TIDMLSL
RNS Number : 8106N
LSL Property Services PLC
27 September 2023
27 September 2023
LSL Property Services plc ("LSL" or "Group")
HALF YEAR RESULTS TO 30 JUNE 2023
SIGNIFICANT STRATEGIC PROGRESS MADE TOWARDS CREATING A SIMPLER,
HIGHER MARGIN PLATFORM BUSINESS
LSL reports its results for the six month period ended 30 June
2023 during which it made significant strategic progress towards
creating a higher margin, higher cash converting business that will
perform more consistently through market cycles. The Group has a
strong balance sheet with a net cash position of GBP36.3m at 30
June 2023, and the Board has maintained the interim dividend at 4p
per share.
David Stewart, Group Chief Executive commented:
"It has been a period of significant strategic progress to
simplify the Group and create a more focused business that will
perform more consistently through market cycles. I'm proud of how
the team has worked tirelessly to reshape LSL while navigating
significant macroeconomic headwinds and thank them for their focus
and dedication - it is a significant achievement.
"During the period we have successfully executed the transition
of Estate Agency to a Franchise business. We have similarly focused
our Financial Services Division to become an exclusively
business-to-business service provider, completing the transfer of
each of our direct-to-consumer businesses to Pivotal Growth. In
August, we also announced the acquisition of TenetLime, which adds
up to 278 advisers to our network, subject to FCA approval.
"Our strong balance sheet continues to provide opportunities to
consider value-enhancing M&A and invest in organic growth
initiatives in our core segments, whilst maintaining our interim
dividend at 4p per share."
STRATEGIC PROGRESS
-- Focusing of our Financial Services Division exclusively on
business-to-business services , reducing costs and operating a
scalable platform business
-- Sale of our four direct-to-consumer financial service advice
businesses to Pivotal Growth, our joint venture with Pollen Street
Capital was completed in April 2023
-- Announced acquisition of TenetLime network in August 2023,
subject to FCA approval, adding up to 278 advisers to our Financial
Services network
-- Conversion of entire owned estate agency network of 183
branches to franchisees announced on 4 May 2023 . LSL is now one of
the leading providers of estate agency franchise services in the
UK, supplying services to a network of over 300 branches
-- Disposal of Marsh & Parsons in January 2023 for GBP29m
gross proceeds(1) , boosting further LSL's already strong balance
sheet, which at 30 June 2023 included Net Cash of GBP36.3m (H1
2022: GBP30.7m)
FINANCIAL HIGHLIGHTS
The strategic transformation of the Group means that our
financial results are less directly comparable against the same
period in 2022. Our key financial highlights are:
H1 financial metrics 2023 2022 Var
------- ------
Group Revenue (GBPm) 72.5 110.2 (34)%
Group Underlying Operating
Profit from continuing
operations(2,3) (GBPm) 4.3 14.7 (71)%
Group Underlying Operating
Profit from total operations(2,3)
(GBPm) 3.3 14.2 (76)%
Group Underlying Operating
margin (%) 3% 9% (560)bps
Exceptional Gains (GBPm) 8.6 - nm
Exceptional Costs (GBPm) (4.3) (2.0) (116)%
Group statutory operating
profit (GBPm) 7.2 9.9 (27)%
Profit before tax (GBPm) 7.1 8.9 (20)%
Loss from discontinued
operations(3) (42.9) (1.7) nm
------------------------------------- ------- ------ ---------
Basic Earnings per Share(4)
(pence) 5.0 7.3 (32)%
Adjusted Basic Earnings
per Share(4) (pence) 2.7 10.7 (75)%
Net Cash(5) at 30 June
(GBPm) 36.3 30.7 18%
Interim Dividend (pence) 4.0 4.0 -
------------------------------------- ------- ------ ---------
Notes:
1 Refer to note 8 and 18 to the Financial Statements
2 Group (and Divisional) Underlying Operating Profit is before
exceptional items, contingent consideration assets &
liabilities, amortisation of intangible assets and share-based
payments. Refer to note 5 of the Financial Statements for
reconciliation of Group and Divisional Underlying Operating Profit
to statutory operating (loss)/profit for continuing, discontinued
and total operations
3 Following the conversion of the entire owned estate agency
network to franchises in H1 2023, this was classified as a
discontinued operation and is now presented as such in the
Financial Statements. Refer to notes 2 and 6 to the Financial
Statements
4 Refer to note 7 to the Financial Statements for the calculation
5 Refer to note 5 to the Financial Statements for the calculation
nm not meaningful
-- Group Statutory Operating Profit was GBP7.2m (H1 2022: GBP9.9m)
-- Group Underlying Operating Profit from continuing
operations(1,2) was GBP4.3m (H1 2022: GBP14.7m)
-- Group Underlying Operating Profit from total operations was
GBP3.3m (H1 2022: GBP14.2m), broadly in line with our expectations
as reported in the pre-close trading update on 7 August 2023
-- Group Underlying Operating Loss from discontinued operations
was GBP1.0m (H1 2022: GBP0.5m loss)
-- Unallocated central costs reduced by 14% to GBP3.5m (H1 2022: GBP4.0m)
-- Net Exceptional gains(3) of GBP4.3m were recognised during
the first half of the year, including the net gain on disposals of
GBP7.2m partly offset by re-structuring activity and non-recurring
corporate costs of GBP2.9m
-- Net Cash(4) of GBP36.3m at 30 June 2023
-- Agreed new RCF of GBP60m, extending maturity two years to May
2026, with existing mainstream UK lenders, providing further
financial flexibility to the Group
DIVISIONAL PERFORMANCE
Financial Services Division
-- Financial Services Network business traded resiliently in
difficult market conditions and more heavily weighted than usual to
product transfers, reporting Underlying Operating Profit(2) of
GBP5.5m (H1 2022: GBP7.5m)
-- Performance of independent mortgage broker firms that are
members of LSL's FS Network was particularly strong , increasing
share of the purchase and remortgage market from 6.2% to 6.6%. The
combined distribution of LSL's previously owned direct-to-consumer
businesses, which are now owned by Pivotal Growth but still members
of the LSL network, and LSL's mortgage club, was stable at 3.8%.
Overall share(5) of the UK purchase and remortgage market was 10.4%
(H1 2022: 10.1%)
-- LSL's network protection sales were robust despite the market
conditions and the squeeze on household incomes, with revenue
unchanged compared to H1 2022
-- The challenging market background led to caution by network
members on adviser levels, and adviser numbers fell by 5% during
the period (from 2,867 to 2,718). However, the recruitment pipeline
at 30 June was the highest since September 2021, which will benefit
future periods, as will the acquisition of TenetLime, following FCA
approval
-- Share of losses of Pivotal Growth was GBP0.2m (H1 2022:
GBP0.2m loss), reflecting the smaller UK mortgage market and
continuing investment to build the business. Following the transfer
of LSL assets, Pivotal Growth has achieved critical mass with over
300 advisers, the majority of which operate within our Financial
Services network
Surveying & Valuation Division
-- Surveying & Valuation Division performance was impacted
by significant reductions in valuation instructions across the
market due to the interest rate environment significantly
increasing the proportion and volume of Product Transfers (which do
not require a lender valuation) and the disproportionate impact of
higher interest rates on specialist markets such as buy-to-let and
equity release. As a result, Underlying Operating Profit (2) fell
to GBP3.4m (H1 2022: GBP13.1m)
-- Self-help cost measures were put in place in the Surveying
& Valuation Division , including a modest reduction in the
number of employed surveyors since the year end, achieved by way of
voluntary redundancy. However, our principal focus remains to
retain sufficient capacity to meet the requirements of more normal
market conditions, which means that the business continues to carry
material excess costs over the current level of demand, with a
consequent impact on profitability in H2
Estate Agency Division
-- Estate Agency performance reflects the market-wide reduction
of 18% in house sales and the conversion of the 183 owned branches
to franchisees which was announced on 4 May 2023. Underlying
Operating Profit from continuing operations (1,2) for the Division
was GBP0.6m (H1 2022: GBP0.4m loss). We expect Estate Agency to
report a profit in H2
-- Operating margins following the strategic change have been
above 25% , with the transformation and cost programme ahead of
schedule
ECONOMIC AND MARKET ENVIRONMENT
-- Market conditions during H1 were challenging, with the
expected improvements in consumer confidence hindered by stubbornly
high inflation and interest rate increases
-- The mortgage lending market(5) remained suppressed in H1,
purchase lending fell by 30% compared to H1 2022, while remortgage
lending decreased by 21%. We estimate there was a 28% increase in
product transfer cases. LSL's total lending was 4% lower than H1
2022, reflecting an increased market share in each of the purchase,
remortgage and product transfer markets, and more heavily weighted
than usual to product transfers. LSL's share of the total purchase
and remortgage market was 10.4%(5) (H1 2022: 10.1%)
-- Total market mortgage approvals(6) were 31% lower than H1
2022, with the shift to product transfer business particularly
affecting our Surveying business. Total jobs performed by our
Surveying & Valuation Division fell by 27%, which reflects a
small increase in market share(5)
-- Total UK HMRC recorded transactions were 18% lower in H1 2023
at 482k (H1 2022: 591k). Our Estate Agency national market share
remained broadly flat at 1.9%(7) (H1 2022: 2.0%)
-- The unexpectedly high interest rate rise in June has been
followed by a further increase in product transfer mortgages and
reduced levels of purchase and remortgage activity. The more
specialised equity release and buy-to-let segments continue to lag
materially behind 2022. The effect of these market developments is
most pronounced in Surveying, with a lesser impact on Financial
Services
OUTLOOK
As we noted in our Trading Update issued on 7 August, changes in
the supply and demand of mortgage products have had a significant
impact on parts of our business, most notably in Surveying but also
Financial Services. Since then, trading has stabilised, and the
recent decision to hold base rates unchanged is expected to provide
further stability and the steadying of market sentiment. The Board
currently expects Underlying Operating Profit for FY 2023 to be in
line with its expectations as revised at the time of the Trading
Update on 7 August.
The independent mortgage broker business model continues to
demonstrate resilience and agility, with LSL members increasing
their share in each of the sub-segments of the mortgage market
during H1, as well as performing strongly in protection advice. Our
Estate Agency Franchise business is performing well and is expected
to contribute a profit in the second half of the year, which
represents an improvement under current market conditions when
compared to our expectations for the previous, predominantly
wholly-owned model.
The Group has made significant progress to date in 2023, and
although market conditions remain challenging, our strong balance
sheet gives the ability to invest for future growth. LSL remains
very well-positioned to benefit when market conditions improve, and
the Board remains confident of our profitability over the business
cycle.
H1 non-financial metrics 2023 2022 Var
UK Lending Market excl.
Product Transfers (GBPbn) 110.5 150.6 (27)%
LSL Lending Market Share(5) 10.4% 10.1% +30bps
LSL Network Advisers at
June 30 2,718 2,930 (7)%
------------------------------------ ------ ------ --------
Mortgage Approvals Market
excl. AVMs ('000s) 537 776 (31)%
LSL Surveying Jobs Market
Share(6) 39.4% 37.1% +230bps
LSL Operational Surveyors
at June 30 510 497 3%
------------------------------------ ------ ------ --------
UK Residential Transactions
('000s)(7) 482 591 (18)%
LSL Exchanges Market Share(7) 1.9% 2.0% (10)bps
Number of operational territories 308 318 (3)%
------------------------------------ ------ ------ --------
Notes:
1 Following the conversion of the entire owned estate agency
network to franchises in H1 2023, this was classified as a
discontinued operation and is now presented as such in the
Financial Statements. Refer to notes 2 and 6 to the Financial
Statements
2 Group Underlying Operating Profit is including discontinued
operations, before exceptional costs, contingent consideration
assets & liabilities, amortisation of intangible assets and
share-based payments (as set out in note 5 to the Financial
Statements)
3 Refer to note 8 to the Financial Statements
4 Refer to note 5 to the Financial Statements for the calculation
5 Mortgage lending excluding product transfers - New mortgage
lending by purpose of loan, UK (BOE) - Table MM23
6 Number of Approvals for lending secured on dwellings, BoE via UK Finance
7 Number of residential property transaction completions with
value GBP40,000 or above, HMRC
For further information, please contact:
David Stewart, Group Chief Executive
Officer
Adam Castleton, Group Chief Financial
Officer
------------------------------------
LSL Property Services plc investorrelations@lslps.co.uk
------------------------------------
Helen Tarbet
------------------------------------
Simon Compton
------------------------------------
George Beale
------------------------------------
Buchanan 0207 466 5000 / LSL@buchanan.uk.com
------------------------------------
Notes on LSL
LSL is one of the largest providers of services to mortgage
intermediaries and estate agent franchisees.
Its c.2,700 advisers represent around 10% of the total purchase
and remortgage market. PRIMIS was named Best Network, 300+
appointed representatives at the 2022 Mortgage Strategy Awards.
Its 61 estate agency franchisees operate in 308 territories
making it one of the leading providers of estate agency franchise
services in the UK with leading local brands.
LSL is also one of the UK's largest providers of surveying and
valuation services, supplying seven out of the ten largest lenders
in the UK. e.surv was named Best Surveying Firm at the 2022
Mortgage Finance Gazette Awards.
For further information please visit LSL's website:
lslps.co.uk
GROUP CHIEF EXECUTIVE'S REVIEW
The first six months of the year mark a period of significant
progress by the Group in its transformation to a higher margin,
lower capital intensity business that will perform more
consistently through market cycles. We have delivered significant
restructuring in both our Financial Services Network and our Estate
Agency Divisions which are now exclusively focused on
business-to-business services with a significantly lower cost base.
We estimate that this transformation has resulted in annual cost
savings of c.GBP140m.
Through this transformation, we have strengthened our balance
sheet and enhanced our financial flexibility, with disposal
proceeds and put in place a new bank facility.
Against a difficult market backdrop of rapidly increasing
interest rates and higher mortgage costs which reduced the number
of housing transactions, our financial performance was adversely
affected. However, our strong financial position will allow us to
take advantage of opportunities arising from market disruption. For
example, in August we announced the acquisition of TenetLime,
subject to FCA approval, and we will continue to assess other
opportunities to grow our Financial Services Network business.
I would like to thank all my colleagues for their continued hard
work and exceptional support in the transformation of the
Group.
Strategic priorities and developments
The Group has made substantial progress implementing the
strategy we set out in 2020 to simplify the business, reduce our
exposure to future housing market cycles, and focus investment on
high-growth areas, notably our Financial Services Network
business.
Whilst our Estate Agency Division has successfully gained market
share over recent years, its high fixed cost base meant that it
remained exposed to even relatively small changes in the number of
housing transactions, giving rise to a cyclical business model that
was constraining shareholder value.
The Board undertook a detailed review that considered a range of
options and concluded that the optimum strategy would be to convert
our owned estate agency network to franchises. Operating a
franchise network offers significant advantages, including:
-- A higher-margin business with a significantly smaller fixed
cost base, resulting in improved and substantially less volatile
earnings through housing market cycles
-- The continued distribution of related products and services,
including long-term provision of financial services
-- The potential to grow network footprint without significant
additional investment by supporting the expansion of franchisees
and recruiting new franchisees.
-- The opportunity to benefit from the entrepreneurship and
agility of independent franchisees, resulting in a more productive,
flexible and resilient business model
We decided to dispose of our Marsh & Parsons London estate
agency, in view of its size and the relatively low penetration of
financial services products. This plan was completed on 26 January
2023 when we announced its sale to Dexters London Limited for gross
proceeds of GBP29m(1) . Marsh & Parsons contributed an
Underlying Operating Profit of GBP1.6m in the 2022 financial
year.
The conversion of the remaining owned estate agency network of
183 branches to franchises was announced on 4 May 2023. This
represented the culmination of a major programme of work with the
newly franchised branches being supplemented by the existing
network of 120 franchise branches, making LSL one of the largest
providers of property franchise services in the UK. The new
franchise agreements were negotiated with existing LSL franchisees
and experienced senior members of the LSL Estate Agency management
team, and we believe they are well-placed to be successful.
This programme allowed us to realise significant cost reductions
immediately with further savings to be made over time, although the
net impact on 2023 Underlying Operating Profit(3) from total
operations was expected to be neutral. The recent deterioration in
market conditions will increase the advantage of the franchise
model in H2. We expect the change will be accretive to Group
profits through housing market cycles from the beginning of 2024
onwards. Average operating profit margins from Estate Agency
franchises since the conversion have been over 25%.
Franchising the owned branches allows us to rationalise central
functions. These changes will continue during 2023 and 2024,
delivering incremental phased benefits. We estimate that this
change in business model, combined with the sale of Marsh &
Parsons, eliminates over GBP110m of a cost base of c.GBP125m that
supported the Estate Agency Division, with the largest reduction
taking place immediately.
The first half of 2023 also saw us complete the disposal of our
four direct-to-consumer financial services brokerages: RSC, Group
First, Embrace Financial Services ("EFS") and First2Protect, to
Pivotal Growth, our joint venture. The disposal of these
direct-to-consumer financial services businesses collectively will
allow us to realise further cost reductions of c.GBP32m, in
addition to those gained through the restructure of Estate Agency,
with a total annualised cost reduction of c.GBP140m.
The transfer of these businesses to Pivotal Growth continues the
steps taken to simplify the Group in line with our strategy to
focus financial services activity on business-to-business services,
through LSL's PRIMIS mortgage network through which we distribute
over 10% of all new mortgages in the UK.
We also believe that Pivotal Growth is better placed to increase
the value of these businesses, whilst the transactions have
substantially increased the number of Pivotal Growth advisers and
established a significant presence in the new build and estate
agency sectors and provided additional capability in the general
insurance market. LSL will retain the ability to capitalise on
opportunities in direct-to-consumer financial services through its
47.8% equity share in Pivotal Growth.
More recently, in August 2023 we announced the acquisition of
TenetLime from the Tenet Group, subject to FCA approval, in a deal
that would add up to 278 advisers working in 157 firms to our
Financial Services Network business.
Alongside our strategic change activities, a significant
programme of work was also completed during H1 as part of the
preparation for the implementation of the FCA's Consumer Duty on 31
July 2023. Our teams have engaged closely with members of the
PRIMIS network and collaborated with industry bodies as part of
this delivery. The Board and relevant governance committees have
also monitored the progress of this work to ensure readiness for
this implementation. We believe that the Consumer Duty initiative
will provide long term benefits to the financial services industry
as a whole, by raising industry standards and improving customer
confidence.
Following completion of these strategic projects, our Estate
Agency and Financial Services businesses are now well-placed to
deliver margins that are structurally higher than delivered
historically, whilst significantly reducing their exposure to
future housing and mortgage market cycles.
Divisional Performance Review
The first half of 2023 was a period of significant change for
LSL. Given the significantly challenging economic and market
backdrop, I am pleased to confirm that the Group traded resiliently
and profitably, maintaining, and improving its position in key
markets.
The restructuring activity undertaken does mean that our
financial results are less directly comparable against the same
period in 2022.
Financial Services Network & Financial Services Other
The Financial Services Network business is at the heart of the
Group's growth strategy, and I am pleased to report continuing
growth in market share and resilient financial performance.
It is in more challenging market conditions that the advantages
of the small independent client-focused broker business model are
best demonstrated. The services provided by our Financial Services
Network help our member firms respond quickly to changing market
conditions, by providing added-value solutions to clients and
maximising the income opportunities available.
Evidence for this can be seen in the market share gains
achieved. Our advisers increased their share of each of the
purchase, remortgage and product transfer markets, with total
mortgage completion lending reducing only slightly to GBP19.6bn (H1
2022: GBP20.5bn) whilst recording a record market share(2) of 10.4%
(H1 2022: 10.1%). Also encouraging has been the robust performance
in protection cases, with the Network increasing by 1% to c.64k
with average premium also up by 2%.
The rise in mortgage rates has resulted in an increase in lower
margin product transfer cases, as lenders remain conservative with
respect to new borrowers, and this has naturally had some impact on
Revenue and Profits. Financial Services Network Revenue totalled
GBP19.6m (H1 2022: GBP20.5m) and Underlying Operating Profit(3) was
GBP5.5m (H1 2022: GBP7.5m).
Financial Services Other performance was in-line with our
expectations as we continue to re-focus our Mortgage Gym and DLPS
technology businesses with work ongoing to adapt and develop their
technology capability for deployment across our Financial Services
Network.
Financial Services highlights include:
-- Total Financial Services Division reported revenue was
GBP28.0m (H1 2022: GBP39.8m), with core Financial Services Network
Revenue down 4% year-on-year despite a significant change in market
dynamics towards lower margin Product Transfers with insurance
related product revenues +1%
-- Financial Services Other revenue was 56% below H1 2022. After adjusting for disposal of the direct-to-consumer businesses, revenue in the remaining businesses was 3% below last year
-- Network Underlying Operating Profit(3) was GBP5.5m (H1 2022:
GBP7.5m), impacted by the increase in lower margin product
transfers which were 48% higher than H1 2022
-- Total Financial Services Division Underlying Operating
Profit(3) was GBP3.8m (H1 2022: GBP6.1m), which included GBP0.6m
losses within the D2C businesses, impacted particularly by the
lower purchase market, prior to their sale to Pivotal Growth
-- Total lending of GBP19.6bn, down 4% (H1 2022: GBP20.5bn) with
41% of mortgage businesses being lower margin Product Transfers (H1
2022: 27%), the increased proportion being driven by cost of living
and affordability criteria
-- Gross purchase and remortgage completion lending reduced by
23% to GBP11.5bn (H1 2022: GBP15.1bn)
-- Further increase in share of UK purchase and remortgage
market to 10.4%(2) (H1 2022: 10.1%), reflecting strength of Network
mortgage advisers in remortgages
-- Product transfer volumes deliver significantly lower margin
than purchase and remortgage activity, resulting in overall margin
reduction, with gross revenues generated by the Financial Services
Network business (including the TMA mortgage club) 8% lower than H1
2022 at GBP134.2m (H1 2022: GBP146.1m)
-- Gross revenue per adviser(4) down 1% with completions per
adviser +16% above H1 2022 driven by the material increase in
margin dilutive product transfer volumes
-- Total LSL advisers reduced by 7% to 2,718 (H1 2022: 2,930) as
network firms remained cautious about growing adviser numbers
during a time of economic and political uncertainty, instead
focusing on productivity
-- We expect adviser numbers to start to increase as a result of
the largest adviser pipeline at 30 June 2023 since September 2021
and the TenetLime acquisition
Surveying & Valuation
The Surveying & Valuation market has been particularly
affected by reduced appetite on the part of lenders, with the most
significant impacts being felt in equity release and buy-to-let
instructions, sectors where both supply and demand have been
reduced by the rapid rise in interest rates. I can, however, report
that the Group increased further its share of lender valuations(5)
, which is a testament to the quality of service provided by our
team.
Surveying & Valuation Revenue fell to GBP35.5m (H1 2022:
GBP50.5m) and Surveying & Valuation Underlying Operating Profit
to GBP3.4m (H1 2022: GBP13.1m). Self-help measures were put in
place, including a modest reduction in the number of employed
surveyors. However, our principal focus remains to retain
sufficient capacity to meet the requirements of more normal market
conditions, which means that we continue to carry material excess
costs over the current level of demand, with a consequent
anticipated impact on profitability in H2.
We have identified medium-term opportunities to increase our
diversification and reduce reliance on lender valuations and our
exposure to mortgage market cycles, by growing our revenue streams
from new products such as direct-to-consumer services. H1 2023
income of GBP1.8m for these revenue streams grew slightly, in
difficult markets, and have increased 100% since H1 2019.
Surveying & Valuation highlights include:
-- Revenue of GBP35.5m (H1 2022: GBP50.5m) was 30% down compared
to prior year, but as the half progressed, volumes strengthened,
with the exit run rate at the end of June on an upward trajectory
as we increased our market share during the period(5)
-- The total number of jobs performed during the period was
212,000 which was 27% lower than in H1 2022, with Q1 36% lower and
Q2 improving to 17% lower
-- Underlying Operating Profit(3) of GBP3.4m (H1 2022: GBP13.1m)
with Q2 materially higher than Q1 and exiting the half with June
in-line with prior year, benefiting from improving trading and the
benefit of cost actions taken during the period
-- Income per job reduced by 4% to GBP168 (H1 2022: GBP175), due
to volume within the higher margin specialist sector
disproportionately impacted by the change in market conditions
Estate Agency
The comparative performance of Estate Agency was significantly
impacted by the completion of the strategic restructuring projects
during the first half of 2023. We announced on 4 May that the
entire owned estate of 183 branches would be converted to
franchises. This announcement followed the disposal in January of
our London estate agent, Marsh & Parsons, for gross
consideration of GBP29m(1) .
Trading within the business was impacted by the market-wide fall
of 18% in house sales and by the temporary disruption and
additional costs arising from the conversion of the owned branches
to franchisees. Against this backdrop, we experienced only a very
small reduction in national market share(8) which reduced slightly
to 1.9% (H1 2022: 2.0%).
On a reported continuing basis, Estate Agency and Franchise
business revenue was GBP9.0m (H1 2022: GBP19.9m) and Underlying
Operating Profit(3) from continuing operations was GBP0.6m (H1
2022: GBP0.4m loss). The revenue comparison primarily reflects the
disposal of Marsh & Parsons in the period, and the conversion
of owned branches to franchises announced towards the end of the
period. Estate Agency and Franchise business revenue including
discontinued operations was GBP41.3m, and Underlying Operating Loss
from total Estate Agency operations was GBP(0.3)m (H1 2022: GBP1.0m
loss).
Estate Agency highlights include:
-- Following the conversion of 183 owned branches to franchisees
LSL is one of the leading providers of estate agency franchise
services in the UK, supplying services to a network of just over
300 branches
-- Disposal of London estate agent, Marsh & Parsons, for gross consideration of GBP29.0m(1)
-- Annualised cost reduction of c.GBP110m due to disposals and franchising of 183 branches
-- Underlying Operating Profit on continuing operations(3,7) of
GBP0.6m (H1 2022: GBP0.4m loss) in a reduced purchase market with
May and June c.GBP1m ahead of operating profit from same period in
prior year after the franchising of the branch Network
-- Estate Agency national market share(8) reduced slightly to 1.9% (H1 2022: 2.0%)
-- Strong lettings performance with c.10% increase in average income per managed property
Pivotal Growth Joint Venture
The first half of 2023 also saw us complete the disposal of our
four direct-to-consumer financial services brokerages: RSC, Group
First, EFS and First2Protect, to Pivotal Growth, our joint venture.
The disposal of our direct-to-consumer financial services
businesses collectively will enable us to realise further cost
reductions of c.GBP32m, in addition to those gained through the
restructure of Estate Agency. Following the transfer of these
businesses, Pivotal Growth has now achieved critical mass with over
300 advisers, improving its ability to win new distribution
agreements and making it a more compelling proposition for future
acquisition partners.
Strong balance sheet
Our balance sheet remains strong as at 30 June 2023, including
in a Net Cash(9) balance of GBP36.3m, supported by proceeds
received of GBP35.4m during the period for disposals made. The
strength of our balance sheet together with continuing strong cash
generation over the financial year enables us to continue to invest
with confidence throughout the economic cycle. During the remainder
of 2023, we will continue to invest in capability and technology,
consider potential acquisition targets to build our Financial
Services Network business, as well as support Pivotal Growth in its
acquisition of D2C brokerages.
To provide further flexibility to our balance sheet, during
February 2023 we agreed a new banking facility with a maturity date
of May 2026, arranged on materially the same terms, replacing the
previous GBP90m with a GBP60m revolving credit facility with major
mainstream UK lenders, available on request at any time, subject to
meeting drawdown requirements of the facility.
The Board will continue to actively review its capital
allocation policy considering economic conditions and the risk of
further deterioration, whilst noting the greater resilience of its
restructured Group.
Dividend
The Board has considered the interim dividend considering the
Group's policy to pay out 30% of Group Underlying Operating
Profit(3) after finance and normalised tax charges, such that
dividend cover is held at approximately three times earnings over
the business cycle. This policy was designed to provide clarity to
shareholders and ensure the Group retained a strong balance sheet
for all market conditions.
As part of our strategic shift and the associated
rationalisation of certain businesses such as the sales of Marsh
& Parsons and First2Protect during the period, we have built
significant Net Cash balances, which at 30 June 2023, stood at
GBP36.3m. Considering this very strong cash position and reflecting
the Board's confidence in the future prospects of the Group, the
Board has declared an interim dividend of 4.0 pence per share,
unchanged from last year.
The ex-dividend date for the interim dividend is 5 October 2023
with a record date of 6 October 2023 and a payment date of 10
November 2023. Shareholders can elect to reinvest their cash
dividend and purchase additional shares in LSL through a dividend
reinvestment plan. The election date is 20 October 2023.
Living Responsibly
The Board is clear that success is about more than just profits
and our Living Responsibly programme is at the centre of our
sustainability strategy. Put simply, our objective is to have a
positive effect on the communities in which we operate, whether
that is measured by the impact we have on the environment, the
opportunities we provide to colleagues, the way we serve our
customers or the work we undertake in our communities.
In our ESG and our Living Responsibly reports published in April
2023, we set out some of the steps we have taken to limit our
environmental impact, help ensure LSL is a supportive and inclusive
workplace, and provide support to good causes.
It is vital that our Living Responsibly programme has real
substance and is reflected in everything we do. We are helped in
achieving this by a number of independent colleague forums and
working groups which provide additional insight in key areas. Steps
taken in 2023 include the establishment of LSL Voices, a colleague
driven initiative to provide help and support to colleagues right
across the Group. Further information on this important development
is included in our Living Responsibly Report. I am grateful to the
very many colleagues who have willingly given their time and energy
to support this work. I am also pleased to report that all
colleagues receive at least the Real Living Wage.
I am equally grateful for the hard work and commitment of all
our colleagues during what has been a hugely challenging period.
They have helped ensure LSL is well-positioned to thrive in all
market conditions and would like to take this opportunity to thank
them for their effort and support.
Outlook
As we noted in our Trading Update issued on 7 August, changes in
the supply and demand of mortgage products have had a significant
impact on parts of our business, most notably in Surveying but also
Financial Services. Since then, trading has stabilised, and the
recent decision to hold base rates unchanged is expected to provide
further stability and the steadying of market sentiment. The Board
currently expects Underlying Operating Profit for FY 2023 to be in
line with its expectations as revised at the time of the Trading
Update on 7 August.
The independent mortgage broker business model continues to
demonstrate resilience and agility, with LSL members increasing
their share in each of the sub-segments of the mortgage market
during H1, as well as performing strongly in protection advice. Our
Estate Agency Franchise business is performing well and is expected
to contribute a profit in the second half of the year, which
represents an improvement under current market conditions when
compared to our expectations for the previous predominantly
wholly-owned model.
The Group has made significant progress to date in 2023, and
although market conditions are more challenging than previously
expected, our strong balance sheet gives the ability to invest for
future growth. LSL remains very well-positioned to benefit when
market conditions improve, and the Board remains confident of our
profitability over the business cycle.
David Stewart
Group Chief Executive Officer
26 September 2023
Notes:
1 Refer to note 8 and 18 to the Financial Statements
2 Mortgage lending excluding product transfers - New mortgage
lending by purpose of loan, UK (BOE) - Table MM23
3 Group (and Divisional) Underlying Operating Profit is before
exceptional items, contingent consideration assets &
liabilities, amortisation of intangible assets and share-based
payments. Refer to note 5 of the Financial Statements for
reconciliation of Group and Divisional Underlying Operating Profit
to statutory operating (loss)/profit for continuing, discontinued
and total operations
4 Gross revenue per adviser is calculated as Financial Services
Network gross revenue (excluding the TMA mortgage club) per active
adviser
5 Number of Approvals for lending secured on dwellings, BoE via UK Finance
6 Full Time Equivalent (FTE)
7 Following the conversion of the entire owned estate agency
network to franchisees in H1 2023, this was classified as a
discontinued operation and is now presented as such in the
financial statements. Refer to notes 2 and 6 to the Financial
Statements
8 Number of residential property transaction completions with
value GBP40,000 or above, HMRC
9 Refer to note 5 to the Financial Statements for the calculation
H1 P&L (GBPm) 2023 2022 Var
------ ------
Divisional Group Revenue
Financial Services Network
(net revenue) 19.6 20.5 (4)%
Financial Services Other 8.4 19.3 (56)%
Financial Services 28.0 39.8 (30)%
Surveying & Valuation 35.5 50.5 (30)%
Estate Agency 9.0 19.9 (55)%
Group Revenue 72.5 110.2 (34)%
------------------------------------ ------ ------ ------
Estate Agency - discontinued
operations 32.3 50.7 (36)%
Group Revenue (incl. discontinued
operations) 104.8 160.9 (35)%
------------------------------------ ------ ------ ------
Divisional Underlying
Operating Profit(1)
Financial Services Network 5.5 7.5 (27)%
Financial Services Other (1.7) (1.3) (30)%
Financial Services 3.8 6.1 (38)%
Surveying & Valuation 3.4 13.1 (74)%
Estate Agency 0.6 (0.4) 248%
Unallocated Central Costs (3.5) (4.0) 14%
Group Underlying Operating
Profit from continuing
operations 4.3 14.7 (71)%
Estate Agency - discontinued
operations (1.0) (0.5) (81)%
Group Underlying Operating
Profit
from total operations 3.3 14.2 (76)%
------------------------------------ ------ ------ ------
H1 P&L (GBPm) 2023 2022 Var
------ ------
Divisional statutory operating
(loss)/profit(1)
Financial Services 9.9 4.9 103%
Surveying & Valuation 1.3 12.9 (90)%
Estate Agency (0.3) (3.1) 90%
Unallocated Central Costs (3.7) (4.7) +21%
Group statutory operating
(loss)/profit 7.2 9.9 (27)%
--------------------------------- ------ ------ ------
Notes:
1 Refer to note 5 of the Financial Statements for reconciliation
of Group and Divisional Underlying Operating Profit to statutory
operating (loss)/profit
FINANCIAL REVIEW
Group Highlights
-- Group Revenue from continuing operations(3) was GBP72.5m (H1
2022: GBP110.2m) on a reported basis. After adjusting for disposals
and discontinued operations in Estate Agency, revenue was 17% below
prior year in a housing market 18% lower and in a smaller lending
market. Including discontinued operations(1) in Estate Agency,
adjusted revenue was GBP104.8m (H1 2022: GBP160.9m)
-- Group Underlying Operating Profit from total operations(2) of
GBP3.3m includes c.GBP2m from losses in businesses disposed of in
the period and a cost-of-living payment for lower-paid staff. Group
Underlying Operating Profit from continued operations was GBP4.3m
(H1 2022: GBP14.7m)
-- Operating costs were c.30% lower in H1 compared to prior
year, exiting the period over 50% lower than prior year, reflecting
an annualised cost reduction of c.GBP140m following the execution
of all the strategic programmes and also very careful cost
management particularly in the Surveying & Valuation Division
where headcount was reduced
-- Loss on discontinued operations(3) of GBP42.9m (net of tax)
in relation to the previously owned network (H1 2022: GBP1.7m),
including exceptional restructuring costs in relation to the
conversion of the Estate Agency network (GBP12.7m) and write down
of associated disposed goodwill (GBP38.1m), offset in part by the
exceptional gain on recognition of intangible franchise agreements
of GBP10.7m. The discontinued operations in Estate Agency
contributed an Underlying Operating Loss of GBP1.0m during the
period
Financial Statements Review
Income Statement
Revenue & Operating profit
Group Revenue from continuing operations for the 6 months to 30
June 2023 of GBP72.5m was 34% below last year (H1 2022: GBP110.2m)
on a reported basis. Like for like revenue(1) after adjusting for
disposals and franchising of the Estate Agency branch Network was
17% below prior year with the housing market 18% lower and a
smaller lending market. Including discontinued operations in Estate
Agency, adjusted revenue was GBP104.8m (H1 2022: GBP160.9m)
reflecting the previously owned network revenues.
Group Underlying Operating Profit from total operations(2,3) for
the 6 months to 30 June 2023 of GBP3.3m (H1 2022: GBP14.2m), after
charging GBP1.0m losses from businesses which were disposed in the
period and a one-off GBP0.9m cost of living award to lower-paid
staff.
On a statutory continuing basis(3) , Group operating profit was
GBP7.2m (H1 2022: GBP9.9m) including the net gain on disposals of
GBP7.2m, offset in part by GBP2.9m of exceptional costs primarily
relating to restructuring activity and corporate costs.
Other operating income
Total other operating income was GBP0.3m (H1 2022: GBP1.1m).
(Loss) / income from joint ventures and associates
Losses from our equity share of Pivotal Growth was GBP0.2m (H1
2022: GBP0.2m loss).
Share-based payments
The share-based payment charge of GBP0.4m (H1 2022: GBP1.5m)
consists of a charge in the period of GBP1.5m, offset by lapses and
adjustments for leavers and options exercised in the period. The
prior year included a higher charge of GBP1.8m, offset by lower
lapse and leaver adjustments.
Amortisation of intangible assets
The amortisation charge for H1 2023 was GBP1.0m (H1 2022:
GBP1.4m) being amortisation of intangible software investment and
amortisation of franchise agreements.
Exceptional items(4)
The exceptional gain of GBP8.6m (H1 2022: GBPnil) relates to the
gain on disposal during the period of the Embrace Financial
Services and First2Protect businesses to Pivotal Growth.
Consideration of GBP9.3m was received on completion of
First2Protect, with contingent consideration to be received in 2025
for Embrace Financial Services based upon 7x 2024 EBITDA
performance.
Exceptional costs of GBP4.3m (H1 2022: GBP2.0m), primarily
related to restructuring activity and corporate transaction costs
of GBP2.9m and the net loss on disposals of Group First, RSC and
Marsh & Parsons of GBP1.4m.
Contingent consideration
There was GBPnil contingent consideration recognised in the
period (H1 2022: GBP0.1m).
Net finance costs
Finance income increased to GBP0.8m (H1 2022: GBPnil) resulting
from increased interest received on funds held on deposit. Net
finance costs amounted to GBP0.9m (H1 2022: GBP1.1m) and related
principally to the unwinding of the IFRS 16 lease liability of
GBP0.4m (H1 2022: GBP0.7m), which reduced as a result of the
disposal of Marsh & Parsons, and commitment and non-utilisation
fees on the revolving credit facility of GBP0.5m (H1 2022:
GBP0.5m).
Profit before tax
Profit before tax was GBP7.1m (H1 2022: profit before tax of
GBP8.9m). The year-on-year movement is primarily due to the lower
Group Underlying Operating Profit offset in part by the net
exceptional gain in the period.
Taxation
The tax charge of GBP2.1m (H1 2022: GBP1.4m) represents an
effective tax rate of 29%, which is slightly higher than the
headline UK tax rate of 25%. Deferred tax assets and liabilities
are measured at 25% (2022: 25%), the tax rate that came into effect
from 1 April 2023.
Discontinued operations(3)
The loss on discontinued operations of GBP42.9m (net of tax) (H1
2022: GBP1.7m), was in relation to the previously owned Estate
Agency network, including exceptional restructuring costs in
relation to the conversion of the Estate Agency network (GBP12.7m)
and write down of associated disposed goodwill (GBP38.1m), offset
by the exceptional gain on recognition of intangible franchise
agreements of GBP10.7m.
Earnings per Share(5)
Basic Earnings per Share from total operations was a loss of
(36.8) pence (H1 2022: 5.6 pence), with diluted Earnings per Share
from total operations being a loss of (36.8) pence (H1 2022: 5.6
pence). Basic Earnings per Share from continuing operations was 5.0
pence (H1 2022: 7.3 pence), with diluted Earnings per Share from
continuing operations of 4.9 pence (H1 2022: 7.3 pence). Basic
Earnings per Share from discontinued operations was a loss of
(41.7) pence (H1 2022: loss of (1.7) pence), with diluted Earnings
per Share from continuing operations being a loss of (41.7) pence
(H1 2022: loss of (1.7) pence). The Adjusted Basic Earnings per
Share from total operations was 2.7 pence (H1 2022: 10.7 pence) and
adjusted diluted Earnings per Share from total operations was 2.7
pence (H1 2022: 10.7 pence).
Balance Sheet
Goodwill (6)
The carrying value of goodwill is GBP16.9m (31 December 2022:
GBP55.0m(7) , H1 2022: GBP153.7m(7) ). Following the conversion of
the entire owned Estate Agency network to franchises during the
period, and its classification as a discontinued operation, the
goodwill associated with Your Move, Reeds Rains and LSLi owned
branches (GBP38.1m) has been disposed and reduced to GBPnil.
Goodwill previously included within held for sale assets of
GBP17.3m was disposed as part of the sales of Marsh & Parsons
(GBP12.6m), Group First (GBP3.6m) and RSC (GBP1.1m) which completed
in January 2023.
Other intangible assets(8) and property, plant and equipment
Total capital expenditure in the first half of the year amounted
to GBP1.6m (H1 2022: GBP2.2m), primarily reflecting ongoing
investment in Financial Services and Surveying, and a reduction in
Estate Agency following the franchising transformation during the
period. The capital expenditure includes GBP1.1m in intangible
software development, particularly in Financial Services. New
intangible franchise agreements of GBP10.7m were recognised during
the period following the conversion of the entire owned Estate
Agency network to franchises. The fair value of all franchise
agreements(7) was GBP12.2m at 30 June 2023 ((31 December 2022:
GBP1.5m(7) , H1 2022: GBP1.6m(7) ).
Prior year restatements(7)
Franchising of previously owned branches
During the current period, the Group franchised its entire owned
estate agency network (183 branches). In accounting for this
significant transaction, the Group re-examined the accounting
treatment that had been applied to a much smaller transaction in H1
2019, when 39 owned estate agency branches were franchised. The
impact of this was to restate the goodwill associated with these
owned branches written down by GBP5.2m and to recognise a franchise
intangible of GBP2.1m, with the cumulative non-cash impact on
retained earnings at 1 January 2022 of GBP4.0m.
Adjustments to assets held for sale
At 31 December 2022 the Group reported Marsh & Parsons as
held for sale. Marsh & Parsons was written down to its fair
value less cost to sell (FVLCTS), which was calculated as the
initial consideration received less transaction costs (GBP28.9m).
The Group has re-examined the judgements made and has determined
that an adjustment to consideration for debt-like items of GBP2.0m
could have been reliably estimated at 31 December 2022. Rather than
recognising this adjustment as an increase in the loss on disposal
in H1 of 2023, the prior year financial information has been
restated, in accordance with IAS 8.
Financial assets and investments in joint ventures
Financial assets
Financial assets of GBP8.5m at 30 June 2023 (31 December 2022:
GBP1.0m, H1 2022: GBP6.1m) comprise investments in equity
instruments in unlisted companies and contingent consideration
assets. The fair value of units held in The Openwork Partnership
LLP was reassessed at 30 June 2023 as GBP0.5m (31 December 2022:
GBP0.7m, H1 2022: GBP0.8m).
In January 2023, the Group agreed to sell its shares in Yopa for
GBPnil consideration, which was in line with its carrying value as
at 31 December 2022.
In March 2023, the Group agreed to sell its shares in VEM for
GBP0.2m consideration, received on completion, which was in line
with its carrying value as at 31 December 2022.
Contingent consideration assets
During the period, the Group disposed of the Group First, RSC
and EFS businesses to Pivotal Growth, its joint venture, with
contingent consideration receivable in 2025 based upon 7x 2024
EBITDA performance. As at 30 June 2023, this is recorded at GBP8.0m
(31 December 2022: GBPnil, H1 2022: GBPnil).
Joint ventures
In April 2021 the Group established the Pivotal Growth joint
venture and holds a 47.8% interest at 30 June 2023. The joint
venture is accounted for using the equity method and is held on the
balance sheet at GBP9.6m as at 30 June 2023 (31 December 2022:
GBP5.1m, H1 2022: GBP2.3m), representing the Group's equity
investment in Pivotal Growth during the period, less our share of
losses after tax for the period.
Loans to franchisees
As part of the initial support provided to the new franchisees
of the previously owned Estate Agency branches, working capital
loan facility agreements were put in place, of which GBP1.3m had
been drawn down as at 30 June 2023 (31 December 2022: GBPnil, 30
June 2022: GBPnil).
Financial liabilities
Contingent consideration liabilities
Contingent consideration liabilities at 30 June 2023 were
GBP0.03m (31 December 2022: GBP2.3m, H1 2022: GBP2.9m). Contingent
consideration liabilities relate solely to the cost of acquiring
the remaining shares in Direct Life Quote Holdings Limited. The
year-on-year reduction reflects an update to forecasts in both RSC
and Direct Life Quote Holdings Limited, and the full settlement of
the contingent consideration liability of GBP2.3m in RSC ahead of
its disposal in January 2023.
Bank facilities/ Liquidity
In February 2023, LSL agreed an amendment and restatement of our
banking facility, with a GBP60m committed revolving credit
facility, and a maturity date of May 2026, which replaced the
previous GBP90m facility due to mature in May 2024. The terms of
the facility have remained materially the same as the previous
facility. The facility is provided by the same syndicate members as
before, namely Barclays Bank plc, NatWest Bank plc and Santander UK
plc.
In arranging the banking facility, the Board took the
opportunity to review the Group's borrowing requirements,
considering our strong cash position and the Group's aim of
reducing its reliance on the housing market. We therefore reduced
the size of the committed facility and the costs associated with
it. To provide further flexibility to support growth, the facility
retains a GBP30m accordion, to be requested by LSL at any time,
subject to bank approval.
At 30 June 2023, Net Cash(9) was at a record high at a half year
at GBP36.3m (31 December 2022: Net Cash GBP40.1m, H1 2022:
GBP30.7m), providing flexibility to make further investments to
support growth. The net decrease in cash and cash equivalents of
GBP3.8m during H1 2023 included further investment in Pivotal
Growth (GBP4.7m), capital expenditure of GBP1.6m (H1 2022:
GBP2.2m), exceptional costs in relation to divisional restructure
and transformation programmes of GBP3.8m and payment of the 2022
final dividend of GBP7.6m (H1 2021: GBP7.7m dividends paid) and the
settlement of contingent consideration in RSC of GBP2.3m ahead of
its disposal to Pivotal Growth. There were reduced corporation tax
payments (GBPnil) as a result of the loss before tax position (H1
2022: GBP4.1m). Marsh & Parsons and First2Protect businesses
were sold for net consideration received during the period of
GBP26.1m and GBP9.3m respectively, with contingent consideration
for the disposals of Group First, RSC and EFS receivable in 2025
based upon 7x 2024 EBITDA performance. Total cash balances in the
disposed businesses at the point of sale were GBP9.0m.
The Financial Services Network business has a regulatory capital
requirement associated with its regulated revenues. The regulatory
capital requirement was GBP6.1m at 30 June 2023 (31 December 2022:
GBP5.9m, H1 2022: GBP5.9m), with a surplus of GBP24.4m (31 December
2022: GBP24.9m, H1 2022: GBP13.4m).
Treasury and Risk Management
We have an active debt management policy. The Group 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 our Annual Report and Accounts 2022.
International Accounting Standards (IAS)
The Interim Condensed Consolidated Group Financial Statements
for the period ended 30 June 2023 have been prepared in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and UK-adopted IAS.
Notes:
1 Like for like revenue: GBP66.3m in H1 2023 with statutory
revenue of GBP72.5m less GBP6.2m revenue from businesses disposed
in H1 2023, as compared to GBP79.5m in H1 2022 with statutory
revenue of GBP110.2m less GBP30.7m revenue from businesses disposed
in H1 2023
2 Refer to note 5 of the Financial Statements for reconciliation
of Group and Divisional Underlying Operating Profit to statutory
operating (loss)/profit for continuing, discontinued and total
operations
3 Following the conversion of the entire owned Estate Agency
network to franchisees in H1 2023, this was classified as a
discontinued operation and is now presented as such in the
Financial Statements. Refer to notes 2 and 6 to the Financial
Statements
4 Refer to note 8 of the Financial Statements
5 Refer to note 7 of the Financial Statements for the calculation
6 Refer to note 12 of the Financial Statements
7 Refer to note 18 of the Financial Statements
8 Refer to note 11 of the Financial Statements
9 Refer to note 5 of the Financial Statements for the calculation
Principal Risks and Uncertainties
The principal risks and uncertainties relating to the Group's
operations remain consistent with those disclosed on pages 25 to 28
of the Group's Annual Report and Accounts 2022 (which can be
accessed on the Group's website: www.lslps.co.uk). Having
reconsidered these principal risks and uncertainties, the Board has
concluded that these remain the same as those included within the
Annual Report and Accounts 2022.
Responsibility statement of the Directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- The Interim Condensed Consolidated Group Financial Statements
for the period ended 30 June 2023 have been prepared in accordance
with UK adopted International Accounting Standard 34;
-- The interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related-party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related-party transactions
described in the last annual report that could do so.
By order of the Board
David Stewart Adam Castleton
Director, Group Chief Executive Officer Director, Group Chief
Financial Officer
26 September 2023 26 September 2023
Interim Group Income Statement
for the six months ended 30 June 2023
Unaudited Audited
Six Months Ended Year Ended
30 June Restated* Restated
2023 30 June * 31 December
2022 2022
Continuing operations Note GBP'000 GBP'000 GBP'000
-------- --------- --------------
Revenue 4 72,494 110,173 217,472
Operating expenses:
Employee costs (51,534) (73,616) (145,325)
Depreciation on property, plant and
equipment and right-of-use assets (1,644) (3,851) (7,612)
Other operating costs (15,099) (18,868) (35,083)
Other operating income 264 1,085 1,334
Loss on sale of property, plant and
equipment - (2) -
Share of post-tax loss from joint ventures
and associates (167) (208) (494)
Share-based payments (377) (1,456) (1,860)
Amortisation of intangible assets (987) (1,428) (2,866)
Exceptional gains 8 8,583 - 694
Exceptional costs 8 (4,317) (2,000) (48,316)
Contingent consideration 14 1 115 696
--------------
Group operating profit/(loss) 7,217 9,944 (21,360)
Finance income 752 6 76
Finance costs (884) (1,075) (2,147)
(2,071
Net finance costs (132) (1,069) )
Profit/(loss) before tax from continuing
operations 7,085 8,875 (23,431)
Taxation charge 10 (2,063) (1,384) (3,020)
Profit/(loss) for the period from
continuing operations 5,022 7,491 (26,451)
Discontinued operations
Loss for period from discontinued operations 6 (42,940) (1,718) (36,026)
-------- --------- --------------
(Loss)/profit for the period (37,918) 5,773 (62,477)
-------- --------- --------------
Attributable to:
Owners of the parent (37,842) 5,824 (62,384)
Non-controlling interest (76) (51) (93)
-------- --------- --------------
(37,918) 5,773 (62,477)
-------- --------- --------------
(Loss)/earnings per share from total
operations (expressed as pence per
share):
Basic 7 (36.8) 5.6 (60.8)
Diluted 7 (36.8) 5.6 (60.8)
(Loss)/earnings per share from continuing
operations (expressed as pence per
share):
Basic 7 5.0 7.3 (25.7)
Diluted 7 4.9 7.3 (25.7)
-------- --------- --------------
*See note 18 for details regarding the restatement.
Interim Group Statement of Comprehensive Income
for the six months ended 30 June 2023
Unaudited Audited
Six Months Ended Year Ended
Restated Restated
* *
30 June 30 June 31 December
2023 2022 2022
Note GBP'000 GBP'000 GBP'000
----------- ----------- ------------
Loss/(profit) for the period (37,918) 5,773 (62,477)
Items not to be reclassified to profit
and loss in subsequent periods:
Revaluation of financial assets not
recycled through income statement 13 (116) (370) (5,096)
Tax on revaluation (1) - 130
----------- ----------- ------------
(117) (370) (4,966)
----------- ----------- ------------
Total comprehensive (expense) / income,
net of tax (38,035) 5,403 (67,443)
----------- ----------- ------------
Attributable to:
Owners of the parent (37,959) 5,454 (67,350)
Non-controlling interest (76) (51) (93)
----------- ----------- ------------
(38,035) 5,403 (67,443)
----------- ----------- ------------
*See note 18 for details regarding the restatement.
Interim Group Balance Sheet
as at 30 June 2023
Unaudited Audited
Restated Restated*
30 June * 30 June 31 December
2023 2022 2022
Note GBP'000 GBP'000 GBP'000
--------- ----------- -------------
Non-current assets
Goodwill 12 16,855 153,654 54,997
Other intangible assets 11 26,010 30,389 17,280
Property, plant and equipment 6,295 33,550 15,570
Financial assets 13 8,488 6,095 1,045
Investment in sublease 2,256 - -
Investments in joint venture 16 9,582 2,338 5,068
Contract assets 409 521 431
Loans to franchisees 13 1,335 - -
--------- ----------- -------------
Total non-current assets 71,230 226,547 94,391
--------- ----------- -------------
Current assets
Trade and other receivables 32,032 38,944 26,608
Contract assets 219 424 348
Investment in sublease 2,152 - -
Current tax asset - 3,499 3,063
Cash and cash equivalents 36,300 30,708 36,755
-------------
70,703 73,575 66,774
--------- ----------- -------------
Assets held for sale - - 54,402
--------- ----------- -------------
Total current assets 70,703 73,575 121,176
--------- ----------- -------------
Total assets 141,933 300,122 215,567
--------- ----------- -------------
Current liabilities
Financial liabilities 14 (3,170) (10,462) (6,949)
Trade and other payables (35,777) (58,380) (47,030)
Current tax liabilities (292) - -
Provisions for liabilities 15 (3,987) (870) (660)
--------- ----------- -------------
(43,226) (69,712) (54,639)
--------- ----------- -------------
Liabilities held for sale - - (21,930)
--------- ----------- -------------
Total current liabilities (43,226) (69,712) (76,569)
--------- ----------- -------------
Non-current liabilities
Financial liabilities 14 (5,274) (18,088) (6,277)
Deferred tax liability (2,549) (2,334) (2,392)
Provisions for liabilities 15 (6,890) (3,037) (1,695)
--------- ----------- -------------
Total non-current liabilities (14,713) (23,459) (10,364)
--------- ----------- -------------
Total liabilities (57,939) (93,171) (86,933)
--------- ----------- -------------
Net assets 83,994 206,951 128,634
--------- ----------- -------------
Equity
Share capital 210 210 210
Share premium account 5,629 5,629 5,629
Share-based payment reserve 6,264 5,830 5,331
Shares held by EBT (5,404) (6,814) (5,457)
Treasury shares (3,983) (1,767) (3,983)
Fair value reserve (385) (15,643) (20,239)
Retained earnings 81,986 219,036 146,715
--------- ----------- -------------
Equity attributable to the owners
of the parent 84,317 206,481 128,206
--------- ----------- -------------
Non-controlling interest (323) 470 428
--------- ----------- -------------
Total Equity 83,994 206,951 128,634
--------- ----------- -------------
*See note 18 for details regarding the restatement.
Interim Group Cash Flow Statement
for the six months ended 30 June 2023
Unaudited Audited
Six Months Ended Year Ended
Restated Restated*
30 June * 30 June 31 December
2023 2022 2022
Note GBP'000 GBP'000 GBP'000
--------- ----------- -------------
Profit / (loss) before tax from continuing
operations 7,085 8,875 (23,431)
Loss before tax from discontinued operations 6 (41,647) (1,511) (34,189)
--------- ----------- -------------
(Loss) / profit before tax (34,562) 7,364 (57,620)
--------- ----------- -------------
Adjustments for:
Exceptional costs 44,422 2,000 87,255
Exceptional gains (8,583) - (694)
Contingent consideration (1) (115) (696)
Depreciation of tangible assets 2,794 5,871 11,629
Amortisation of intangible assets 1,389 2,120 4,249
Share-based payments 432 1,500 1,977
Loss /(profit) on disposal of fixed
assets (2) 2 (8)
Loss/(profit) from joint ventures 167 208 494
Recognition of investments at fair
value through the income statement 180 - (678)
Decrease in contract assets 151 - 378
Finance income (752) (6) (80)
Finance costs 994 1,310 2,497
Operating cash flows before movements
in working capital 6,629 20,254 48,703
--------- ----------- -------------
Movements in working capital
Increase in trade and other receivables (7,066) (5,653) (1,491)
(Decrease) / increase in trade and
other payables (6,663) (5,486) (11,243)
Increase / (decrease) in provisions 158 (59) (799)
(13,571) (11,198) (13,533)
--------- ----------- -------------
Cash (used in) / generated from operations (6,942) 9,056 35,170
Interest paid (244) (1,277) (2,342)
Income taxes paid 0 (4,052) (6,109)
Exceptional costs paid (3,780) - (384)
Net cash generated (used in) / generated
from operating activities (10,966) 3,727 26,335
--------- ----------- -------------
Cash flows generated from / (used
in) in investing activities
Disposal of businesses, net of cash
disposed 26,537 - -
Payment of contingent consideration 14 (2,280) (76) (76)
Investment in joint venture (4,681) (936) (3,952)
Proceeds from sale of financial assets 13 206 - -
Receipt of lease income 116 33 68
Purchase of property, plant and equipment
and intangible assets (1,575) (2,231) (4,907)
Proceeds from sale of property, plant
and equipment - 6 1,304
Franchisee loans granted (1,335) - -
Net cash generated / (expended) on
investing activities 16,988 (3,204) (7,563)
--------- ----------- -------------
Cash flows used in financing activities
Purchase of LSL shares by the EBT - (5,026) (5,026)
Purchase of treasury shares - (1,767) (3,983)
Proceeds from the exercise of share
options 20 263 825
Payments of lease liabilities (2,250) (4,095) (7,170)
Dividends paid (7,601) (7,654) (11,773)
Net cash used in financing activities (9,831) (18,279) (27,127)
--------- ----------- -------------
Net (decrease) / increase in cash
and cash equivalents (3,809) (17,756) (8,355)
--------- ----------- -------------
Cash and cash equivalents at the beginning
of the period / year 40,109 48,464 48,464
--------- ----------- -------------
Cash and cash equivalents at the end
of the period / year 36,300 30,708 40,109
--------- ----------- -------------
The closing cash and cash equivalents for the year ended 31
December 2022 includes GBP3.4m which is presented in assets held
for sale on the Group Balance Sheet. Total cash and cash
equivalents less assets held for sale was GBP36.8m.
*See note 18 for details regarding the restatement.
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June 2023
Share- Equity
Share based Shares Fair attributable Non-
Share premium payment held Treasury value Retained to owners of controlling
capital account reserve by EBT Shares Reserve earnings the parent interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- -------- -------- ---------- ----------- ------------- -------------- ------------- ---------
At 1 January 2023 210 5,629 5,331 (5,457) (3,983) (20,239) 146,715 128,206 428 128,634
Other comprehensive
(expense) / income
for the period
Loss for the year - - - - - - (37,842) (37,842) (76) (37,918)
Revaluation of
financial assets - - - - - (116) - (116) - (116)
Tax on revaluations - - - - - (1) - (1) - (1)
--------- --------- -------- -------- ---------- ----------- ------------- -------------- ------------- ---------
Total
comprehensive
(expense) /
income for the
period - - - - - (117) (37,842) (37,959) (76) (38,035)
--------- --------- -------- -------- ---------- ----------- ------------- -------------- ------------- ---------
Acquisition of
subsidiary 675 675 (675) -
Exercise of
options - - (43) 53 - - 10 20 - 20
Dividend paid - - - - - - (7,601) (7,601) - (7,601)
Share-based
payments - - 432 - - - - 432 - 432
Tax on
share-based
payments - - 544 - - - - 544 - 544
Fair value
reclassification
following
disposals - - - - - 19,971 (19,971) - - -
At 30 June 2023 210 5,629 6,264 (5,404) (3,983) (385) 81,986 84,317 (323) 83,994
--------- --------- -------- -------- ---------- ----------- ------------- -------------- ------------- ---------
During the six-month period to 30 June 2023 a total of 17,984
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.
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June 2022
Share-
Share based
Share premium payment Shares Treasury Fair Retained Equity Non-
capital account reserve held Shares value earnings attributable controlling Total
by EBT Reserve to owners of interest
the parent
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- ---------- -------- ---------- --------- ---------- -------------- ------------- --------
At 1 January 2022 210 5,629 5,263 (3,063) - (15,273) 224,832 217,598 521 218,119
Prior year
restatements
(net of tax) ,
note 18 - - - - - - (3,959) (3,959) - (3,959)
--------- --------- ---------- -------- ---------- --------- ---------- -------------- ------------- --------
Restated total
equity at the
beginning of the
financial period 210 5,629 5,263 (3,063) - (15,273) 220,873 213,639 521 214,160
Revaluation of
financial assets - - - - - (370) - (370) - (370)
Profit for the
period
(restated) - - - - - - 5,824 5,824 (51) 5,773
--------- --------- ---------- -------- ---------- --------- ---------- -------------- ------------- --------
Total
comprehensive
income for
the period
(restated) - - - - - (370) 5,824 5,454 (51) 5,403
--------- --------- ---------- -------- ---------- --------- ---------- -------------- ------------- --------
Shares
repurchased
into Treasury - - - - (1,767) - - (1,767) - (1,767)
Shares
repurchased
into EBT - - - (5,026) - - - (5,026) - (5,026)
Exercise of
options - - (1,005) 1,275 - (7) 263 - 263
Dividend paid - - - - - - (7,654) (7,654) - (7,654)
Share-based
payments - - 1,500 - - - - 1,500 - 1,500
Tax on
share-based
payments - - 72 - - - - 72 - 72
--------- --------- ---------- -------- ---------- --------- ---------- -------------- ------------- --------
At 30 June 2022
(restated) 210 5,629 5,830 (6,814) (1,767) (15,643) 219,036 206,481 470 206,951
--------- --------- ---------- -------- ---------- --------- ---------- -------------- ------------- --------
During the six-month period to 30 June 2022 a total of 431,336
share options were exercised relating to LSL's various share option
schemes resulting in the shares being sold by the
Trust. LSL received GBP263,000 on exercise of these options.
Group Statement of Changes in Equity
for the year ended 31 December 2022
Share-
Share based
Share premium payment Shares Treasury Fair Retained Equity Non-
capital account reserve held Shares value earnings attributable controlling Total
by EBT Reserve to owners of interest
the parent
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2022 210 5,629 5,263 (3,063) - (15,273) 224,832 217,598 521 218,119
Prior year
restatements
(net of tax),
note 18 - - - - - - (3,959) (3,959) - (3,959)
Restated total
equity at the
beginning of the
financial year 210 5,629 5,263 (3,063) - (15,273) 220,873 213,639 521 214,160
Loss for the year
(restated) - - - - - - (62,384) (62,384) (93) (62,477)
Revaluation of
financial assets - - - - - (5,096) - (5,096) - (5,096)
Tax on
revaluations - - - - - 130 - 130 - 130
Total
comprehensive
income for
the year
(restated) - - - - - (4,966) (62,384) (67,350) (93) (67,443)
Shares
repurchased
into treasury - - - (3,983) - - (3,983) - (3,983)
Shares
repurchased
into EBT - - - (5,026) - - - (5,026) - (5,026)
Exercise of
options - - (1,806) 2,632 - - (1) 825 - 825
Dividend paid - - - - - - (11,773) (11,773) - (11,773)
Share-based
payments - - 1,977 - - - - 1,977 - 1,977
Tax on
share-based
payments - - (103) - - - - (103) - (103)
At 31 December
2022
(restated) 210 5,629 5,331 (5,457) (3,983) (20,239) 146,715 128,206 428 128,634
During the year ended 31 December 2022, the Trust acquired
1,351,000 LSL Shares. During the period, 890,146 share options were
exercised relating to LSL's various share option schemes resulting
in the Shares being sold by the Trust. LSL received GBP0.8m on
exercise of these options.
Notes to the Interim Condensed Consolidated Group Financial
Statements
The Interim Condensed Consolidated Group Financial Statements
for the period ended 30 June 2023 were approved by the LSL Board on
26 September 2023. The interim Financial Statements are not the
statutory accounts. The financial information for the year ended 31
December 2022 is extracted from the audited statutory accounts for
the year ended 31 December 2022, which have been filed with the
Registrar of Companies. The auditor's report on those 2022 full
year statutory accounts was unqualified and did not contain an
emphasis of matter paragraph and did not make a statement under
section 498 (2) or (3) of the Companies Act 2006.
1. Basis of preparation
The Interim Condensed Consolidated Group Financial Statements
for the period ended 30 June 2023 have been prepared in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority, and should be read in conjunction with
the Group's annual Financial Statements as at 31 December 2022
which are included in LSL's Annual Report and Accounts 2022. The
Group's annual Financial Statements for the year ending 31 December
2023 will be prepared in accordance with UK adopted International
Accounting Standards.
The Interim Condensed Consolidated Group Financial Statements do
not include all the information and disclosures required for a
complete set of IFRS Financial Statements. However, selected
explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in the
Group's financial position and performance since the last annual
Financial Statements.
Going Concern
The UK Corporate Governance Code requires the Board to assess
and report on the prospects of the Group and whether the business
is a Going Concern. In considering this requirement, the Directors
have taken into account the Group's forecast cash flows, liquidity,
borrowing facilities and related covenant requirements and the
expected operational activities of the Group.
The Group expects to continue to meet its day-to-day working
capital requirements through cashflows generated by its trading
activities and available cash resources (30 June 2023: GBP36.3m).
The Group's banking facility, a GBP60 million committed revolving
credit facility has a maturity date of May 2026, having been
amended and restated in February 2023. As shown in Note 5 to these
interim condensed consolidated Group Financial Statements, the
Group have not currently utilised the facility leaving GBP60
million of available undrawn committed borrowing facilities in
respect of which all conditions precedent had been met. The
facility agreement contains financial covenants, including minimum
net debt to EBITDA ratio, which mean under the base case and
downside scenarios the full facility would not be available within
the going concern period.
LSL has continued to run a variety of scenario models throughout
the year to help the ongoing assessment of risks and opportunities.
The Group considered both current trading and external reference
points in developing a base case forecast and has assumed inflation
and interest rates of 5% and 5.5% respectively in 2024. The base
case forecast prudently assumes a continuation of current trading
throughout the going concern period to 31 December 2024. A severe
downside scenario has been modelled as part of the Going Concern
assessment, which includes the pessimistic assumption that there is
a significant reduction in market transaction volumes reducing
below the low point experienced during the Global Financial Crisis
and in turn reducing Group revenue by over 25%. The scenario
modelling includes certain mitigating actions, within the Group's
control, however there are further cost mitigations that could be
applied in such a severe scenario. Underpinned by LSL's strong
balance sheet and multiple business revenue streams, the severe
downside financial scenario modelling confirmed that the Group's
current liquidity position would enable the Group to operate under
this scenario to 31 December 2024 within the terms of its current
facilities with no breach of banking covenants and therefore it is
appropriate to use the Going Concern basis of preparation for this
financial information.
Having due regard to the scenarios above and after making
appropriate enquiries, the Directors have a reasonable expectation
that the Group and the Company have adequate resources to remain in
operation to 31 December 2024. The Board have therefore continued
to adopt the Going Concern basis in preparing the Interim Condensed
consolidated Financial Statements.
2. Significant accounting policy information
The accounting policies adopted in the preparation of the
Interim Condensed Consolidated Group Financial Statements are
consistent with those followed in the preparation of the Group's
annual Financial Statements for the year ended 31 December 2022,
with the exception of the following amended and new accounting
policies:
Investment in subleases (new)
In scenarios where the Group is an intermediate lessor, the
sublease is classified as a finance lease if substantially all of
the risk and rewards incidental to the ownership of the leased
asset have transferred to the sublessee, otherwise the sublease is
classified as an operating lease. The Group accounts for finance
subleases by derecognising the existing right-of-use asset at the
effective date of the sublease and recognising a receivable for the
Group's net investment in the sublease, with any resultant
gain/(loss) recognised in the income statement. The net investment
in the leases equals remaining fixed payments, discounted at the
interest rate implicit in the lease. After initial recognition, the
Group recognising finance income over the remaining lease using the
amortised cost method. The net investment in sublease is
subsequently reviewed for impairment under IFRS 9.
Loans to franchisees (new)
The Group issues loans to its franchisees, the Group's objective
is to hold these loans to collect contractual cash flows and the
contractual cash flows are solely payments of principal and
interest. They are initially recognised at fair value plus
transaction costs that are directly attributable to their issue,
and are subsequently carried at amortised cost, less provision for
impairment.
Impairment provisions against loans to franchisees are
recognised based on an expected credit loss model. The methodology
used to determine the amount of provision is based on whether there
has been a significant increase in credit risk since initial
recognition of these financial assets and is calculated by
considering the cash shortfalls that would be incurred and
probability of these cash shortfalls using the Group's model. Where
a significant increase in credit risk is identified, lifetime
expected credit losses are recognised; alternatively, if there has
not been a significant increase in credit risk, a twelve-month
expected credit loss is recognised. Such provisions are recorded in
a separate allowance account with the loss being recognised within
operating expenses in the statement of comprehensive income. On
confirmation that the franchisee loan will not be collectable, the
gross carrying value of the asset is written off against the
associated provision.
Gain or loss on disposal to a joint venture (new)
In circumstances where a former subsidiary is sold to a joint
venture through a downstream transaction, the Group recognises a
full gain or loss in the Income Statement, consistent with IFRS 10.
The resultant gain or loss is calculated as consideration received
less the net assets of the subsidiary.
Discontinued operations (new)
The Group has classified its previously owned network of estate
agency branches as a discontinued operation for the reporting
period ending 30 June 2023. A discontinued operation is a component
of the Group's business, the operations and cash flows of which can
be clearly distinguished from the rest of the Group and which:
- represent a separate major line of business or geographic area of operations;
- is part of a single co-ordinated plan to dispose of a separate
major line of business or geographic area of operations; or
- is a subsidiary acquired exclusively with a view to resale.
Classification as a discontinued operation occurs at the earlier
of disposal or when the operation meets the criteria to be
classified as held for sale. When an operation is classified as a
discontinued operation, the comparative income statement and
statement of comprehensive income are presented as if the operation
had been discontinued from the start of the earliest comparative
period disclosed.
Discontinued operations are presented in the Group Income
Statement as a single line which comprises the post-tax profit or
loss of the discontinued operation along with the post-tax gain or
loss recognised on the re-measurement to fair value less costs to
sell on disposal of the assets or disposal groups constituting
discontinued operations.
Franchise intangible assets (new)
Franchise agreements entered into by the Group (as franchisor)
as part of contractual arrangements concerning the disposal of
previously owned branches are recognised as intangible assets.
Franchise intangible assets are initially recognised at fair value,
level 3 and subsequently amortised on a straight line basis over
their useful economic lives, being the term of the agreement. The
agreements are being written off over a remaining life of 15 years
as based on the agreements, this is the most likely minimum term.
The life of the relationship is assessed annually. Refer to note 6
for disclosure on assumptions and valuations inputs.
3. Judgements and estimates
The preparation of financial information in conformity with UK
adopted International Accounting Standards and the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority requires management to make judgements, estimates
and assumptions that affect the application of policies and
reporting amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next six months are
the same as those as at 31 December 2022 (as disclosed in the
Group's 2022 Annual Report and Accounts) with the exception of new
sources of estimation uncertainty detailed below:
Judgements and estimates
-- Exceptional items (judgement)
-- Deferred tax (judgement and estimate)
-- Carrying value of goodwill and intangible assets (estimate)
-- Valuation of financial assets (estimate)
-- Lapse provision (estimate)
-- Professional Indemnity (PI) claims (estimate)
-- Contingent consideration assets (estimate)
-- Income tax (estimate)
-- Valuation of franchise intangible assets (new)
When valuing franchise intangible assets associated with the
franchising of previously owned estate agency branches, management
estimate the expected future cash flows under the agreement and
choose a suitable discount rate to calculate the present value of
those cash flows. The budgets and forecasts are based on various
assumptions relating to the future performance of franchised
branches including assumptions relating to market outlook and
observable trends. A sensitivity analysis has been performed
allowing for possible changes to assumptions in the valuation of
franchise intangible assets, see notes 6 and 18 for details.
-- Dilapidation provisions (new)
When valuing dilapidation provisions the Group estimates the
potential future liability based on an average dilapidations rate
per square foot or a cost estimate provided for each property which
has satisfied the Group's recognition criteria. The future
liability is then discounted to present value based on the
estimated timing of the outflow. A sensitivity analysis has been
performed allowing for possible changes to assumptions in the
dilapidation provision, see note 15 for details.
4 . Segment analysis of revenue and operating profit
LSL reports three segments: Financial Services, Surveying and
Valuation, and Estate Agency:
-- The Financial Services segment provides services to mortgage
intermediaries through PRIMIS, one of the UK's largest mortgage and
insurance networks, and TMA;
-- The Surveying & Valuation segment provides valuations and
surveys of residential properties to UK mortgage lenders and
individual customers;
-- The Estate Agency segment provides services to a network of
estate agency franchisees. The segment previously operated a
network of both owned and franchised branches before transitioning
to a fully franchised model during 2023.
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 income) and income taxes are managed on a Group basis and
are not allocated to operating segments.
Operating segments
The following tables presents revenue followed by profit
information regarding the Group's operating segments for the six
months ended 30 June 2023, for the six months ended 30 June 2022
and for the year ended 31 December 2022.
Revenue by Stream:
Unaudited - Six months ended 30 June 2023
Revenue Split by Stream - Unaudited - Six Months ended
30 June 2023
Residential
Surveying Sales Franchise Asset
Financial & exchange* Lettings* Income Management Other
Services Valuation (EA) (EA) (EA) (EA) (EA) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Timing of
revenue
recognition
Services
transferred
at a point
in
time 28,027 35,508 2,209 950 3,279 1,644 622 72,239
Services
transferred
over time - - - 170 - 85 - 255
------------- ------------- --------------- ------------- ------------- -------------- ----------- -------------
Total
revenue
from
contracts
with
customers 28,027 35,508 2,209 1,120 3,279 1,729 622 72,494
------------- ------------- --------------- ------------- ------------- -------------- ----------- -------------
*Continuing operations residential and lettings revenues include
Marsh & Parsons prior to sale, and revenue from the Land &
New Homes business
Unaudited - Six months ended 30 June 2022
Revenue Split by Stream - Unaudited - Six Months ended
30 June 2022
Residential
Surveying Sales Franchise Asset
Financial & exchange Lettings Income Management Other
Services Valuation (EA) (EA) (EA) (EA) (EA) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Timing of
revenue
recognition
Services
transferred
at a point
in
time 39,814 50,451 7,900 7,601 1,265 1,318 81 108,430
Services
transferred
over time - - - 1,150 - 593 - 1,743
------------- ------------- --------------- ------------ ------------- -------------- ----------- -------------
Total
revenue
from
contracts
with
customers 39,814 50,451 7,900 8,751 1,265 1,911 81 110,173
------------- ------------- --------------- ------------ ------------- -------------- ----------- -------------
Audited - Year ended 31 December 2022
Revenue Split by Stream - Audited - Year ended 31 December
2022
Residential
Surveying Sales Franchise Asset
Financial & exchange Lettings Income Management Other
Services Valuation (EA) (EA) (EA) (EA) (EA) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Timing of
revenue
recognition
Services
transferred
at a point
in time 81,681 93,228 15,532 16,876 2,656 2,811 1,201 213,985
Services
transferred
over time - - - 2,337 - 1,150 - 3,487
------------- ------------- --------------- ------------ ------------- -------------- ----------- ------------
Total revenue
from
contracts
with
customers 81,681 93,228 15,532 19,213 2,656 3,961 1,201 217,472
------------- ------------- --------------- ------------ ------------- -------------- ----------- ------------
Revenue and Operating Profit by segment:
Unaudited - Six months ended 30 June 2023
Financial Surveying
Services & Valuation Estate Agency Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- --------------- ----------------- --------------- -----------
Revenue from external
customers 29,619 35,508 39,709 - 104,836
Introducers fee (1,592) - 1,592 - -
------------- --------------- ----------------- --------------- -----------
Total revenue 28,027 35,508 41,301 - 104,836
------------- --------------- ----------------- --------------- -----------
Discontinued operations:
Revenue from external
customers - - (30,759) - (30,759)
Introducers fee - - (1,583) - (1,583)
------------- --------------- ----------------- --------------- -----------
Total revenue 28,027 35,508 8,959 - 72,494
------------- --------------- ----------------- --------------- -----------
Segmental result:
Underlying Operating Profit 3,764 3,367 643 (3,460) 4,314
Operating profit / (loss) 9,928 1,282 (261) (3,732) 7,217
Finance income 752
Finance costs (884)
-----------
Profit before tax 7,085
Loss before tax from discontinued
operations (41,647)
-----------
Loss before tax (34,562)
Taxation (3,356)
-----------
Loss for the period (37,918)
-----------
Group Underlying Operating Profit is as defined in note 5 to
these condensed financial statements.
Surveying
Financial & Valuation
Services Estate Agency Unallocated Total
Balance sheet information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- --------------- ------------- ----------- --------
Segment assets - intangible 11,417 11,397 19,979 71 42,864
Segment assets - other 27,194 13,329 17,982 40,564 99,069
----------- --------------- ------------- ----------- --------
Total Segment assets 38,611 24,726 37,961 40,635 141,933
Total Segment liabilities (12,537) (13,446) (22,600) (9,356) (57,939)
----------- --------------- ------------- ----------- --------
Net assets 26,074 11,280 15,361 31,279 83,994
----------- --------------- ------------- ----------- --------
The joint venture interests of the Group are recorded in the
Financial Services segment.
Unallocated net assets comprise other intangibles GBP0.1m, PPE
GBP0.8m, cash GBP36.0m, other assets GBP3.7m, accruals GBP(6.6)m,
payables GBP(0.1)m, and current and deferred tax GBP(2.7)m.
Unallocated result comprises costs relating to the Parent
Company.
Unaudited - Six months ended 30 June 2022
Financial Surveying
Income statement information Services & Valuation Estate Agency Unallocated Total
(restated) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- -------------- --------------- ----------- ----------
Revenue from external
customers 42,646 50,451 67,772 - 160,869
Introducers fee (2,832) - 2,832 - -
----------- -------------- --------------- ----------- ----------
Total revenue 39,814 50,451 70,604 - 160,869
----------- -------------- --------------- ----------- ----------
Discontinued operations:
Revenue from external
customers - - (47,946) - (47,946)
Introducers fee - - (2,750) - (2,750)
----------- -------------- --------------- ----------- ----------
Total revenue 39,814 50,451 19,908 - 110,173
----------- -------------- --------------- ----------- ----------
Segmental result:
Underlying Operating Profit 6,104 13,066 (433) (4,024) 14,713
Operating profit / (loss) 4,890 12,865 (3,101) (4,710) 9,944
Finance income 6
Finance costs (1,075)
----------
Profit before tax 8,875
Loss before tax from discontinued
operations (1,511)
----------
Profit before tax 7,364
Taxation (1,591)
Profit for the period 5,773
----------
Financial Surveying
Services &Valuation Estate Agency Unallocated Total
Balance sheet information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(restated)
----------- ----------- --------------- ----------- --------
Segment assets - intangible 20,328 11,116 152,527 72 184,043
Segment assets - other 11,322 15,148 51,077 38,532 116,079
----------- ----------- --------------- ----------- --------
Total Segment assets 31,650 26,264 203,604 38,604 300,122
Total Segment liabilities (21,385) (20,219) (46,791) (4,776) (93,171)
----------- ----------- --------------- ----------- --------
Net assets 10,265 6,045 156,813 33,828 206,951
----------- ----------- --------------- ----------- --------
The joint venture interests of the Group are recorded in the
Financial Services segment.
Unallocated net assets comprise other intangibles GBP0.1m, PPE
GBP2.8m, cash GBP30.7m, other assets GBP1.6m, current tax GBP3.5m,
accruals GBP(2.4)m, payables GBP(0.1)m and deferred tax GBP(1.9)m.
Unallocated result comprises costs relating to the Parent
Company.
Audited - Year ended 31 December 2022
Financial Surveying
Services & Valuation Estate Agency Unallocated Total
Income Statement information
(restated) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- -------------- --------------- ------------- -----------
Revenue from external
customers 87,437 93,228 141,073 - 321,738
Introducers fee (5,756) - 5,756 - -
----------- -------------- --------------- ------------- -----------
Total revenue 81,681 93,228 146,829 - 321,738
----------- -------------- --------------- ------------- -----------
Discontinued operations:
Revenue from external
customers - - (98,680) - (98,680)
Introducers fee - - (5,586) - (5,586)
----------- -------------- --------------- ------------- -----------
Total revenue 81,681 93,228 42,563 - 217,472
----------- -------------- --------------- ------------- -----------
Segmental result:
Underlying Operating
Profit 13,260 20,378 3,949 (7,295) 30,292
Operating profit / (loss) (6,839) 20,799 (26,822) (8,498) (21,360)
Finance Income 76
Finance costs (2,147)
-----------
Loss before tax (23,431)
Loss before tax from
discontinued operations (34,189)
-----------
Loss before tax (57,620)
Taxation (4,857)
-----------
Loss for the year (62,477)
-----------
Financial Surveying Estate
Services & Valuation Agency Unallocated Total
Balance sheet information
(restated) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- -------------- --------------- ------------- -----------
Segment assets - intangible 11,932 11,217 49,056 72 72, 277
Segment assets - other 24,182 9,236 64,915 44,957 143,290
----------- -------------- --------------- ------------- -----------
Total Segment assets 36,114 20,453 113,971 45,029 2 15,567
Total Segment liabilities (20,983) (14,926) (46,824) (4,200) (86,933)
----------- -------------- --------------- ------------- -----------
Net assets 15,131 5,527 67,147 40,829 1 28,634
----------- -------------- --------------- ------------- -----------
Unallocated net assets comprise intangible assets and plant and
equipment GBP2.0m, other assets GBP6.2m, cash GBP36.8m, accruals
and other payables GBP2.2m, current and deferred tax liabilities
GBP2.0m. Unallocated result comprises costs relating to the Parent
Company.
5. Adjusted performance measures
Group and Divisional Underlying Operating Profit are alternative
performance measures (APMs) used by the Directors and Group
Management to monitor performance of operating segments against
budget. It is calculated as profit/(loss) before tax adjusted for
the items set out below.
Period ended 30 June 2023
IFRS
reported
total Total
from including
Financial Surveying Estate continuing Discontinued discontinued
Services & Valuation Agency Unallocated operations Operations operations
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- ------------ ------- ----------- ----------- -------------- --------------
Profit/(loss) before
tax 10,242 1,545 (371) (4,331) 7,085 (41,647) (34,562)
Net finance cost (314) (263) 110 599 132 110 242
--------- ------------ ------- ----------- ----------- -------------- --------------
Operating profit/(loss)
per income statement 9,928 1,282 (261) (3,732) 7,217 (41,537) (34,320)
--------- ------------ ------- ----------- ----------- -------------- --------------
Operating Margin 35.4% 3.6% (2.9%) - 10% (128.4)% (32.7)%
--------- ------------ ------- ----------- ----------- -------------- --------------
Adjustments:
Share-based payments 25 81 (2) 273 377 55 432
Amortisation of intangible
assets 908 10 69 - 987 402 1,389
Exceptional gains (8,583) - - - (8,583) - (8,583)
Exceptional costs 1,486 1,994 837 - 4,317 40,105 44,422
Contingent consideration - - - (1) (1) - (1)
--------- ------------ ------- ----------- ----------- -------------- --------------
Underlying Operating
profit/(loss) 3, 764 3,367 643 (3,460) 4,314 (975) 3,339
--------- ------------ ------- ----------- ----------- -------------- --------------
Underlying Operating
Margin 13.4% 9.5% 7.2% - 5.9% (3.0)% 3.2%
--------- ------------ ------- ----------- ----------- -------------- --------------
Period ended 30 June 2022
IFRS
reported
total Total
from including
Financial Surveying Estate continuing Discontinued discontinued
Services & Valuation Agency Unallocated operations Operations operations
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- ------------ ------- ----------- ----------- -------------- --------------
Profit/(loss) before
tax 4,881 12,880 (3,529) (5,357) 8,875 (1,511) 7,364
Net finance cost 9 (15) 428 647 1,069 235 1,304
--------- ------------ ------- ----------- ----------- -------------- --------------
Operating profit/(loss)
per income statement 4,890 12,865 (3,101) (4,710) 9,944 (1,276) 8,668
--------- ------------ ------- ----------- ----------- -------------- --------------
Operating Margin 12.3% 25.5% (15.6%) - 9.0% (2.5)% 5.4%
--------- ------------ ------- ----------- ----------- -------------- --------------
Adjustments:
Share-based payments (95) 185 656 710 1,456 44 1,500
Amortisation of intangible
assets 1,308 16 104 - 1,428 692 2,120
Exceptional gains - - - - - - -
Exceptional costs - - 2,000 - 2,000 - 2,000
Contingent consideration - - (92) (23) (115) - (115)
--------- ------------ ------- ----------- ----------- -------------- --------------
Underlying Operating
profit/(loss) 6,103 13,066 (433) (4,023) 14,713 (540) 14,173
--------- ------------ ------- ----------- ----------- -------------- --------------
Underlying Operating
Margin 15.3% 25.9% (2.2%) - 13.4% (1.1)% 8.8%
--------- ------------ ------- ----------- ----------- -------------- --------------
Year ended 31 December 2022
IFRS
reported
total Total
from including
Financial Surveying Estate continuing Discontinued discontinued
Services & Valuation Agency Unallocated operations Operations operations
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- ------------ -------- ----------- ----------- -------------- --------------
Profit/(loss) before
tax (6,843) 20,921 (27,731) (9,778) (23,431) (34,189) (57,620)
Net finance cost 4 (122) 909 1,280 2,071 346 2,417
--------- ------------ -------- ----------- ----------- -------------- --------------
Operating profit/(loss)
per income statement (6,839) 20,799 (26,822) (8,498) (21,360) (33,843) (55,203)
--------- ------------ -------- ----------- ----------- -------------- --------------
Operating Margin (8.4%) 22.3% (63.0%) - (9.8%) (32.5)% (17.2)%
--------- ------------ -------- ----------- ----------- -------------- --------------
Adjustments:
Share-based payments 16 237 80 1,527 1,860 117 1,977
Amortisation of
intangible
assets 2,625 36 205 - 2,866 1,383 4,249
Exceptional gains - (694) - - (694) - (694)
Exceptional costs 17,458 - 30,858 - 48,316 38,939 87,255
Contingent consideration - - (372) (324) (696) - (696)
--------- ------------ -------- ----------- ----------- -------------- --------------
Underlying Operating
profit/(loss) 13,260 20,378 3,949 (7,295) 30,292 6,596 36,888
--------- ------------ -------- ----------- ----------- -------------- --------------
Underlying Operating
Margin 16.2% 21.9% 9.3% - 13.9% 6.3% 11.5%
--------- ------------ -------- ----------- ----------- -------------- --------------
In reporting financial information, the Group presents APMs
which are not defined or specified under the requirements of IFRS.
The Group believes that the presentation of APMs provides
stakeholders with additional helpful information on the performance
of the business but does not consider them to be a substitute for
or superior to IFRS measures. Definitions and reconciliations of
the financial APMs used in IFRS measures, are included below.
The Group reports the following APMs:
a) Group and Divisional Underlying Operating Profit
Underling Operating Profit represents the profit/(loss) before
tax for the period before net finance cost, share-based payments,
amortisation of intangible assets, exceptional items and contingent
assets and liabilities. This is the measure reported to the
Directors as it considered to give a better and more consistent
indication of both Group and Divisional underlying performance.
The closest equivalent IFRS measure Underlying Operating Profit
is profit/(loss) before tax. Refer to note 5 for a reconciliation
between profit/(loss) before tax and Group and Divisional
Underlying Operating Profit.
b) Group and Divisional Underlying Operating Margin
U nderlying Operating Margin is defined as Underlying Operating
Profit divided by revenue. Refer note to 5 for the calculation of
both Group and Divisional Underling Operating Margin. The closest
equivalent IFRS measure to Underlying Operating Margin is Operating
Margin, refer to note 5 for a reconciliation between Operating
Margin and Group Underlying Operating Margin.
c) Adjusted basic earnings per share, adjusted diluted earnings
per share and adjusted profit after tax
Adjusted basic earnings per share is defined as Group Underlying
Operating Profit adjusted for profit/(loss) attributed to
non-controlling interests, net finance cost (excluding exceptional
and contingent consideration items and discounting on leases) less
normalised tax (to arrive at adjusted profit after tax), divided by
the weighted average number of shares in issue during the financial
period. The effect of potentially dilutive ordinary shares is
incorporated into the diluted measure.
The closest equivalent IFRS measures are basic and diluted
earnings per share. Refer to note 7 for a reconciliation between
earnings/(loss) per share and adjusted earnings per share.
d) Adjusted operating expenditure
Adjusted operating expenditure is defined as the total of
employee costs, depreciation on property, plant and equipment and
other operating costs and is considered to give a better and more
consistent indication of the Group's underlying operating
expenditure .
30 June 30 June
2023 2022 31 December2022
GBP'000 GBP'000 GBP'000
---------- ---------- ---------------
Total operating expenditure (65,277) (100,229) (238,832)
Add back:
Other operating income (264) (1,085) (1,334)
Gain/(loss) on sale of property, plant and
equipment - 2 -
Share of post-tax (loss)/profit from joint
ventures and associates 167 208 494
Share-based payments 377 1,456 1,860
Amortisation of intangible assets 987 1,428 2,866
Exceptional gains (8,583) - (694)
Exceptional costs 4,317 2,000 48,316
Contingent consideration (1) (115) (696)
---------- ---------- ---------------
Adjusted operating expenditure from continuing
operations (68,277) (96,335) (188,020)
Discontinued operations (33,320) (51,236) (97,678)
Adjusted operating expenditure (101,597) (147,571) (285,698)
---------- ---------- ---------------
e) Net cash/debt
Net cash / debt is defined as current and non-current
borrowings, less cash on short term deposits, IFRS 16 financial
liabilities, deferred and contingent consideration and where
applicable cash held for sale.
30 June 30 June 31 December
Net Cash: 2023 2022 2022
GBP'000 GBP'000 GBP'000
---------- ---------- ------------
Interest-bearing loans and borrowings
(including loan notes, overdraft, IFRS
16 Leases, contingent and deferred consideration)
* Current 3,170 10,462 6,949
* Non-current 5,274 18,088 6,277
---------- ---------- ------------
8,444 28,550 13,226
Less: cash and short term deposits (36,300) (30,708) (36,755)
Less: IFRS 16 lessee financial liabilities (8,412) (25,700) (10,915)
Less: deferred and contingent consideration (32) (2,851) (2,311)
Less: cash included in held for sale - - (3,355)
---------- ---------- ------------
Net Cash (36,300) (30,709) (40,110)
---------- ---------- ------------
6. Discontinued operations
On 4 May 2023, the Group announced that its entire owned estate
agency network of 183 branches would become franchises. The
operations of the previously owned network were franchised to a
combination of new and existing franchisees between 4 May and 31
May. The operations of the branches were sold to the franchisees
through either asset or share sales.
Following completion of these franchise agreements, LSL became
one of the largest providers of estate agency franchise services in
the UK, supplying services to a network of just over 300 branches.
The Group previously operated both franchised and owned branch
business models, and by disposing of all owned branches the Group
now no longer operates as a principal in an estate agency business
and has changed to solely operating as the franchisor of estate
agents.
The disposal of the remaining owned estate agency network meets
the definition of a discontinued operation because it was a
component of the Group. Further, the owned estate agency network
constituted a separate major line of business which has been
discontinued.
At 30 June 2023, the owned branch network of estate agencies was
classified as a discontinued operation and presented as such within
the financial statements. The financial performance and cash flow
information presented here are for the five months ended 31 May
2023, the six months ended 30 June 2022 and year ended 31 December
2023.
Financial performance and cash flow information
For the
Period ended year ended
30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
Revenue 32,342 50,696 104,266
Operating expenses:
Employee and subcontractor costs (20,660) (31,235) (61,244)
Depreciation on property, plant and equipment (1,150) (2,020) (4,017)
Other operating costs (11,509) (17,981) (32,417)
(Loss) / gain on sale of property, plant
and equipment 2 - 8
Share-based payments (55) (44) (117)
Amortisation of intangible assets (402) (692) (1,383)
Exceptional costs* (6,097) - (38,939)
Group operating (loss)/profit (7,529) (1,276) (33,843)
Finance income - - 4
Finance costs (110) (235) (350)
---------- ---------- --------------
Net finance costs (110) (235) (346)
---------- ---------- --------------
Loss before tax (7,639) (1,511) (34,189)
Taxation credit/(charge) (1,255) (207) (1,837)
Loss for the year (8,894) (1,718) (36,026)
Loss on sale of discontinued operation (34,008)
Attributable tax expense (38)
----------
Loss on sale of discontinued operation (34,046)
----------
Loss after tax for the period from discontinued
operation (42,940)
----------
The net cash flows generated/(incurred)
by discontinued operations are, as follows:
For the
Period ended year ended
30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
Operating (1,973) (639) 7,087
Investing (122) (399) (672)
Financing (935) (1,590) (2,887)
-------- -------- --------------
Net cash inflow/(outflow) (3,030) (2,628) 3,528
-------- -------- --------------
Loss on disposal
Details of the sale of the operations:
Period
ended
30 June
2023
GBP'000
Consideration received or receivable:
Cash 144
Franchise intangible 10,707
Directly attributable costs (2,587)
----------
Total disposal consideration 8,264
Carrying amount of net assets sold (42,272)
----------
Loss on sale before tax (34,008)
Tax (38)
----------
Loss on sale after tax (34,046)
The net cash flows generated from the
of discontinued operations are, as follows: GBP'000
Cash received from sale of the discontinued
operations 144
( 693
Cash sold as a part of discontinued operations )
(1 53
Disposal costs paid )
---------
Net cash outflow on date of disposal (702)
The total disposal consideration recognised includes cash of
GBP0.1m, a franchise intangible asset of GBP10.7m, less directly
attributable costs of GBP2.6m. A franchise intangible asset of
GBP10.7m has been calculated using expected future cash flows that
will be generated from the agreement, discounted using a post-tax
discount rate of 11.8%. A term of 15 years has been applied to the
cash flows, consistent with managements estimate of most likely
minimum term per the franchise agreement. Market growth assumptions
have been applied to 2024 and 2025, with a long-term growth rate of
2.0% applied thereafter.
The directly attributable costs incurred of GBP2.6m, including
legal, advisory and support costs of GBP1.2m (of which GBP0.9m
relates to a provision for the novation of property leases to new
franchisees) and committed branch works costs of GBP1.0m, plus
other provisions of GBP0.2m.
The carrying amount of net assets sold relates mostly to the
goodwill associated with Your Move and Reeds Rains (GBP15.3m), LSLi
(GBP22.5m) and other (GBP0.3m). The entire balance of goodwill held
by Your Move and Reeds Rains and LSLi and other related to the
owned branch network and has therefore been disposed of as part of
the transition to a fully franchised business model. The loss also
included the disposal of assets with a net book value of GBP1.9m
and lettings contracts of GBP1.2m relating to asset sales and net
assets of GBP0.5m associated with share sales.
*Restated - refer to note 18
Franchise intangible - sensitivity analysis
The fair value of franchise intangible assets are calculated
based on a discounted future cash flow model, the cash flows are
based on management's future assumptions of franchise performance
and considers market outlook and observable trends. If the discount
rate was to be increased by 1%, this would result in a decrease in
the asset of GBP0.6m, similar if the rate was to decrease by 1%,
this would result in an increase in the franchise intangible of the
same amount. If the net cash flows from future franchise operations
were to decrease by 10% this would result in a reduction in the
asset of GBP1.1m, if they were to increase by 10% this would result
in a increase in the value of the same amount. A reasonable change
in the long-term growth rate would not result in a material
difference to the value of the franchise intangible.
Exceptional costs
Period ended Audited
Year ended
30
30 June June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
-------- -------- ------------
Exceptional costs:
Estate Agency restructuring costs 6,097 - 632
Goodwill and intangible asset impairment* - - 38,307
6,097 - 38,939
-------- -------- ------------
Estate Agency restructuring costs
The Group has provided for future dilapidation costs of GBP4.4m
related to previously owned branches, consistent with the
recognition criteria per the Group's accounting policy, please
refer to note 15 for detail of how the provision has been
calculated. The other costs incurred are redundancy and office
closure costs totalling GBP1.8m offset by a gain of GBP0.4m
recognised on derecognition of the right-of-use for previously
owned branches and recognition of investment in sublease.
Investment in sublease
As part of franchising the Group's remaining owned estate agency
branches, where the Group has disposed of a branch through an asset
sale it has become the intermediate lessor, maintaining the head
lease with original lessor, and entering a sublease with the
franchisee until the headlease transfers or expires.
The Group, in its capacity as lessor, has determined that the
subleases with franchisees are finance leases and on the
commencement date of the sublease, the Group has derecognised the
right-of-use assets previously associated with these leases and has
recognised a net investment in the sublease.
7. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the
period attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
period.
Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
Total EPS:
Unaudited - Six months ended 30 June
Weighted 2023 Weighted 2022
Loss average Per Profit average Per
after number of share after number share
tax shares amount tax (restated) of shares amount
GBP'000 Pence GBP'000 Pence
(restated)
Basic EPS (37,842) 102,937,398 (36.8) 5,824 103,099,292 5.6
Effect of dilutive
share options - 401,613
Diluted EPS (37,842) 102,937,398 (36.8) 5,824 103,500,905 5.6
---------- ------------ ----------------- ------------
Audited - Year ended 31 December 2022
2022
Loss Weighted Per share
after tax average Amount
(restated) number of (restated)
GBP'000 shares Pence
----------- ----------- -------------
Basic EPS (62,384) 102,659,027 (60.8)
Effect of dilutive
share options -
Diluted EPS (62,384) 102,659,027 (60.8)
----------- -----------
Total EPS from continuing operations:
Unaudited - Six months ended 30 June
Weighted 2023 Weighted 2022
Profit average Per Profit average Per
after number of share after number share
tax shares amount tax of shares amount
GBP'000 Pence GBP'000 Pence
Basic EPS 5,098 102,937,398 5.0 7,542 103,099,292 7.3
Effect of dilutive
share options 1,250,962 401,613
Diluted EPS 5,098 104,188,360 4.9 7,542 103,500,905 7.3
---------- ------------ ---------- ------------
Audited - Year ended 31 December 2022
2022
Loss Weighted Per share
after tax average amount
GBP'000 number of Pence
(restated) shares (restated)
----------- ----------- -------------
Basic EPS (26,358) 102,659,027 (25.7)
Effect of dilutive
share options -
Diluted EPS (26,358) 102,659,027 (25.7)
----------- -----------
Total EPS from discontinued operations:
Unaudited - Six months ended 30 June
Weighted 2023 Weighted 2022
Loss average Per Loss average Per
after number of share after number share
tax shares amount tax of shares amount
GBP'000 Pence GBP'000 Pence
Basic EPS (42,940) 102,937,398 (41.7) (1,718) 103,099,292 (1.7)
Effect of dilutive
share options
Diluted EPS (42,940) 102,937,398 (41.7) (1,718) 103,099,292 (1.7)
---------- ------------ ---------- ------------
Audited - Year ended 31 December 2022
2022
Loss Weighted Per share
after tax average amount
GBP'000 number of Pence
(restated) shares (restated)
----------- ----------- -------------
Basic EPS (36,026) 102,659,027 (35.1)
Effect of dilutive
share options -
Diluted EPS (36,026) 102,659,027 (35.1)
----------- -----------
Adjusted basic and diluted EPS
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
Unaudited Audited
Six months ended Year Ended
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
Group Underlying Operating Profit from
total operations 3,339 14, 173 36,888
Loss attributable to non-controlling interest 76 51 93
Net finance costs (excluding exceptional
items, contingent consideration items and
discounting on lease liabilities) 203 (549) (968)
Normalised taxation (tax rate 23.5% (2022:
19%)) (850) (2,599) (6,843)
Adjusted profit after tax before exceptional
items, share-based payments and amortisation 2,768 11,076 29,170
------------ ------------ ---------------
Unaudited - Six months ended 30 June
Adjusted Adjusted 2022
profit Weighted 2023 profit Weighted Per
after average Per share after average share
tax number amount tax number amount
GBP'000 of shares Pence GBP'000 of shares Pence
Adjusted basic EPS 2,768 102,937,398 2.7 11,076 103,099,292 10.7
Effect of dilutive
share options - 1,250,962 401,613
Adjusted diluted
EPS 2,768 104,188,360 2.7 11,076 103,500,905 10.7
--------- ------------ --------- ------------
Audited - Year ended 31 December 2022
Adjusted 2022
profit Weighted Per
after average share
tax number amount
GBP'000 of shares Pence
Adjusted basic EPS 29,170 102,659,027 28.4
Effect of dilutive
share options 1,275,216
--------- -------------
Adjusted diluted EPS 29,170 103,934,243 28.1
--------- -------------
This represents adjusted profit after tax attributable to equity
holders of the parent. Tax has been adjusted to exclude the prior
year tax adjustments, and the tax impact of exceptional items,
amortisation, and share-based payments. The effective tax rate used
is 23.5% (30 June 2022: 19.00% and 31 December 2022: 19.00%).
8. Exceptional items
Unaudited Audited
Six months ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
--------- --------- ------------
Exceptional costs:
Estate Agency restructuring costs - - 1,108
Surveying restructuring costs 1,993 - -
Financial Services restructuring costs 906 - -
Loss on sale of disposal groups 1,418 - -
Goodwill and intangible asset impairment - 2,000 47,208
--------- --------- ------------
4,317 2,000 48,316
--------- --------- ------------
Exceptional gains:
Gain on sale of disposal groups 8,583 - -
Exceptional gain in relation to historic
PI costs - - 694
--------- --------- ------------
8,583 - 694
--------- --------- ------------
Gain or Loss on sale of disposal groups
Group First RSC M&P EFS F2P Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Goodwill 3,638 1,064 10,557 - - 15,259
Other Intangible
assets 396 43 12,070 - 461 12,970
Property, plant
and equipment and
RoU assets 294 71 15,704 57 301 16,427
Trade and other
receivables 231 220 6,332 462 893 8,138
Bank balances and
cash 1,438 986 1,494 2,652 1,733 8,303
Deferred tax
asset/(liability) 14 14 47 - (3) 72
Current tax
asset/(liability) (379) (197) 94 171 (328) (639)
Trade and other
payables (846) (663) (4,928) (3,115) (430) (9,982)
Financial
Liabilities - (74) (14,668) - (275) (15,017)
Net assets
disposed 4,786 1,464 26,702 227 2,352 35,531
---------------- ------------------ ---------------- ---------------- ------------------------------------------------------------------------------------------------------- ----------------
Consideration
Cash and cash
equivalents - - 26,100 - 9,289 35,389
Deferred
consideration 4,367 1,454 - 2,404 - 8,225
Disposal costs (75) (75) (230) (501) (31) (912)
---------------- ------------------ ---------------- ---------------- ------------------------------------------------------------------------------------------------------- ----------------
Total
consideration
(less transaction
costs) 4,292 1,379 25,870 1,903 9,258 42,702
---------------- ------------------ ---------------- ---------------- ------------------------------------------------------------------------------------------------------- ----------------
Gain/loss on
disposal (494) (85) (832) 1,676 6,906 7,171
---------------- ------------------ ---------------- ---------------- ------------------------------------------------------------------------------------------------------- ----------------
Net cash inflow arising on disposal:
Consideration
received in cash
and cash
equivalents - - 26,100 - 9,289 35,389
Less: cash and
cash equivalents
disposed (1,438) (986) (1,494) (2,652) (1,733) (8,303)
Less: disposal
costs paid (75) (75) (230) (496) (31) (907)
---------------- ------------------ ---------------- ---------------- ------------------------------------------------------------------------------------------------------- ----------------
Cash
inflow/(outflow) (1,513) (1,061) 24,376 (3,148) 7,525 26,179
---------------- ------------------ ---------------- ---------------- ------------------------------------------------------------------------------------------------------- ----------------
Exceptional costs:
Estate Agency restructuring costs
The costs incurred as a result of estate agency restructuring
during 2023 are included within discontinued operations. The costs
included in continuing operations in 2022 relate to the closure of
branches in Marsh & Parsons.
Surveying & Valuation restructuring costs
The Group initiated a restructuring program in response to the
difficult market conditions which followed the UK mini-budget Q3
2022. The exceptional costs related to redundancy costs GBP1.8m and
office closure costs GBP0.2m.
Financial Services restructuring costs
Financial Services restructuring costs relate to corporate
activity.
Loss on sale of disposal groups
The loss on disposal groups relates to the sale of Marsh &
Parsons, Group First and RSC during January 2023.
Group First & RSC
The Group announced the sale of Group First and RSC on 13
January 2023 to Pivotal Growth for consideration payable of 7x the
combined Group First and RSC EBITDA in calendar year 2024, subject
to working capital adjustments, capped at a maximum of GBP20m.
Group First & RSC were classified as held for sale at 31
December 2022 and were written down to their fair value less cost
to sell (FVLCTS) of GBP5.3m, calculated as the present value of
consideration receivable less costs to dispose. The Group
recognised losses on the disposal of Group First and RSC of GBP0.5m
and GBP0.1m respectively as a result of adverse working capital
adjustments during the period 1 January 2023 to 13 January 2023 and
an update to expected consideration of GBP0.3m.
Marsh & Parsons
The Group announced the sale of Marsh & Parsons on 26
January 2023 to Dexters for an initial consideration of GBP29.0m,
subject to adjustments for working capital and debt-like items.
Marsh & Parsons was classified as held for sale at 31 December
2022 and was written down to its fair value less cost to sell
(FVLCTS) of GBP26.9m*, calculated as consideration received
(GBP29.0m), less estimated adjustments for debt-like items
(GBP2.0m) and costs to sell (GBP0.1m). A loss on disposal of
GBP0.8m has been recognised at 30 June 2023 and this is a result of
adverse working capital movements during the period 1 January 2023
to 26 January 2023 of GBP0.3m and an additional adjustments to
consideration of GBP0.3m.
*Restated - refer to note 18
Exceptional gains:
Gain on sale of disposal groups
On 11 April 2023, the Group announced the disposal of two
further subsidiaries, Embrace Financial Services ("EFS") and
First2Protect (F2P) to Pivotal Growth. The consideration payable
for EFS will be 7x the EBITDA in calendar year 2024, subject to
working capital adjustments, capped at a maximum of GBP10m and
payable in H1 2025. The consideration for F2P was GBP7.8m. The
Group recognised a on gain disposal of EFS and F2P of GBP2.1m and
GBP6.9m respectively. This EFS gain has been calculated as
contingent consideration of GBP2.4m less transaction costs of
GBP0.05m and net assets disposed of GBP0.3m. The gain recognised on
F2P has been calculated as consideration received of GBP9.3m, less
transaction costs of GBP0.05m and net assets disposed of
GBP2.3m.
9. Dividends paid and declared
A final dividend in respect of the year ended 31 December 2022
at 7.4 pence per share (December 2021: GBP7.4 pence per share) was
paid in the period ended 30 June 2023. An interim dividend has been
announced amounting to 4.0 pence per share (June 2022: 4.0 pence
per share). Interim dividends are recognised when paid.
10. Taxation
The major components of income tax charge in the interim Group
income statements are:
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
--------- -------- -----------
UK corporation tax:
- current year charge 4,661 1,480 3,959
- adjustment in respect of prior
years - - (788)
--------- -------- -----------
4,661 1,480 3,171
Deferred tax:
Origination and reversal of temporary
differences (2,024) (78) (218)
Adjustment in respect of prior year - (18) 126
Changes in tax rates (574) - (59)
Deferred tax disposed of - - -
--------- -------- -----------
(2,598) (96) (151)
Total tax charge in the income statement 2,063 1,384 3,020
--------- -------- -----------
The headline UK rate of corporation tax for the period is 23.5%
(2022: 19%), and the rate at which deferred tax has been provided
is 25% (2022: 25%). The expected impact on deferred tax balances of
the rate increase is estimated to be GBP(0.1)m.
Deferred tax charged directly to other comprehensive income
relating to the revaluation of financial assets is GBPnil. In the
six months ended 30 June 2022 GBPnil and year ended 31 December
2022 credit of GBP0.1m.
During the period the Group franchised its owned branches. An
intangible asset of GBP10.7m has been recognised in relation to the
Franchise agreement. This has resulted in a deferred tax liability
of GBP2.7m being recognised in the period. In addition, the 2022
accounts have been restated to recognise an intangible asset of
GBP1.5m in relation to owned branches which were franchised in
2019. This has resulted in a deferred tax liability of GBP0.4m
being recognised.
11. Other intangible assets
Brand Customer Lettings Franchise
names contracts contracts Software agreements Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ -------------- -------------- -------------- --------------- -------------
Cost
At 1 January 2022 19,265 625 21,770 22,558 - 64,218
Additions - - - 2,881 - 2,881
Reclassified as HFS (12,163) - - (1,128) - (13,291)
Disposals - - - - - -
At December 2022
(as previously
reported) 7,102 625 21,770 24,311 - 53,808
Restated - - - - 2,059 2,059
------------ -------------- -------------- -------------- --------------- -------------
At January 2023
(Restated) 7,102 625 21,770 24,311 2,059 55,867
Additions - - - 1,068 10,707 11,775
Disposals - - (21,770) - - (21,770)
Reclassified as held
for sale - - - (493) - (493)
At 30 June 2023 7,102 625 - 24,886 12,766 45,379
------------ -------------- -------------- -------------- --------------- -------------
Amortisation and
impairment
At 1 January 2022 191 286 19,037 15,100 - 34,614
Amortisation - 313 1,163 2,636 - 4,112
Other Intangible
Impairment - - - 117 - 117
Reclassified as HFS - - - (782) - (782)
------------ -------------- -------------- -------------- --------------- -------------
At December 2022
(previously reported) 191 599 20,200 17,071 - 38,061
Restated 526 526
------------ -------------- -------------- -------------- --------------- -------------
At 1 January 2023
(restated) 191 599 20,200 17,071 526 38,587
Amortisation - 26 283 1,011 69 1,389
Held for Sale
Adjustment - - - (115) - (115)
Disposals - - (20,483) (9) - (20 ,492)
------------ -------------- -------------- -------------- --------------- -------------
At 30 June 2023 191 625 - 17,958 595 19,369
------------ -------------- -------------- -------------- --------------- -------------
Net book value
------------ -------------- -------------- -------------- --------------- -------------
At 30 June 2023 6,911 - - 6,928 12,171 26,010
------------ -------------- -------------- -------------- --------------- -------------
At 31 December 2022
(previously reported) 6,911 26 1,570 7,240 - 15,747
------------ -------------- -------------- -------------- --------------- -------------
At 31 December 2022
(restated) 6,911 26 1,570 7,240 1,533 17,280
------------ -------------- -------------- -------------- --------------- -------------
Other intangible assets have been restated to include GBP1.5m of
intangible assets associated with franchise agreement, refer to
note 18 for further information. Further franchise intangible
assets (GBP10.7m) have been recognised during H1 relating to the
Group's remaining owned estate agency branch network, refer to note
6 for detail of how the franchise intangibles recognised have been
valued.
12. Goodwill
GBP'000
---------
Cost 160,865
At 1 January 2022 (As previously reported)
Restatement (5,211)
---------
At 1 January 2022 (restated) 155,654
---------
Impairment (restated) (83,363)
Reclassified as HFS (17,294)
---------
At 31 December 2022 (restated) 54,997
---------
Disposed (38,142)
At 30 June 2023 16,855
---------
Net book value
---------
At 30 June 2023 16,855
---------
At 31 December 2022 (restated) 54,997
---------
The carrying amount of goodwill by cash generating unit is given
below:
(Restated)
2023 2022
GBP'000 GBP'000
-------- -----------
Financial Services
Group First - -
RSC New Homes - -
First Complete 3,998 3,998
Advance Mortgage Funding 2,604 2,604
Personal Touch Financial Services 348 348
Direct Life and Pension Services - -
-------- -----------
6,950 6,950
-------- -----------
Surveying and Valuation segment company
-------- -----------
e.surv 9,569 9,569
-------- -----------
Estate Agency segment companies
Your Move & Reeds Rains (restated) - 15,282
Marsh & Parsons - -
LSLi - 22,512
Templeton LPA 336 336
Others - 348
-------- -----------
336 38,478
-------- -----------
Total 16,855 54,997
-------- -----------
Impairment of goodwill
Goodwill has been allocated for impairment testing purposes to
statutory companies or Groups of statutory companies which are
managed as one cash generating unit as follows:
-- Financial Services companies
o First Complete
o Advance Mortgage Funding
o Personal Touch Financial Services
o Direct Life and Pensions Services Limited
-- Surveying & Valuation company
o e.surv
-- Estate Agency companies
o Templeton LPA
During the period to 30 June 2023, goodwill associated with Your
Move, Reeds Rains, LSLi and other (GBP38.1m) has been disposed and
reduced to nil. Goodwill previously included within held for sale
assets of GBP17.3m was disposed as part of the sales of Marsh &
Parsons (GBP12.6m), Group First (GBP3.6m) and RSC (GBP1.1m) which
completed in January 2023.
The remaining goodwill balance of GBP16.9m relates primarily to
the Surveying (GBP9.6m) and Financial Services (GBP7.0m) divisions,
with a small amount remaining in Estate Agency. The recoverable
amount of the Surveying Financial Services and Estate Agency
companies has been determined based on financial budgets approved
by the Board and in the three-year plan. The discount rate applied
to cash-flow projections is 15.6% for Financial Services and
Surveying (December 2022: 14.2%) and 15.8% for Estate Agency
(December 2022: 14.2%), on a pre-tax basis and cash-flows beyond
the three-year plan are extrapolated using a 2.0% growth rate
(2022: 2.0%).
Key assumptions used in value-in-use calculations
The calculation of value-in-use for each of the Financial
Services, Surveying and Valuation Services and Estate Agency
companies is most sensitive to the following assumptions:
-- Discount rates.
-- Performance in the market.
Discount rates
Reflect Management's experts estimate of the post-tax Weighted
Average Cost of Capital (WACC) of the Group and this is grossed up
to arrive at a pre-tax discount rate (using a tax rate of 25.0%) of
15.6%-15.8% (2022: 14.2% - applied to all CGUs).
Performance in the market
Reflects how the Management Team believes the business will
perform over the three-year period and is used to calculate the
value-in-use of the CGUs.
13. Financial assets
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Investment in equity instruments
- at fair value
Unquoted shares at fair value (FVOCI) - 5,049 322
Unquoted shares at fair value (FVPL) 498 751 678
IFRS 16 lessor financial assets 7 295 45
Contingent consideration receivable 7,983 - -
Loans to franchisees 1,335 - -
Total Financial Assets 9.823 6,095 1,045
Opening balance 1,045 5,748 5,748
Additions 9,560 - 678
Fair value adjustment (OCI) (116) (370) (5,096)
Fair value adjustment (P&L) (460) 751 (68)
Disposals (206) (34) (217)
Closing balance 9,823 6,095 1,045
--------- -------- -----------
Non-current assets 9,823 6,095 1,045
Current assets - - -
--------- -------- -----------
9,823 6,095 1,045
--------- -------- -----------
Contingent Consideration Receivable
GBP4.2m and GBP1.4m of contingent consideration relates to Group
First and RSC New Homes respectively, which were both sold in
January 2023. The consideration payable will be 7x the combined
Group First and RSC EBITDA in calendar year 2024, subject to
working capital adjustments, capped at a maximum of GBP20m and
payable in H1 2025.
GBP2.4m of contingent consideration relates to EFS, which was
sold in April 2023. The consideration payable for EFS will be 7x
the EBITDA in calendar year 2024, subject to working capital
adjustments, capped at a maximum of GBP10m and payable in H1 2025.
All three entities were sold to the Group's joint venture, Pivotal
Growth Limited.
The value of the contingent consideration receivable has been
calculated for each of the three disposals noted above based on
forecast profitability in calendar year 2024, discounted at 15.7%
(the Group weighted average cost of capital). The future cash flow
and discount rate assumptions are key to the calculation, if FY24
profitability was to reduce by 10% this would result in a reduction
in the receivable of GBP0.7m, if profitability was to increase,
this would result in an increase in the receivable of the same
amount. If the discount rate was to increase by 1%, the receivable
would decrease by GBP0.1m, and if the discount rate was to reduce
by 1%, this would result in an increase in the receivable of the
same amount.
Loans to franchisees
The franchisee loans reflect drawdowns on agreed facilities
which have availability over a range of periods from 31 December
2024 to 31 December 2025, are repayable in full within 24 months
from the respective period end and bear interest at 8.5%.
Investment in equity instruments
The financial assets include unlisted equity instruments which
are carried at fair value. Fair value is judgemental given the
assumptions required and have been valued using a level 3 valuation
techniques (see Note 32 to the December 2022 Group Financial
Statements).
Vibrant Energy Matters Limited (VEM)
LSL sold the shareholding of VEM in H1 2023 for GBP206,000,
which was the carrying value at 31 December 2022 (June 2022:
GBP729,000)
NBC Property Master Limited
The carrying value of the Group's investment at 30 June 2022 has
been assessed as GBPnil (June 2022: GBP78,000 and December 2022:
GBPnil).
Global Property Ventures Limited
The carrying value of the Group's investment in Global Property
Ventures Limited at 30 June 2023 has been assessed as GBPnil (June
2022: GBP0.1m and December 2022: GBP0.1m).
Yopa Property Limited
During H1, the Group sold its shares in Yopa for GBPnil
consideration based on third party valuations provided to the
existing shareholders. (June 2022: GBP4.1m and December 2022:
GBPnil).
Openwork Units
The carrying value of the units held in The Openwork Partnership
LLP was reassessed as GBP498,000 (31 December 2022: GBP678,000, 30
June 2022: GBP751,000).
14. Financial liabilities
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Current
IFRS 16 lessee financial liabilities 3,170 7,925 4,669
Contingent consideration liabilities - 2,537 2,280
3,170 10,462 6,949
--------- -------- -----------
Non-current
IFRS 16 lessee financial liabilities 5,242 17,775 6,246
Contingent consideration liabilities 32 313 31
5,274 18,088 6,277
--------- -------- -----------
Contingent consideration liabilities-
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
--------- -------- -----------
RSC - 2,537 2,280
DLPS 32 313 31
32 2,850 2,311
--------- -------- -----------
Opening balance 2,311 3,008 3,008
Cash paid (2,280) (76) (76)
Acquisition - - -
Amounts recorded though income statement 1 (82) (621)
Closing balance 32 2,850 2,311
GBP32,000 of contingent consideration liability relates to
Direct Life and Pension Services Limited, acquired in January 2021.
The additional consideration will be calculated using earnings
multiples of between five and six times EBITA and has been capped
at a maximum of GBP1.5m.
In the period ending 30 June 2023 GBP2,280,000 (June 2022:
GBP76,000 and December 2022: GBP76,000) of contingent consideration
was paid to former shareholders.
The table below shows the allocation of the contingent
consideration liabilities balance and income charge between the
various categories:
Unaudited Audited
Six Months Ended Year Ended
Contingent consideration liabilities balances 30 June 30 June 31 December
relating to amounts accounted for as: 2023 2022 2022
GBP'000 GBP'000 GBP'000
Arrangement under IFRS 3 (1) (115) (696)
Unwinding of discount on contingent consideration 2 33 75
Charge / (credit) 1 (82) (621)
The contingent consideration charged to the Income Statement in
the period relates to previous acquisitions and relates to the
acquisition of RSC New Homes credit of GBPnil (June 2022: credit
GBP92,000 and December 2022: credit GBP371,000) and Direct Life and
Pension Services credit of GBP1,000 (June 2022: credit GBP23,000
and December 2022: credit GBP324,000).
15. Provisions for liabilities
2023
PI claim Onerous Dilapidation Restructuring
provision Lease Provision Provision Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2,341 14 - - 2,355
Additional provision
in the year - - 4,485 3,752 8,237
Amount utilised (207) (51) - - (258)
Amount released 382 127 34 - 543
Balance at 30 June 2,516 90 4,519 3,752 10,877
Current liabilities 717 85 466 2, 719 3, 987
Non-current liabilities 1,799 5 4,053 1,033 6,890
2,516 90 4,519 3,752 10,877
2022
PI claim Onerous
provision leases Total
GBP'000 GBP'000 GBP'000
Balance at 1 January 3,907 59 3,966
Amount utilised (762) (38) (800)
Amount released (804) (7) (811)
Provided in financial
year - 107 107
Reclassified to held
for sale - (107) (107)
Balance at 31 December 2,341 14 2,355
Current liabilities 647 13 660
Non-current liabilities 1,694 1 1,695
2,341 14 2,355
The Group has recognised a dilapidations provision relating to
the branches in the Estate Agency network which are being occupied
by franchisees as a result of the disposal during the year. The
calculation of the Group's future dilapidation provision is based
on an average rate per square foot depending on the dilapidation
obligation and is discounted using a risk free discount rate based
on term. If the average rates applied were to increase by 10% this
would result in an increase in the overall provision of GBP0.4m, if
they were to decrease by 10% this would result in a reduction of
the same amount. If the discount rate was to increase by 1.0% this
would result in a decrease in the provision of GBP0.1m, if the
discount rate was to decrease by 1.0% this would result in an
increase in the provision of the same amount.
The restructuring provision recognised relates to costs
associated with the disposal of the owned branch network (GBP2.2m),
including committed branch works (GBP1.0m), legal costs for the
novation of leases to franchisees (GBP0.9m) and other provisions
(GBP0.3m), plus a provision for corporate activity of GBP0.7m. The
provision also includes GBP0.6m which was reported in accruals as
at 31 December 2022, the amount relates to an indemnity provision
the Group provided on the sale of a former subsidiary, see further
detail below.
Claims indemnity provision and contingency
Included in the sale agreement of LMS was a claims indemnity of
GBP2.0m, for which the Company has provided GBP0.6m, which it
considers to be the most likely outcome. Further cases exist and
are considered possible, not probable, therefore no further
provision has been made for these cases in the Financial
Statements. Should these claims succeed the estimated further costs
would be GBP1.4m.
16. Investments in joint ventures and associates
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP000
Investment in joint ventures and associates 9,582 2,338 5,068
Investment in joint ventures
Opening balance (1 January) 5,068 1,610 1,610
Equity investment in Pivotal Growth 4,681 936 3,952
Equity accounted (loss) / profit (167) (208) (494)
Closing balance 9,582 2,338 5,068
During H1 2023, the group invested a further GBP4.7m, in Pivotal
Growth and maintains a 47.8% holding in the entity.
17. Financial Instruments
Risk management
The financial risks the Group faces, and the methods used to
manage these risks have not changed since 31 December 2022. Further
details of the risk management policies of the Group are disclosed
in Note 32 of the Group's Financial Statements for the year ended
31 December 2022.
The business is cash generative with a low level of maintenance
capital expenditure requirement. In addition, the Group's other
main priority is to generate cash to support its operations and to
fund any strategic acquisitions.
Fair values of financial assets and financial liabilities
There is no difference in the book amounts and fair values of
all the Group's financial instruments that are carried in these
interim condensed consolidated Group Financial Statements
Fair value hierarchy
As at 30 June 2023, the Group held the following financial
instruments measured at fair value. The Group uses the following
hierarchy for determining and disclosing the fair value of the
financial instruments by valuation technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
Unaudited - 30 June 2023 Total Level Level Level 3
1 2
GBP'000 GBP'000 GBP'000 GBP'000
Assets measured at fair value
Financial assets 8,668 - - 8,668
Liabilities measured at fair value
Contingent consideration 32 - - 32
Unaudited - 30 June 2022 Total Level Level Level 3
1 2
GBP'000 GBP'000 GBP'000 GBP'000
Assets measured at fair value
Financial assets 6,095 - 751 5,344
Liabilities measured at fair value
Contingent consideration 2,851 - - 2,851
Audited - 31 December 2022 Total Level Level Level 3
1 2
GBP'000 GBP'000 GBP'000 GBP'000
Assets measured at fair value
Financial assets 1,045 - - 1,045
Liabilities measured at fair value
Contingent consideration 2,311 - - 2,311
Of the investments totalling GBP8,668,000, the entire total is
valued using Level 3 valuation techniques. The Directors reviewed
the fair value of the financial assets at 30 June 2023. The
underlying value of the investments will be driven by the
profitability of these businesses.
The contingent consideration amounts rate mostly to contingent
consideration receivable (GBP8.7m), with a small amount (GBP0.03)m
which relates to contingent consideration payable. Key assumptions
and sensitivity analysis for contingent consideration receivable
has been disclosed in note 13.
18. Prior year restatements
Franchising of previously owned branches
During the current period, the Group franchised its entire owned
estate agency network (183 branches). In accounting for this
significant transaction, the Group re-examined the accounting
treatment that had been applied to a much smaller transaction in H1
2019, when 39 owned estate agency branches were franchised. The
Group has re-examined certain judgements made in accounting for the
2019 transaction, which were deemed appropriate at the time, and
has determined that restatement of the prior year financial
information, in accordance with IAS 8, is appropriate. The
cumulative impact on retained earnings on 1 January 2022 was a
reduction of GBP4.0m and was not cash-adjusting. The restatements
are discussed in points 1-3 below:
1. Disposal of goodwill
When the transaction in 2019 was originally accounted for, it
was considered not necessary to dispose of goodwill associated with
the previously owned branches which were franchised. Having
re-examined the accounting treatment applied; the Group has
determined that goodwill of GBP5.2m, associated with the previously
owned Your Move and Reeds Rains branches, should have been
derecognised in 2019. Restatement of the prior year financial
information in this regard results in a decrease in non-current
assets only and has no impact on cash.
2. Recognition of franchise intangible and subsequent
amortisation
The franchise agreements entered upon disposal of the previously
owned branches were not considered to represent assets of the Group
and were not recognised in 2019 when the transaction was accounted
for. Having re-examined the accounting treatment applied; the Group
has determined that an intangible asset of GBP2.1m, associated with
the franchise agreements, will be retrospectively recognised in
2019. Restatement of the prior year financial information in this
regard results in an increase in non-current assets and subsequent
amortisation and has no impact on cash.
The fair value of the franchise intangible asset has been
calculated based on the assumptions that would have been made had
it been determined in 2019. This was calculated using the expected
future cashflows (at the date of the agreement), discounted using a
post-tax discount rate of 8.2% (the Group's WACC at the date of the
agreement). A term of 15 years has been applied, consistent with
managements estimate of most likely minimum term per the franchise
agreement. Market growth rates, consistent with the Group's
assumptions in 2019 were applied to 2020 and 2021, with a long-term
growth rate of 1.8% applied thereafter.
3. Revision to goodwill impairments
In light of point 1 above, the impairment charged to the
goodwill of Your Move and Reeds Rains at 31 December 2022
(GBP42.0m) has been re-examined to take account of the restated
disposal of goodwill in 2019, resulting in increased headroom. The
impact of this assessment is a reduction to the impairment charge
of GBP3.7m. Restatement of the prior year financial information in
this regard results in an increase in non-current asset and has no
impact on cash.
Adjustments to assets held for sale
At 31 December 2022 the Group reported Marsh & Parsons, a
single CGU as held for sale. Marsh & Parsons was written down
to its fair value less cost to sell (FVLCTS), which was calculated
as the initial consideration received less transaction costs
(GBP28.9m). The sale agreement included provisions for adjustments
to the initial consideration for debt-like items and working
capital adjustments. Such amounts were subject to negotiation and
judgement and were not reflected in the fair value assessment at 31
December 2022. The Group has re-examined the judgements made and
has determined that an adjustment to consideration for debt-like
items of GBP2.0m could have been reliably estimated at 31 December
2022. Rather than recognising this adjustment as an increase in the
loss on disposal in H1 of 2023, the prior year financial
information has been restated, in accordance with IAS 8.
Restatement of the prior year financial information in this regard
results in a decrease in current assets, an increase in exceptional
costs and has no impact on cash.
Earnings per share
Basic and diluted earnings per share for prior periods have also
been restated, as a result of the items above. On a continuing
operations basis, for the year to 31 December 2022, the amount of
the correction for both basic and diluted earnings per share was an
increase of 1.5 pence. For the six months to 30 June 2022, the
amount of the correction for both basic and diluted earnings per
share was a decrease of 0.1 pence.
Balance sheet (extract)
Reported 1. Disposal 2. Restated Reported 1. Disposal 2. Restated
year ended of goodwill Recognition year ended six months of goodwill Recognition six months
31 December of franchise 31 December ended 30 of franchise ended 30
2021 intangible 2021 June 2022 intangible June 2022
and and
subsequent subsequent
amortisation amortisation
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Non-current
assets
Goodwill 160,865 (5,211) - 155,654 158,865 (5,211) - 153,654
Franchise
intangible - - 1,670 1,670 - - 1,601 1,601
Current
assets
Assets held - - - - - - - -
for sale
Non-current
liabilities
Deferred tax
liability (2,073) - (418) (2,491) (1,933) - (401) (2,334)
Net assets 218,119 (5,211) 1,252 214,160 210,962 (5,211) 1,200 206,951
Equity
Retained
earnings 224,832 (5,211) 1,252 220,873 223,047 (5,211) 1,200 219,036
Total equity 218,119 (5,211) 1,252 214,160 210,962 (5,211) 1,200 206,951
Reported year 1. Disposal of 2. Recognition 3. Revision of 4. Adjustments Restated year
ended 31 goodwill of franchise goodwill to assets held ended 31
December 2022 intangible and impairments for sale December 2022
subsequent
amortisation
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Non-current
assets
Goodwill 56,530 (5,211) - 3,678 - 54,997
Franchise
intangible - - 1,533 - - 1,533
Current assets
Assets held for
sale 56,437 - - - (2,035) 54,402
Non-current
liabilities
Deferred tax
liability (2,008) - (384) - - (2,392)
Net assets 131,053 (5,211) 1,149 3,678 (2,035) 128,634
Equity
Retained
earnings 149,134 (5,211) 1,149 3,678 (2,035) 146,715
Total equity 131,053 (5,211) 1,149 3,678 (2,035) 128,634
Income statement (extract)
2. 2.
Reported Recognition Restated Recognition
six of franchise six Reported of franchise 4. Restated
months intangible months year intangible 3. Adjustments year
ended 30 and ended 30 ended 31 and Revision of to assets ended 31
June subsequent June Continuing Discontinued December subsequent goodwill held for December Continued Discontinued
2022 amortisation 2022 operations operations 2022 amortisation impairments sale 2022 operations operations
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Amortisation of
intangible assets (2,051) (69) (2,120) (1,428) (692) (4,112) (137) - - (4,249) (2,866) (1,383)
Exceptional costs (2,000) - (2,000) (2,000) - (88,898) - 3,678 (2,035) (87,255) (48,316) (38,939)
Group
operating
profit /
(loss) 8,737 (69) 8,668 9,944 (1,276) (56,709) (137) 3,678 (2,035) (55,203) (21,360) (33,843)
Taxation
charge (1,608) 17 (1,591) (1,384) (207) (4,891) 34 - - (4,857) (3,020) (1,837)
Profit /
(loss) for
the year 5,825 (52) 5,773 7,491 (1,718) (64,017) (103) 3,678 (2,035) (62,477) (26,451) (36,026)
Statement of comprehensive income (extract)
Profit /
(loss) for
the year 5,825 (52) 5,773 (64,017) (103) 3,678 (2,035) (62,477)
Other
comprehensive
income /
(expense) for
the period,
net of tax (370) - (370) (4,966) - - - (4,966)
Total
comprehensive
income /
(loss) for
the period,
net of tax 5,455 (52) 5,403 (68,983) (103) 3,678 (2,035) (67,443)
19. Related Party Transactions
LSL have one joint venture partner, Pivotal Growth
(Pivotal).
Transactions with Pivotal Growth and its subsidiaries
Unaudited Audited
Six Months Ended Year end
30 June 30 June 31 December
2023 2022 2022
GBP'000 GBP'000 GBP'000
Gross commission received 5,608 1,736 3,833
Commissions paid to broker businesses (4,506) (1,551) (3,421)
Sales 1,188 - -
Revenue recognised 2,290 186 412
Creditor 1,614 17 (3)
20. Events after the reporting period
On 21 August 2023, the Group announced it had agreed to acquire
TenetLime Limited ("TenetLime") from Tenet Group Limited, subject
to FCA approval. TenetLime operates a network providing services to
231 mortgage and protection advisers, operating within 133
appointed representative (AR) firms, the acquisition advances the
Group's strategy to develop our Financial Services Network
business. TenetLime's advisers will join the PRIMIS network and the
increased membership will allow the Group to further invest in its
service offering and deliver economies of scale.
The consideration payable is expected to be up to GBP12.9m and
will include: an initial payment of up to GBP5.6m, calculated by
reference to the number of appointed representative (AR) firms at
completion and their 2022 turnover; a further payment of up to
GBP4.5m, calculated by reference to the number AR firms 12 months
following completion and their 2022 turnover and an expected
payment of GBP2.8m for assets which form part of TenetLime's
regulatory capital. The total consideration payable on completion
will be subject to adjustments based on the net asset value of
TenetLime at the completion date.
The Group will begin the process of allocating the purchase
price consideration in accordance with IFRS 3 once FCA approval has
been obtained.
Forward-Looking Statements
This announcement contains certain statements that are
forward-looking statements. They appear in a number of places
throughout this announcement and include statements regarding our
intentions, beliefs or current expectations and those of our
officers, directors and employees concerning, amongst other things,
our results of operations, financial condition, liquidity,
prospects, growth, strategies and the business we operate. By their
nature, these statements involve uncertainty since future events
and circumstances can cause results and developments to differ
materially from those anticipated. The forward-looking statements
reflect knowledge and information available at the date of
preparation of this update and, unless otherwise required by
applicable law, LSL undertakes no obligation to update or revise
these forward-looking statements. Nothing in this update should be
construed as a profit forecast. LSL and its Directors accept no
liability to third parties in respect of this update save as would
arise under English law.
Any forward-looking statements in this update speak only at the
date of this document and LSL undertakes no obligation to update
publicly or review any forward-looking statement to reflect new
information or events, circumstances or developments after the date
of this document.
Definitions
Definitions for words and expressions referred to and included
in this statement which are not expressly defined within, can be
found in LSL's Annual Report and Accounts 2022 (a copy of which is
available on LSL's website at: www.lslps.co.uk ). All references to
'note(s)' in this statement are, unless expressly stated otherwise,
references to the 'Notes to the Interim Condensed Group Financial
Statements' included in this statement.
INDEPENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC
Conclusion
We have been engaged by the Company to review the condensed set
of consolidated financial information in the half-yearly financial
report for the six months ended 30 June 2023 which comprises the
Interim Group Income Statement, the Interim Group Statement of
Comprehensive Income, the Interim Group Balance Sheet, the Interim
Group Cash Flow Statement, the Interim Group Statement of Changes
in Equity and the related Notes 1 to 20. We have read the other
information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of consolidated financial information.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of consolidated
financial information in the half-yearly financial report for the
six months ended 30 June 2023 is not prepared, in all material
respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" (ISRE) issued by the Financial Reporting Council. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The condensed set of consolidated financial
information included in this half-yearly financial report has been
prepared in accordance with UK adopted International Accounting
Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting or that management have
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
consolidated financial information in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
26 September 2023
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