether the impact would be indirect,
i.e. resulting from the broader economic uncertainties. The Group
concluded that whilst LSL is not directly impacted by the Brexit
negotiations due mainly to its UK based business model it is
indirectly impacted by the impact that the continued economic
uncertainty has on the housing market.
This approach has ensured that Brexit developments are being
formally monitored, and the risk status regularly reassessed with
reactive action plans identified to respond to the effects of
on-going uncertainties and the outcomes of the UK and EU
negotiations and any transitional period arrangements.
These practices will continue throughout 2019 as the UK
progresses to the Brexit date of 29(th) March 2019, along with
wider consideration of the likely impacts of other major economic
and political events, and their influence on viability assessment
modelling.
The Group's principal risks and uncertainties are set out 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. See the Directors' Report in the Annual Report and
Accounts 2018 for details of how Brexit was taken into account in
the completing the going concern assessment.
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 2016 Code (which is now contained in the 2018 Guidance
on Board Effectiveness), 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 2021
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
two of these were modelled in detail with input from a cross a
functional group of senior managers, including representatives from
the finance teams.
The following scenarios were modelled:
-- severe downturn in the UK housing market close to the level
seen in 2008 during the last recession caused by Brexit and/or
political uncertainties; and
-- a data breach causing a regulatory fine and reputational
damage, with the potential loss of customers.
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
2021.
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 contained within the Annual Report and Accounts
2018.
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 and Accounts
2018.
Risk management and internal controls framework
LSL's risk management and internal controls framework for 2018
included:
-- 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, the Head of Risk and Internal Audit and the Group
Financial Controller;
-- 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 analyses;
-- 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;
-- the Board routinely 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 in addition to carrying out
specific risk assessments as part of its decision-making
processes;
-- 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
included in the Annual Report and Accounts 2018); and
-- 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 risk framework includes the following:
-- a risk framework policy;
-- a boardroom culture which promotes risk assessment and management in decision-making;
-- determination of risk appetite, with management and
mitigation of risks in line with risk appetite tolerances;
-- assessment of prospects and viability;
-- review of the effectiveness of the risk management and internal control systems; and
-- going concern confirmation (for LSL's going concern
disclosure see the Report of the Directors included in the Annual
Report and Accounts 2018).
During 2019 the areas of focus will be to develop underlying
subsidiary risk appetite metrics policies.
During 2018, 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 judgement 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 2018, this included further
strategic responses to the threat of external technology-based
business models, integration planning for newly acquired business
activities, articulation of risk appetite tolerances with action
plans to counter key aspects of information security risk,
implementing responses to a fast changing regulatory environment
(including new GDPR and tenant welfare requirements) and
consideration of major scenarios of further external political and
economic change on the UK housing market including the impact of
Brexit.
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 2016 and 2018 Codes,
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 Preliminary Results Announcement or the
Annual Report and Accounts 2018. 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 2018 is set out in the Audit & Risk
Committee Report (Internal Controls) of the Annual Report and
Accounts 2018.
Principal risks and uncertainties
Risk Description Mitigation
Strategic:
1 UK housing Group performance is
market intrinsically * Daily, weekly and monthly monitoring of trading and
linked to the overall market performance data.
performance
of the UK housing market
(including subsets - e.g. * Market share, product mix and segmentation
prime Central London). initiatives.
The housing market is also
impacted by changes in * Development of counter-cyclical and recurring revenue
national income streams.
and global political and
economic environments (e.g.
Brexit). * Responsive investment and cost control measures
during the housing market cycle.
The impact of this risk
can be direct (such as
changes * Investment in teams to deliver strategic projects.
in Government policy or
legislation arising from
a change in Government) * Balanced UK-wide geographical spread.
or indirect (such as changes
in consumer
behaviour/sentiment * Monitoring of wider macroeconomic and political
arising from changes in developments (including domestic and international
Government policy or developments).
legislation).
* Enhanced impact analysis relating to Brexit completed
and considered as part of going concern analysis in
addition to budgeting and planning processes.
----------------------- ----------------------------- ---------------------------------------------------------------
2 New UK housing Traditional business models
market entrants and pricing structures for * Competitor and industry benchmarking.
residential property
services
are exposed to new business * Development of strategies in response to market
models and technological disrupters, including exploring options to capitalise
advancements (e.g. on digital opportunities.
online/hybrid
estate agents, automated
valuation models and * Infrastructure investment, including investment in
automated innovation and technology, with upgrading,
financial services operating consolidating and replacing core or legacy operating
models). systems to increase functionality, improve customer
experience, reduce costs and deliver efficiencies.
* Service delivery enhancements, product/services
differentiation and experimentation.
* Engagement of specialist external consultative
support as necessary.
* Monitoring of acquisition, investment, associate and
joint venture opportunities.
* Marketing initiatives.
* Operation of staff incentive schemes to mitigate
staff attrition.
----------------------- ----------------------------- ---------------------------------------------------------------
3 Investment, Realising appropriate
acquisitions targets * Monitoring of opportunities which support delivery of
and growth for investment, acquisition Group strategy.
initiatives and major project
initiatives,
including delivery of * Engagement of strategy consultants to support
appraisals, identification and evaluation of strategic investment
due diligence and and acquisition opportunities.
integration/implementation
requirements, in line with
LSL's strategy to complete * Defined pre and post-acquisition reporting to the
selective acquisitions. 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.
* Defined due diligence processes completed ahead of
all investments and acquisitions.
* Due diligence is undertaken by in house teams with
support from subject specialists as required (e.g.
the use of IT experts to carry out technology due
diligence or use of strategy consultants to advise on
business models).
* Completion of risk assessments including RCF leverage
stress testing ahead of all significant investments
and acquisitions.
* Flexible resource pool to deliver
integration/implementation activities following
completion of acquisitions.
* Engagement of specialist external consultative
support as necessary.
* Established integration/implementation planning
methodology.
* Promotion of Group-wide relationships in business
arrangements.
* Post-acquisition and post-integration/implementation
review programmes.
-- Risk and Internal Audit
engagements.
----------------------- ----------------------------- ---------------------------------------------------------------
Sales/distribution:
4 Professional Exposure to major PI claims Surveying Division
services arising from any lapses * Robust framework and monitoring routines to maintain
in professional services, valuation accuracy.
including surveying and
valuation practices,
financial * Dedicated surveying risk team.
services advice, and estate
agency services.
* 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.
* Integration of new business assets into the
established valuation controls framework.
* Development of lender on-boarding policy with Board
oversight to ensure instructions are within
risk-appetite.
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 engagements.
* Experienced claims handling personnel supported by
legal and compliance experts.
* Culture promoting effective sales conduct and open
lines of communication with clients with a focus on
customer outcomes.
----------------------- ----------------------------- ---------------------------------------------------------------
5 Client contracts The performance of the
Estate * Customer outcomes focused forums and initiatives.
Agency and Surveying
businesses
is dependent on entering * Designated senior members of staff with
into appropriate and responsibility for relationship management at
relevant subsidiary and Group levels.
agreements and retaining
contracts with key clients
(e.g. lenders, portfolio * On-going investment in resources, innovation,
landlords and house technology and service standards to ensure LSL has
builders). the capacity to meet service level demands.
* Targeted marketing and training events for corporate
clients.
* Monitoring of client dependency, service delivery,
risk 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 and compliance teams, with
specialist external legal and compliance support
engagement when necessary, together with dedicated
claims/customer complaints management teams within
business areas.
* Risk and Internal Audit reviews.
----------------------- ----------------------------- ---------------------------------------------------------------
Operations:
6 Business The Group has varied
Infrastructure operations * Group-wide internal controls processes and policies
(including which require robust which are subject to regular review to ensure they
IT) internal are in line with best practice.
controls, infrastructures
and business continuity
arrangements (including * Group IT governance, policies, base standards and
in relation to IT). initiatives supported by the Group IT Director and
with oversight from the Information Security and
The controls environment Governance Committee.
needs to remain adaptable
to support growth
initiatives, * Focus on investment and development of innovation and
harness technological systems development within the Group's strategies.
advancements
and counter business
continuity * Combination of dedicated in-house IT teams and
threats, including in engagement with external IT specialist suppliers to
relation deliver efficiencies and market leading service.
to IT systems, malicious
and cyber-related attacks.
* Maintenance of business infrastructure to ensure
LSL's strategy recognises effective service delivery with appropriate controls.
the importance of
investing
in the Group's * On-going infrastructure investment and development
infrastructure programmes.
(including IT) to maintain
both competitive
advantages * Identifying and securing innovation and technology
and deliver controls and opportunities through the Group's investment and
system security - all acquisition strategies.
within
the context of changing
business models within * Implementing business continuity and disaster
the residential property recovery solutions (encompassing IT premises,
services markets. transportation and employees).
* Monitoring of compliance with relevant contractual
and regulatory requirements.
* Inter-Group IT governance forums.
* External consultative support as necessary.
* Risk and Internal Audit engagements.
* Oversight by the Information Security and Governance
Committee, the Audit & Risk Committee and the LSL
Board.
----------------------- --------------------------- -----------------------------------------------------------------
7 Information Group operations involve
security (including the processing of high * LSL Information Security and Governance Committee and
data protection) volumes of personal data, IT Teams with policy implementation and oversight
with potential for responsibilities.
unintended
data loss and exposure
to increasing levels of * Defined Group-wide base policy standards.
external cybercrime.
* Dedicated information security and data protection
personnel (including DPOs).
* Group cyber insurance cover in place and reviewed
annually to ensure the cover remains appropriate.
Data protection
* Group data protection policies and training in place
supported by in-house legal and compliance teams.
* Tracking of data assets/data sharing and any breach
incidents, in line with authority levels.
* Implementation of regulatory changes - (e.g. General
Data Protection Regulation) via defined project teams
with support from in-house legal and compliance
teams.
Systems security
* Penetration testing and intrusion scanning
programmes.
* Benchmarking against and accreditation by best
practice standards - e.g. ISO27001 accreditation for
e.surv.
* Second and third-line risk-based thematic reviews.
----------------------- --------------------------- -----------------------------------------------------------------
8 Regulatory Compliance with legal and
and compliance regulatory requirements, * Top-down management culture focused on fairness,
including relationship transparency and delivery of good customer outcomes.
with regulators.
Regulations govern roles * Open dialogue with regulators and monitoring of
as an employer and as emerging developments and regulatory reforms.
providers
of services.
* Group risk framework policy incorporating a 'three
Any compliance breaches lines of defence' model to track compliance with
could result in sanctions regulations.
and reputational damage
(e.g. prosecutions or
fines). * Group policies including ethics (i.e. whistleblowing
This includes compliance structures, anti-fraud and anti-bribery policies) and
with existing regulations employee welfare.
and implementing new
regulations
(e.g. Senior Managers * Subsidiary businesses have in place health and safety
Certification arrangements with an associated Group reporting
Regime). framework which ensures that the welfare of employees
and visitors to Group premises.
Regulatory and compliance
risk extends to oversight
of standards adopted by * Group-wide forums with regulatory focus and oversight
business partners (e.g. (e.g. Financial Services Management Committee,
franchises, appointed Financial Services Risk Committee and Information
representatives, Security and Governance Committee).
joint ventures, minority
investments, associates
and suppliers). * Dedicated second line compliance teams in higher
risk/regulated functions.
The market and business
operations are also
impacted * Investment in recruitment of expertise within the
by regulatory reforms compliance teams to ensure the Group is able to
(e.g. maintain appropriate procedures and risk measures for
Government reviews regulatory compliance.
relating
to the housing market,
including reforms relating * Harmonisation of best practice compliance standards
to the tenants fees and following acquisitions.
conveyancing referral
fees)
which may have an impact * Evolution and development of IT systems to strengthen
on Group revenue and oversight routines.
expenditures.
Regulatory costs, fees * Responsive complaints tracking of any emerging
and charges continue to themes.
grow due to the growth
of LSL's Financial
Services * In-house legal and compliance teams, with access to
businesses and the funding specialist external legal and compliance support when
requirements of the necessary.
Financial
Services Compensation
Scheme * Group Risk and Internal Audit engagements.
(FSCS).
* Membership of industry trade bodies and participation
in Government and regulatory consultations.
* Responsive business model changes to mitigate and
address the impact of any regulatory changes.
----------------------- --------------------------- -----------------------------------------------------------------
People:
9 Employees Securing and retaining key
strategic populations and * Oversight by LSL Remuneration and Nominations
controlling attrition in Committees supported by the Company Secretary and
key business critical areas Group HR Director.
(e.g. through e.surv's
graduate
training program), as well * Group remuneration policies and incentive schemes to
as ensuring the effective retain key strategic populations.
management of personnel
standards and policy
frameworks * Regular benchmarking and appraisals of Executive
across varied Group Directors and Senior Management.
businesses.
* Succession planning reviews and targeted development
programmes for high achievers.
* Dedicated in-house talent acquisition teams within
Group HR.
* Targeted retention and recruitment initiatives.
* Employee surveys and Group HR initiatives to monitor
culture, attrition, morale, and any areas of
pressure.
* Group-wide HR IT systems.
* Monitoring of statutory reporting requirements and
developments (e.g. gender and ethnic pay reporting).
* Employee policies and monitoring frameworks in place
(e.g. health and safety and lone working arrangements
to ensure employee welfare).
* Monitoring subsidiary culture, values and ethics and
the development of LSL's culture, values and ethics.
* Implementation of workforce engagement measures to
ensure employee considerations are including in
decision-making.
* Adoption of reporting arrangements to demonstrate
consideration of key stakeholders, including
employees in decision-making.
* Clear Group policies and whistleblowing procedures to
enable employees to confidentially raise or report
concerns.
----------------------- ----------------------------- ---------------------------------------------------------------
Group Income Statement
for the year ended 31(st) December 2018
Note 2018 2017
GBP'000 GBP'000
---------- ----------
Group Revenue 324,640 311,540
Employee and subcontractor costs (203,095) (186,307)
Establishment costs (20,614) (19,057)
Depreciation on property, plant and
equipment (5,674) (5,216)
Other operating costs (60,211) (66,269)
---------- ----------
Total operating expenses (289,594) (276,849)
Other operating income 557 555
Gain on sale of property, plant and
equipment 34 668
Income from joint ventures and associates 259 1,583
Group Underlying Operating Profit 4 35,896 37,497
Share-based payments (349) (47)
Amortisation of intangible assets (5,301) (4,083)
Exceptional gains 5 2,188 9,337
Exceptional costs 5 (5,234) -
Contingent consideration (1,783) (654)
Group operating profit 25,417 42,050
---------- ----------
Finance costs (2,333) (1,952)
Net financial costs (2,333) (1,952)
Profit before tax 23,084 40,098
Taxation charge 8 (5,201) (6,686)
Profit for the year 17,883 33,412
---------- ----------
Attributable to
- Owners of the parent 17,883 33,414
- Non-controlling interest - (2)
Earnings per share expressed in pence
per share:
Basic 6 17.4 32.6
Diluted 6 17.3 32.4
Group Statement of Comprehensive Income
for the year ended 31(st) December 2018
2018 2017
Note GBP'000 GBP'000
----------- ----------
Profit for the year 17,883 33,412
----------- ----------
Items not to be reclassified to profit
and loss in subsequent periods:
Revaluation of financial assets not (12,200) -
recycled through income statement
----------- ----------
(12,200) -
Items to be reclassified to profit
and loss in subsequent periods:
Reclassification adjustments for disposal
of financial assets - (5,593)
Income tax effect 8 - 951
Revaluation of financial assets recycled
through income statement - 1,885
Income tax effect 8 - (320)
----------- ----------
- (3,077)
Net other comprehensive (loss) (12,200) (3,077)
Total other comprehensive (loss) for
the year, net of tax (12,200) (3,077)
----------- ----------
Total comprehensive income for the
year, net of tax 5,683 30,335
----------- ----------
Attributable to
- Owners of the parent 5,683 30,337
- Non-controlling interest - (2)
Group balance sheet Company No. 05114014
as at 31(st) December 2018
2018 2017
GBP'000 GBP'000
---------- ----------
Non-current assets
Goodwill 159,723 151,901
Other intangible assets 31,960 29,729
Property, plant and equipment 16,866 17,763
Financial assets 11,566 25,282
Investments in joint ventures
and associates 13,230 9,556
Contract assets 959 -
Total non-current assets 234,304 234,231
----------
Current assets
Trade and other receivables 38,650 31,357
Contract assets 262 -
Cash and cash equivalents 2,405 -
Total current assets 41,317 31,357
---------- ----------
Total assets 275,621 265,588
---------- ----------
Current liabilities
Financial liabilities (10,455) (6,454)
Trade and other payables (63,980) (53,418)
Current tax liabilities (2,688) (3,662)
Provisions for liabilities (6,616) (2,850)
---------- ----------
Total current liabilities (83,739) (66,384)
---------- ----------
Non-current liabilities
Financial liabilities (41,156) (34,654)
Deferred tax liability (2,189) (2,698)
Provisions for liabilities (5,944) (13,276)
---------- ----------
Total non-current liabilities (49,289) (50,628)
---------- ----------
Total Liabilities (133,028) (117,012)
Net assets 142,593 148,576
---------- ----------
Equity
Share capital 208 208
Share premium account 5,629 5,629
Share-based payment reserve 4,129 3,802
Shares held by EBT (5,261) (5,317)
Fair value reserve (11,727) 494
Retained earnings 149,615 143,578
---------- ----------
Equity attributable to
owners of parent 142,593 148,394
Non-controlling interests - 182
Total equity 142,593 148,576
---------- ----------
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
5(th) March 2019 5(th) March 2019
Group Statement of Cash-Flows
for the year ended 31(st) December 2018
2018 2017
Note GBP'000 GBP'000
--------- ------------
Profit before tax 23,084 40,098
Adjustments for:
Exceptional operating items and contingent
consideration 4,829 (7,640)
Depreciation of tangible assets 5,674 5,216
Amortisation of intangible assets 5,301 4,083
Share-based payments 349 47
(Profit) on disposal of fixed assets (34) (668)
(Profit) from joint ventures (259) (1,583)
Finance costs 2,333 1,952
Dividend income/rebates received via
non-cash consideration - (1,503)
Proceeds received via cash consideration 1,529 -
Operating cash-flows before movements
in working capital 42,806 40,002
----------------------------------------------- --- ----------------- ------------
Movements in working capital
(Increase)/decrease in trade and other
receivables (3,815) 1,695
(Decrease)/increase in trade and other
payables (111) 5,261
Decrease in provisions (3,608) (5,440)
(7,534) 1,516
----------------------------------------------- --- ----------------- ------------
Cash generated from operations 35,272 41,518
----------------------------------------------- --- ----------------- ------------
Interest paid (1,359) (1,268)
Income taxes paid (6,875) (11,113)
Exceptional costs paid (3,310) -
Net cash generated from operating activities 23,728 29,137
----------------------------------------------- --- ----------------- ------------
Cash-flows used in investing activities
Cash acquired on purchase of subsidiary
undertaking 6,944 -
Acquisitions of subsidiaries and other
businesses (7,732) -
Payment of contingent consideration (1,392) (2,175)
Investment in joint ventures and associates (4,100)
Investment in financial assets (13) (20,315)
Cash received on sale of financial assets - 3,024
Purchase of property, plant and equipment
and intangible assets (5,877) (5,489)
Proceeds from sale of property, plant
and equipment 156 1,457
Net cash (expended) on investing activities (12,014) (23,498)
----------------------------------------------- --- ----------------- ------------
Cash-flows used in financing activities
Drawdown of loans 4,521 9,723
Refinance costs (250) -
Repayment of loan notes (2,000) -
Payment of deferred consideration - (4,790)
Proceeds from exercise of share options 20 -
Dividends paid (11,600) (10,572)
Net cash expended in financing activities (9,309) (5,639)
----------------------------------------------- --- ----------------- ------------
Net increase in cash and cash equivalents 2,405 -
----------------------------------------------- --- ----------------- ------------
Cash and cash equivalents at the end
of the year 2,405 -
----------------------------------------------- --- ----------------- ------------
Group Statement of Changes in Equity
Year Ended 31(st) December 2018
Share-
Share based Shares Fair
Share premium payment held by value Retained Total Non-controlling
capital account reserve EBT(1) Reserve earnings equity interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st)
January 2018 208 5,629 3,802 (5,317) 494 143,578 148,394 182 148,576
--------- --------- -------- ----------- --------- ---------- --------- ----------------- ---------
Adjustment on
initial
application
of IFRS 15 - - - - - (434) (434) - (434)
Adjustment on
initial
application
of IFRS 9 - - - - (21) 21 - - -
Revised
opening
balance 208 5,629 3,802 (5,317) 473 143,165 147,960 182 148,142
Other
comprehensive
income for the
period
Revaluation of
financial
assets - - - - (12,200) - (12,200) - (12,200)
Profit for the
period - - - - - 17,883 17,883 - 17,883
Total
comprehensive
(loss) /
income for
the period - - - - (12,200) 17,883 5,683 - 5,683
Exercise of
options - - (22) 56 - (15) 19 - 19
Share-based
payments - - 349 - - - 349 - 349
Acquisition of
minority
interest - - - - - 182 182 (182) -
Dividend
payment - - - - - (11,600) (11,600) - (11,600)
At 31(st)
December 2018 208 5,629 4,129 (5,261) (11,727) 149,615 142,593 - 142,593
--------- --------- -------- ----------- --------- ---------- --------- ----------------- ---------
During the year ended 31(st) December 2018, the Trust acquired
nil LSL Shares. During the period 15,966 share options were
exercised relating to LSL's various share option schemes resulting
in the Shares being sold by the Trust. LSL received GBP20,000 on
exercise of these options
Group Statement of Changes in Equity
Year Ended 31(st) December 2017
Share Share Share- Treasury Fair Retained Total Non-controlling Total
capital premium based shares value earnings equity interests
account payment Reserve
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1(st) January
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
-------- -------- -------- --------- -------- --------- --------- ---------------- ---------
During the year ended 31(st) December 2017, the Trust acquired
nil LSL Shares. During the period 14,661 share options were
exercised relating to LSL's various share option schemes resulting
in the Shares being sold by the Trust. LSL received nil on exercise
of these options.
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 2018 but has been
extracted from the Financial Statements included in LSL's Annual
Report and Accounts 2018 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 2019 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 certain
debt and equity 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(st) December 2018. The Group's Financial Statements
are presented in pound sterling and all values are rounded to the
nearest thousand pounds (GBP'000) except when otherwise
indicated.
3. Segment analysis of revenue and operating profit
For management purposes, the Group was in 2018 organised into
business units based on their products and services and had two
reportable segments as follows:
Ø 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, PRIMIS, Embrace Financial
Services, First2Protect, Mortgages First, Insurance First and
Linear Financial Services, Personal Touch Financial Services and
RSC New Homes. The Financial Services revenue included within the
Estate Agency Division includes three mortgage and insurance
distribution networks providing products and services for sale via
financial intermediaries. A significant proportion of the results
of the Financial Services were inextricably linked to the Estate
Agency business. They have therefore been aggregated with those of
Estate Agency and Related Service segment for 2018.
Ø 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 sections of the Strategic Report of the Annual
Report and Accounts 2018.
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 2018 and financial year ended 31(st) December
2017 respectively.
To reflect the increased importance of LSL's Financial Services
businesses, the LSL Board has decided to update the Group segmental
reporting effective from 1(st) January 2019. From 1(st) January
2019 LSL will report three segments: Estate Agency; Financial
Services; and Surveying and Valuation Services. The Financial
Services segment will incorporate all LSL's Financial Services
businesses. The Estate Agency segment will primarily incorporate
the results from the Estate Agency branch networks (Your Move,
Reeds Rains, LSLi and Marsh & Parsons) and Asset Management.
The Surveying and Valuation Services segment is unchanged.
3. Segment analysis of revenue and operating profit (continued)
Year ended 31(st) December 2018
Estate Agency Surveying
and Related and Valuation
Services Services Unallocated Total
Income Statement information GBP'000 GBP'000 GBP'000 GBP'000
----------
Segmental revenue 254,842 69,798 - 324,640
---------------- --------------- ------------ ----------
Segmental result:
- before exceptional costs,
contingent consideration,
amortisation and share-based
payments 20,568 20,426 (5,098) 35,896
- after exceptional costs,
contingent 11,601 19,022 (5,206) 25,417
consideration, amortisation
and share-based payments
---------------- --------------- ------------ ----------
Finance costs (2,333)
Profit before tax 23,084
Taxation (5,201)
Profit for the year 17,883
----------
Estate Agency Surveying
and Related and Valuation
Services Services Unallocated Total
Balance sheet information GBP'000 GBP'000 GBP'000 GBP'000
---------------- --------------- ------------ ----------
Segment assets - intangible 179,512 12,171 - 191,683
Segment assets - other 68,443 11,659 3,836 83,938
Total Segment assets 247,955 23,830 3,836 275,621
Total Segment liabilities (64,889) (27,828) (40,311) (133,028)
----------
Net assets/(liabilities) 183,066 (3,998) (36,475) 142,593
---------------- --------------- ------------ ----------
Other segment items
Capital expenditure including
intangible assets 4,738 1,282 - 6,020
Depreciation (5,420) (254) - (5,674)
Amortisation of intangible
assets (4,897) (404) - (5,301)
Share of results of joint
venture 259 - - 259
PI Costs provision - (12,430) - (12,430)
Exceptional costs (1,994) (3,240) (5,234)
Exceptional gains 2,188 2,188
Onerous leases provision (130) - - (130)
Share-based payment (294) 53 (108) (349)
---------------- --------------- ------------ ----------
Unallocated net liabilities comprise plant and equipment
(GBP15,000), other assets (GBP3,822,000), accruals (GBP922,000),
deferred and current tax liabilities (GBP4,890,000), RCF
(GBP34,500,000)
Year ended 31(st) December 2017
Estate
Agency Surveying
and Related and Valuation
Services Services Unallocated Total
Income Statement information GBP'000 GBP'000 GBP'000 GBP'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 Surveying
and Related and Valuation
Services Services Unallocated Total
Balance sheet information GBP'000 GBP'000 GBP'000 GBP'000
--------------- --------------- ------------ ----------
Segment assets - intangible 169,113 12,517 - 181,630
Segment assets - other 75,453 7,306 1,200 83,958
Total Segment assets 244,566 19,823 1,200 265,588
Total Segment liabilities (49,851) (25,794) (41,367) (117,012)
----------
Net assets/(liabilities) 194,715 (5,970) (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
PI Costs provision - (15,916) - (15,916)
Onerous leases provision (210) - - (210)
Share-based payment (152) (85) 190 (47)
--------------- --------------- ------------ ----------
Unallocated net liabilities comprise plant and equipment
(GBP9,000), other assets (GBP1,191,000), accruals (GBP3,028,000),
financial liabilities (GBP4,979,000), deferred and current tax
liabilities (GBP6,360,000), RCF (GBP27,000,000).
4. APMs (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
The amortisation of intangibles assets is not representative of
the underlying costs of the business, and is therefore excluded
from adjusted earnings.
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 10 to these interim condensed consolidated Group
Financial Statements and a reconciliation of Group Underlying
Operating Profit is shown below:
2018 2017
GBP'000 GBP'000
-------- --------
Group operating profit 25,417 42,050
Share-based payments 349 47
Amortisation of intangible assets 5,301 4,083
Exceptional gains (2,188) (9,337)
Exceptional costs 5,234 -
Contingent consideration charge 1,783 654
-------- --------
Group Underlying Operating Profit 35,896 37,497
-------- --------
Depreciation on property, plant and equipment 5,674 5,216
-------- --------
Group Adjusted EBITDA 41,570 42,713
-------- --------
5. Exceptional items
2018 2017
GBP'000 GBP'000
---------- ----------
Exceptional costs:
Transition costs relating to surveying contracts 3,241 -
Branch/centre closures and restructuring costs 1,993 -
including redundancy costs
---------- ----------
5,234 -
---------- ----------
Exceptional gains:
Gain on disposal of Financial Assets - (5,593)
Exceptional gain in relation to historic PI
Costs (2,188) (3,744)
---------- ----------
(2,188) (9,337)
---------- ----------
Exceptional costs
There were GBP5.2m of exceptional costs in the year (2017: nil),
the majority of which were in relation to initial non-recurring
transition and integration costs for the contract to supply
surveying and valuation services to Lloyds Bank plc (GBP3.2m).
In the Estate Agency Division there were GBP2.0m (2017: nil) of
non-recurring and material exceptional costs relating to the
planned restructuring costs incurred following the acquisition of
Personal Touch Financial Services as well as branch / centre
closures.
Provision for professional indemnity (PI) claims and insurance
claim notification
In 2018 the Group continued to make positive progress in
addressing the historic PI claims and there has been a release of
GBP2.2m.
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 Weighted 2018 Profit Weighted 2017
after average Per share after average Per share
tax number amount tax number amount
of shares Pence of shares Pence
GBP'000 GBP'000
Basic EPS 17,883 102,653,447 17.4 33,414 102,640,363 32.6
Effect of dilutive
share options 839,935 635,058
Diluted EPS 17,883 103,493,382 17.3 33,414 103,275,421 32.4
--------- ------------- --------- -------------
There have been no other transactions involving Ordinary Shares
or potential Ordinary Shares between the reporting date and the
date of completion of these Financial Statements.
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
2018 2017
GBP'000 GBP'000
Group operating profit before contingent consideration,
exceptional items, share-based payments and amortisation
(excluding non-controlling interest): 35,896 37,497
Net finance costs (excluding exceptional and contingent
consideration items) (1,401) (1,468)
Normalised taxation (6,554) (6,936)
--------- ---------
Adjusted profit after tax(1) before exceptional items,
share-based payments and amortisation 27,941 29,093
--------- ---------
Adjusted basic and diluted EPS
Adjusted Weighted 2018 Adjusted Weighted 2017
profit average Per share profit average Per share
after number amount after number amount
tax(1) of shares Pence tax(1) of shares Pence
GBP'000 GBP'000
Adjusted Basic EPS 27,941 102,653,447 27.2 29,093 102,640,363 28.3
Effect of dilutive
share options 839,935 635,058
--------- ------------- --------- ------------
Adjusted Diluted
EPS 27,941 103,493,382 27.0 29,093 103,275,421 28.2
--------- ------------- --------- ------------
Note
(1) This represents adjusted profit after tax attributable to
equity holders of the parent. The normalised tax rate in 2018 is
19% (2017: 19.25%).
7. Dividends paid and proposed
2018 2017
GBP'000 GBP'000
Declared and paid during the year:
Equity dividends on Ordinary Shares:
2016 Final: 6.3 pence per share 6,466
2017 Interim: 4.0 pence per share 4,106
2017 Final: 7.3 pence per share 7,493
2018 Interim: 4.0 pence per share 4,107
11,600 10,572
-------- ---------
Dividends on Ordinary Shares proposed (not
recognised as a liability as at 31(st)
December):
Equity dividends on Ordinary Shares:
Dividend: 6.9 pence per share (2017: 7.3 pence
per share) 7,083 7,493
-------- -------
8. Taxation
(a) Tax on profit on ordinary activities
The major components of income tax charge in the Group Income
Statements are:
2018 2017
GBP'000 GBP'000
---------- ----------
UK corporation tax - current year 5,931 7,537
- adjustment in respect of prior years (205) (345)
----------
5,726 7,192
Deferred tax:
Origination and reversal of temporary differences (322) (442)
Adjustment in respect of prior year (203) (64)
---------- ----------
Total deferred tax (credit) (525) (506)
---------- ----------
Total tax charge in the Income Statement 5,201 6,686
---------- ----------
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 (2017: 17%). Corporation tax is recognised at the
headline UK corporation tax rate of 19% (2017: 19.25%).
The effective rate of tax for the year was 22.5% (2017: 16.7%).
The effective tax rate for 2018 is higher than the headline UK tax
rate for a number of reasons, but the most significant are
non-deductible costs in relation to contingent consideration and
the depreciation of assets which do not qualify for capital
allowances.
Deferred tax credited directly to other comprehensive income is
GBP0.0m (2017: GBP0.6m). Income tax credited directly to the share
based payment reserve is GBP0.0m (2017: GBP0.0m).
(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is higher (2017:
lower) than the standard UK corporation tax rate, because of the
following factors:
2018 2017
GBP'000 GBP'000
---------- ---------
Profit on ordinary activities before tax 23,084 40,098
---------- ---------
Tax calculated at UK standard rate of corporation
tax rate of 19% (2017 - 19.25%) 4,386 7,719
Non-deductible expenditure / (non-taxable income)
from joint ventures and associates 56 (153)
Other income not taxable - (369)
Other disallowable expenses 550 627
Impact of movement in contingent consideration
charged/( credited) to the Income Statement 494 251
Capital gains (lower than)/in excess of accounting
profit - (1,053)
Share-based payment relief 73 15
Impact of rate change on deferred tax 50 58
Prior period adjustments - current tax (205) (345)
Prior period adjustment - deferred tax (203) (64)
---------- ---------
Total taxation charge 5,201 6,686
---------- ---------
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 and
the tax impact in the year is GBP421,000. Another significant
adjustment is the impact of deferred and contingent consideration,
which is a non-deductible expense within the income statement. The
tax impact of this movement in deferred and contingent
consideration is GBP494,000.
9. Acquisitions during the year
Year ended 31(st) December 2018
The Group acquired the following businesses during the period to
30(th) June 2018:
-- Lettings books
During the period the Group acquired six Lettings books for a
total consideration of GBP1,853,000. The fair value of the
identifiable assets and liabilities of these businesses as at the
date of acquisition have been provisionally determined as
below:
Fair value recognised
on acquisition
GBP'000
----------------------
Intangible Assets 1,817
Deferred tax liabilities (309)
----------------------
Total identifiable net liabilities acquired 1,508
Purchase consideration 1,853
Goodwill 345
Purchase consideration discharged by: GBP'000
----------------------
Cash 1,670
----------------------
Contingent consideration 183
----------------------
1,853
----------------------
Analysis of cash-flow on acquisition GBP'000
----------------------
Transaction costs (included in cash-flows from operating
activities) -
----------------------
Net cash acquired with the subsidiaries and other
businesses -
----------------------
Purchase consideration discharged in cash (included
in cash-flows from investing activities) 345
----------------------
Net cash outflow on acquisition 345
======================
-- Personal Touch Financial Services
In January 2018, the Group acquired the entire issued share
capital of Personal Touch Financial Services and its subsidiary
company, Personal Touch Administration Services Limited (PTAS) from
Personal Touch Holdings Limited. 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. Personal Touch Financial Services is authorised by
the FCA with 200 appointed representative firms and 474 advisers as
at 31(st) December 2108.
The consideration for the initial investment was GBP5.4 million
with GBP3.6 million paid on completion and a present value deferred
consideration of GBP1.8 million in January 2019. The purchase price
allocations for the acquisition made has now been finalised, with
no changes made to the provisional purchase price allocations as
disclosed below:
Fair value recognised
on acquisition
GBP'000
----------------------
Intangible assets 4,305
Property, plant and equipment 121
Trade and other receivables 3,617
Cash and cash equivalents 6,795
Deferred tax asset 921
Trade and other payables (7,974)
Provision for liabilities (2,034)
Deferred tax liability (657)
----------------------
Total identifiable net assets acquired 5,094
Purchase consideration 5,440
Goodwill 346
Purchase consideration discharged by: GBP'000
----------------------
Cash 3,562
----------------------
Present value deferred consideration 1,878
----------------------
5,440
----------------------
Analysis of cash-flow on acquisition GBP'000
----------------------
Transaction costs (included in cash-flows from operating
activities) 518
----------------------
Net cash acquired with the subsidiaries and other
businesses (6,795)
----------------------
Purchase consideration discharged in cash (included
in cash-flows from investing activities) 3,562
----------------------
Net cash outflow on acquisition (2,716)
======================
As defined in IFRS 3 the Group has recognised, separately from
goodwill, the identifiable intangible assets acquired in the
business combination. The assets identified include the in-house
developed software Toolbox.
From the date of acquisition, Personal Touch Financial Services
has contributed GBP8.7 million of revenue and GBP1.0 million to the
profit before tax from the continuing operations of the Group. If
the acquisition had taken place at the beginning of the year,
revenue from continuing operations would have been GBP9.5 million
and the profit from continuing operations for the period would have
been GBP0.2 million.
-- RSC New Homes
In March 2018, the Group, through wholly owned subsidiary,
acquired 60% interest in RSC New Homes, who provide mortgage and
protection brokerage services to the purchases of new homes. The
consideration for the initial investment was GBP5.3 million cash,
with GBP2.5 million paid on completion and the remaining subject to
put and call options which are exercisable between 2022 and 2023.
The contingent consideration is Management Team's best estimation
of the probable discounted pay-out (using a rate of 6.5%), based
upon current forecasts over the earn out period. Due to the nature
of the payment terms, the contingent consideration is considered to
be a capital payment for accounting purposes.
The purchase price allocations for the acquisition made has now
been finalised, with goodwill increasing by GBP0.2m.
Fair value recognised
on acquisition
GBP'000
----------------------
Intangible assets 271
Property, plant and equipment 40
Trade and other receivables 403
Cash and cash equivalents 149
Trade and other payables (340)
Provision for liabilities (277)
Current tax liability (200)
Deferred tax liability (46)
----------------------
Total identifiable net assets acquired (2)
Purchase consideration 7,126
Goodwill 7,128
Purchase consideration discharged by: GBP'000
----------------------
Cash 2,500
----------------------
Present value deferred consideration 9
----------------------
Contingent consideration 4,617
----------------------
7,126
----------------------
Analysis of cash-flow on acquisition GBP'000
----------------------
Transaction costs (included in cash-flows from operating
activities) 29
----------------------
Net cash acquired with the subsidiaries and other
businesses (149)
----------------------
Purchase consideration discharged in cash (included
in cash-flows from investing activities) 2,500
----------------------
Net cash outflow on acquisition 2,380
======================
As defined in IFRS 3 the Group has recognised, separately from
goodwill, the identifiable intangible assets acquired in the
business combination. The assets identified include the RSC New
Homes brand and the pipeline of work acquired. As disclosed to the
market on acquisition, there are strong customer relationships
between RSC New Homes and key house builders, however, these
relationships do not qualify as an intangible asset given they do
not fulfil either the separability criterion or the
contractual-legal criterion. This has been fully explored by the
Management Team who are confident that given that no economic
benefit passes between the two parties in this relationship (the
housebuilder and RSC New Homes) there is no asset that can be
"separated or divided" and "sold, transferred, licensed, rented or
exchanged".
From the date of acquisition, RSC New Homes has contributed
GBP3.4 million of revenue and GBP0.6 million to the net profit
before tax from the continuing operations of the Group. If the
acquisition had taken place at the beginning of the year, revenue
from continuing operations would have been GBP4.3 million and the
profit from continuing operations for the period would have been
GBP0.5 million.
The goodwill represents expected synergies and intangible assets
that do not qualify for separate recognition. The maximum
undiscounted contingent consideration sum payable is capped at
GBP7.5m.
Year ended 31(st) December 2017
The Group made no acquisitions during 2017.
10. Analysis of Net Bank Debt (excluding loan notes)
2018 2017
GBP'000 GBP'000
---------- ---------
Interest-bearing loans and borrowings
* Current 10,456 6,454
* Non-current 41,156 34,654
---------- ---------
51,612 41,108
Less: Unsecured loan notes - (2,000)
Less: cash and short term deposits (2,405) -
---------- ---------
Less: deferred and contingent consideration (17,112) (9,129)
---------- ---------
Net Bank Debt at the end of the year 32,095 29,979
---------- ---------
11. Post Balance Sheet Events
On 5(th) February 2019 LSL announced an Estate Agency Strategy:
ways of working programme update and work has now commenced on the
reshaping of the Your Move and Reeds Rains branch networks. As
disclosed on 5(th) February 2019, LSL expects to incur an
exceptional P&L charge of approximately GBP14m in 2019 and
GBP1m in 2020, with cash costs amounting to approximately GBP12m
over the three years from 2019 to 2021 including approximately
GBP9m cash costs in 2019.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LFFIFVFISIIA
(END) Dow Jones Newswires
March 05, 2019 02:01 ET (07:01 GMT)
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