TIDMLSL
RNS Number : 6911U
LSL Property Services PLC
03 August 2022
3 August 2022
LSL Property Services plc ("LSL" or "The Group")
HALF YEAR RESULTS TO 30 JUNE 2022
HIGHLIGHTS
Record revenue in Financial Services Network and Surveying &
Valuation highlighting benefits of diversification strategy and
reduced exposure to housing market cycles
-- Financial Services Network Underlying Operating Profit(1,2) in line with 2021 record
-- Highest first half Underlying Operating Profit(1,2) in Surveying & Valuation for 10 years
-- Financial Services Network revenue up 10% year-on-year in
substantially smaller mortgage and protection markets
-- Record Surveying revenue of GBP50.5m, up 9% over the previous record in H1 2021
-- LSL's share of the total UK purchase and re-mortgage market
increased to 10.1%(3) (H1 2021: 9.0%)
-- Financial adviser numbers increased to 2,930 at 30 June 2022
(30 June 2021: 2,744) with strong financial advisor recruitment
pipeline
-- Significant further progress in strategic objective of
developing income from private surveys and data, which increased by
73% to GBP1.9m
Estate Agency retained market share gains made in 2021, building
a record pipeline to carry into H2
-- The Estate Agency Division consolidated the market share
gains made during 2021, maintaining share of instructions in the
locations we trade, and growing our market share of housing
transactions on a national level
-- Residential sales exchange pipeline conversion speed remained
extremely slow across the market principally due to the continuing
industry-wide capacity issues in conveyancing, which impacted
residential exchange income which contributed to an Underlying
Operating Loss(1,2) of GBP1.0m in H1 2022. Had the residential
pipeline exchanged at its normal conversion speed, it is estimated
that Estate Agency Underlying Operating Profit would have been over
GBP6m higher
-- The residential sales exchange pipeline grew significantly
and now stands at a record level of GBP26.7m (31 December 2021:
GBP20.7m, 30 June 2021: GBP21.2m)
Resilient financial performance reflects expected return to
usual phasing, with momentum established and Group well positioned
for strong H2. The impact on H1 profits of delayed residential
sales conversion in Estate Agency is estimated at over GBP6m with
additional amounts in Financial Services
-- The split of H1:H2 profit in 2022 is expected to revert to a
more typical profile with a significant skew to H2, after record
housing transactions in H1 2021, and this is reflected in Group
Underlying Operating Profit(4) in H1 2022 of GBP14.2m (H1 2021:
GBP27.3m). On a statutory basis, Group operating profit was GBP8.7m
(H1 2021: GBP26.7m)
-- Surveying & Valuation Division delivered an extremely
strong performance with Underlying Operating Profit(1,2) up 14% to
GBP13.1m (H1 2021: GBP11.4m), and Underlying Operating Margin(1)
improving to 26% (H1 2021: 25%)
-- Financial Services Network business reported Underlying
Operating Profit(1,2) of GBP7.5m in line with the 2021 record (H1
2021: GBP7.4m) which was a very robust performance in substantially
smaller mortgage and protection markets, and delivered during a
period of ongoing investment in the business
-- Estate Agency Division comparative financial performance
reflected the significantly reduced market activity against 2021
which was boosted substantially by the Stamp Duty deadline, the
significant delays in conversion of residential sales exchange
pipelines and cost-inflationary pressures. This led to an
Underlying Operating Loss(1,2) of GBP1.0m in H1 2022 (H1 2021:
profit of GBP12.5m). The estimated profit impact in Estate Agency
in H1 2022 of the delayed conversion is over GBP6m, which
highlights the strong underlying performance of the Group as a
whole
-- Notwithstanding the significant impact on profits of delayed
residential sales conversions, Group Underlying Operating Profit in
H1 2022 was 17% above H1 2019, whilst residential market
transaction volumes were at more similar levels with conversion
much slower, highlighting the Group's reduced exposure to housing
market volatility
Strategy remains on track with Group well placed to deliver
increased profitability in H2 and beyond
-- Momentum in both the Financial Services Network business and
Surveying & Valuation, with a record residential sales exchange
pipeline expected to support H2 2022 profit materially ahead of H1
2022
-- Net cash at 30 June 2022 of GBP30.7m (30 June 2021:
GBP17.0m), providing flexibility to make further investments to
support growth
-- We will continue to invest in capability and technology
across the Financial Services Division in the second half of the
year with new technology to be rolled out to member firms
-- Pivotal Growth, LSL's financial services Joint Venture with
Pollen Street Capital, has now announced four acquisitions and with
a strong deal pipeline in place, we remain excited about its
potential
-- The trajectory in the Financial Services Network business and
the opportunities we have identified in Surveying & Valuation
continue to offer opportunities for growth and we remain confident
that our strategy remains on track
Current trading and outlook
-- The Financial Services Network business is trading strongly
with mortgage completions in July beating the previous monthly
record set in June 2021
-- Very strong performance continues in Surveying & Valuations
-- Estate Agency front end sales activity remains stable with a good level of buyer demand
-- The conversion of residential sales pipeline remains very
slow, a trend we expect to continue throughout H2
-- The consequence of continuing slow pipeline conversion will
be to delay profit on some H2 activity into 2023 and as result we
now anticipate full year profits to be lower than our previous
expectations whilst remaining significantly above the pre-COVID 19
performance reported in 2019
-- The benefits of the pipeline built up at 30 June 2022 will be
realised in the second half of the year and we expect that H2
Operating Profits will be substantially stronger than H2 2021 and
H2 2019
Commenting on today's announcement, David Stewart, Group Chief
Executive said:
"These results show that our strategy is on track and that LSL
continues to trade strongly. Our Surveying & Valuation and
Financial Services businesses delivered record revenues and our
Estate Agency Division retained the market share gains made in
2021, in doing so building a strong residential sales pipeline as
significant profits were delayed by the continuing slow speed of
exchange experienced across the market. We are well placed to
deliver a strong performance in the second half of the year and to
grow in 2023 as we increasingly reap the benefits of our financial
services led growth strategy."
This announcement has been determined to contain inside
information.
Notes:
1 Divisional Underlying Operating Profit and Divisional
Underlying Operating Margin are stated on the same basis as
Group
2 Refer to note 4 of the Financial Statements for reconciliation
of Divisional Underlying Operating Profit to statutory operating
profit
3 New mortgage lending by purpose of loan, UK (BOE) - Table MM23
4 Group Underlying Operating Profit is before exceptional items,
contingent consideration, amortisation of intangible assets and
share-based payments (see note 5 of the Financial Statements)
FINANCIAL RESULTS
H1 2022 2021 Var
------ ------
Group Revenue (GBPm) 160.9 166.5 (3)%
Group Underlying Operating
Profit(1) (GBPm) 14.2 27.3 (48)%
Group Underlying Operating
margin (%) 9% 16% -760bps
Exceptional Gains (GBPm) - 4.3 nm
Exceptional Costs (GBPm) (2.0) (1.7) (21)%
Group operating profit
(GBPm) 8.7 26.7 (67)%
Profit before tax (GBPm) 7.4 25.5 (71)%
------------------------------- ------ ------ --------
Basic Earnings per Share(2)
(pence) 5.7 21.8 (74)%
Adjusted Basic Earnings
per Share(2) (pence) 10.7 20.9 (49)%
Net Cash(3) at 30 June
(GBPm) 30.7 17.0 80%
Interim Dividend (pence) 4.0 4.0 -
------------------------------- ------ ------ --------
Notes:
1 Group Underlying Operating Profit is before exceptional costs,
contingent consideration, amortisation of intangible assets and
share-based payments (as set out in Note 5 of the financial
statements)
2 Refer to Note 6 of the Financial Statements for the calculation
3 Refer to Note 14 to the Financial Statements for the calculation
nm not meaningful
For further information, please contact:
David Stewart, Group Chief Executive
Officer
Adam Castleton, Group Chief Financial
Officer
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LSL Property Services plc investorrelations@lslps.co.uk
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Helen Tarbet
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Simon Compton
------------------------------------
George Beale
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Buchanan 0207 466 5000 / LSL@buchanan.uk.com
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Notes on LSL
LSL is one of the largest providers of services to mortgage
intermediaries and mortgage and protection advice to estate agency
customers, completing around GBP41bn of mortgages in 2021. It
represents around 10% of the total purchase and re-mortgage market
with over 2,900 financial advisers. PRIMIS was named Best Network
by Money Marketing in their 2021 awards and Best Network, 300+
appointed representatives at the 2022 Mortgage Strategy Awards.
LSL is one of the UK's largest providers of surveying and
valuation services, supplying seven out of the ten largest lenders
in the UK, employing around 500 operational surveyors, and
performing over 500,000 valuations and surveys per annum for key
lender clients. e.surv was named Best Surveying Firm at the 2022
Mortgage Finance Gazette Awards and Best Surveyor at the 2022
Equity Release Awards with Mortgage Solutions.
LSL also operates a network of 225 owned and 127 franchised
estate agency branches.
For further information please visit LSL's website:
lslps.co.uk
Group Chief Executive's Review
Our financial performance in the first half of 2022 highlights
the benefits of our strategy to further reduce the Group's exposure
to housing market cycles. Although our H1 2022 results were
impacted significantly by continuing market-wide delays in the rate
of residential sales exchanges, the result of which was to delay
profits by over GBP6m, Group Underlying Operating Profit(1) of
GBP14.2m was significantly higher than the GBP12.2m we reported in
H1 2019, the most recent year when housing market conditions were
comparable.
We expect that the H1:H2 profit split will revert to its
long-term profile, in which we earn the majority of profits in the
second half of the year. As a result of this re-phasing, and the
delay in residential sales conversion, the first half Underlying
Operating Profit was below the GBP27.3m reported in H1 2021, when
volumes were boosted significantly by the Stamp Duty holiday. On a
statutory basis, Group operating profit was GBP8.7m (H1 2021:
GBP26.7m).
Our Financial Services Network business is at the heart of our
strategy. The number of advisers in our Network has increased
consistently over many years, illustrated by the growth from 2,321
to 2,858 over the three years to 31 December 2021. The number of
advisers increased further to 2,930 at 30 June with a strong
pipeline in place for further growth during the rest of the year.
This total is yet to reflect benefit from acquisitions by Pivotal
Growth, our joint venture "buy-and-build" mortgage broker, which we
expect to boost membership further.
Small, independent mortgage brokers typically perform well in
more difficult market conditions, and this can be seen in the
strong performance of our Financial Services Network business. Our
brokers arranged purchase and re-mortgage completions totalling
GBP15.2bn, representing an increase of 11% over 2021 in a smaller
overall market (H1 2022: GBP151.4bn, H1 2021: GBP168.5bn). This
represents our highest-ever market share(2) of 10.1%, up from 9.0%
last year. There was a general shift away from house purchase to
re-mortgage business, as consumers sought to secure their payments
in the light of increased economic uncertainty and rising interest
rates. Across the market, this was reflected in lower protection
sales, but we estimate that LSL advisers increased their protection
market share further, building on past success we have had in
increasing the focus on this area.
This strong revenue performance and further growth in membership
helped our Financial Services Network businesses deliver a half
year Underlying Operating Profit(3) of GBP7.5m, in line with the
record performance in H1 2021 of GBP7.4m, and ahead of the GBP6.9m
reported in H2 2021, indicating the continued momentum in this
business. These results would have been stronger had the mortgage
and protection cases relating to delayed residential sales
exchanges been reflected in the half year.
Given the significant potential for further growth offered by
the Financial Services Network business, we have continued to
invest in building our capability, including developing Mortgage
Gym technology for our Financial Services Network members. We will
start to roll out this enhanced functionality later this year.
In our AGM statement, we noted that Pivotal Growth had been
slower to complete deals than we initially expected, and, in the
short term, this had increased costs and limited its contribution
to our Financial Services Network business. I am pleased to report
that Pivotal Growth has now announced four acquisitions and we
remain excited about its prospects.
I am delighted to say that our Surveying & Valuation
business performed very strongly, delivering record half-year
performance. In a flat valuations market, we carried out more jobs
whilst continuing to build on the efficiency improvements reported
in 2021. Underlying Operating Profits(3) increased by 14% to
GBP13.1m (H1 2021: GBP11.4m), with an Underlying Operating Profit
Margin(3) of 25.9% (H1 2021: 24.7%). This is a very significant
increase on the 14.8% we reported in 2019, demonstrating the
material improvements we have made in this business.
I am particularly encouraged by the rapid growth in our
Direct-to-Consumer and data services revenue streams in our
Surveying & Valuation business, with income increasing by 73%
to GBP1.9m (H1 2021: GBP1.1m) and further growth targeted. A key
element of this improvement to date has been referrals from our
Financial Services Network members, demonstrating the opportunities
we have to benefit more widely from our market-leading distribution
position. We will shortly launch a new Direct-to-Consumer survey
website and will continue to develop our new data revenue streams,
which we believe has exciting potential for further growth.
Our Estate Agency business also traded very well, maintaining
lettings income, and holding on to the residential sales market
share gains made in 2021 in the areas in which we trade and
increasing our national market share. However, continued
market-wide delays in completing agreed sales means that much of
the benefit of this good trading is yet to be reflected in income.
The Division reported an Underlying Operating Loss(3) of GBP1.0m
(H1 2021 Profit: GBP12.5m). The prior year performance was
significantly boosted by the exceptional volume generated by the
Stamp Duty holiday. This performance should be assessed in light of
the very substantial increase in the residential sales pipeline to
GBP26.7m at 30 June, above our previous record of GBP26.4m in May
2021, just prior to the Stamp duty deadline. Had agreed sales
exchanged at a more usual rate, Underlying Operating Profit would
have been over GBP6m higher, a result which would have been better
than the Underlying Operating Profit of GBP4.0m for the same period
in 2019, where market conditions and the split between H1 and H2
profitability was relatively similar to the current year.
Strong Balance Sheet
Our balance sheet and strong cash generation enables further
investment to deliver the Group ' s ambitious growth strategy,
including continued investment in capability and technology,
expected investment in Pivotal Growth D2C brokerage acquisitions,
and potential acquisition targets to build our Financial Services
Network business. The Board will continue to actively review
capital allocation regularly to ensure we maintain an efficient
balance sheet.
Dividend & Share Buy Back
Our Dividend policy is to pay out 30% of Group Underlying
Operating Profit(1) after finance and normalised tax charges and
the Board has declared an interim dividend of 4.0 pence per share
(H1 2021: 4.0p).
The ex-dividend date for the interim dividend is 11 August 2022,
with a record date of 12 August 2022 and a payment date of 16
September 2022. Shareholders can elect to reinvest their cash
dividend and purchase existing shares in LSL through a dividend
reinvestment plan. The election date is 25 August 2022.
In April 2022, we announced the commencement of a share buyback
programme of up to GBP10.0m, which has been extended to 30 Sept
2022, with repurchased shares placed into Treasury. At 30 June
2022, there were 504,273 shares being held in Treasury for a total
consideration of GBP1.8m.
Looking Ahead
I am encouraged by the strong growth we have reported in
Surveying & Valuation and by the very resilient performance of
our Financial Services Network business in smaller markets. Our
Estate Agency business has also performed very well, retaining
previous market share gains, and we enter the second half of the
year with a record pipeline of pending exchanges.
Current trading is also encouraging. In July, mortgage
completions in our Financial Services Network business were at
their highest level ever. The Surveying & Valuations division
continues to perform strongly and front-end sales activity within
Estate Agency is stable with good levels of buyer demand.
The conversion of residential sales pipeline remains very slow,
a trend we expect to continue throughout the second half. The
consequence of this will be to delay expected profit on some H2
activity into 2023 and as a result we now anticipate full year
profits to be lower than our previous expectations whilst remaining
significantly above the pre- COVID 19 performance reported in 2019.
The benefits of the pipeline built up at 30 June 2022 will be
realised in the second half of the year and we expect that H2
Operating Profits will be substantially stronger than H2 2021 and
H2 2019.
LSL has an exciting future. Our Estate Agency business is
trading well having gained market share and built a record
pipeline. The Financial Services Network business continues to grow
and is now responsible for over 10% of mortgage advice in the UK
providing an unrivalled distribution capability, offering
significant opportunities to grow in existing and new markets. In
Surveying & Valuation we have been able to win new business and
significantly improve efficiency whilst emerging data services
provide an exciting opportunity for growth.
I believe that our resilient performance and the growth expected
over the second half of the year and beyond demonstrates that we
have the right strategy in place. I am clear that the Group has
significant potential and I look forward to reporting further
progress in the future.
David Stewart
Group Chief Executive Officer
2 August 2022
Notes:
1 Group Underlying Operating Profit is before exceptional items,
contingent consideration, amortisation of intangible assets and
share-based payments (see note 5 of the Financial Statements)
2 Mortgage lending excluding product transfers - New mortgage
lending by purpose of loan, UK (BOE) - Table MM23
3 Divisional Underlying Operating Profit and Divisional
Underlying Operating Margin are stated on the same basis as
Group
FINANCIAL REVIEW
H1 (GBPm) 2022 2021 Var
------ ------
Divisional Group Revenue
Financial Services Network
(net revenue) 20.5 18.7 10%
Financial Services Other 19.4 20.4 (5)%
Financial Services 39.8 39.1 2%
Surveying & Valuation 50.5 46.2 9%
Estate Agency 70.6 81.2 (13)%
Group Revenue 160.9 166.5 (3)%
----------------------------- ------ ------ ------
Divisional Underlying
Operating Profit(1, 3)
Financial Services Network 7.5 7.4 0%
Financial Services Other (1.3) 0.4 nm
Financial Services 6.1 7.8 (22)%
Surveying & Valuation 13.1 11.4 14%
Estate Agency (1.0) 12.5 nm
Unallocated Central Costs (4.0) (4.5) 10%
Group Underlying Operating
Profit (2) 14.2 27.3 (48)%
----------------------------- ------ ------ ------
H1 (GBPm) 2022 2021 Var
------ ------
Divisional operating profit
(3)
Financial Services 4.9 3.9 24%
Surveying & Valuation 12.9 12.4 4%
Estate Agency (4.3) 15.5 nm
Unallocated Central Costs (4.7) (5.0) 6%
Group operating profit 8.7 26.7 (67)%
------------------------------ ------ ------ ------
Notes:
1 Divisional Underlying Operating Profit and Divisional
Underlying Operating margin are stated on the same basis as
Group
2 Group Underlying Operating Profit is before exceptional items,
contingent consideration, amortisation of intangible assets and
share-based payments (see note 5 of the Financial Statements)
3 Refer to note 4 of the Financial Statements for reconciliation
of Divisional Underlying Operating Profit to statutory operating
profit
nm Not meaningful
Group summary
In the context of the H1 residential exchange transactions
market being down 29% year on year and the mortgage lending market
being down 10%, the Group results in the first half demonstrated
the resilience of our Financial Services Network business and the
significant progress made in Surveying & Valuation. The
Financial Services Network business profit was in line with the
very strong performance in H1 2021. The Surveying & Valuation
Division delivered the highest ever revenues in a single half and
the highest profit in over 10 years. The financial performance in
H1 across Financial Services and Surveying & Valuation is in
line with the Board's expectations.
The Estate Agency Division and, to a lesser extent, our
Financial Services D2C businesses were impacted by lower activity
levels in the new purchase market and continued delays in
conversion of our residential sales pipelines caused by
conveyancing issues in the market. We have yet to see evidence of
an improvement in these issues which we had expected to ameliorate
during H1.
We have absorbed inflationary increases in operating
expenditure, particularly in the Estate Agency Division, and we
have continued to invest in our Financial Services Division
businesses.
Group results
Group Revenue for the 6 months to 30 June 2022 was GBP160.9m,
only slightly behind the record revenue last year (H1 2021:
GBP166.5m). Financial Services Network Revenue increased by 10% and
Surveying & Valuation Revenue increased by 9% on the same
period in 2021. These increases were offset by a 13% reduction in
Estate Agency and 5% reduction in Financial Services Other Revenue,
both impacted by lower new purchase activity and conveyancing
delays. If the residential sales pipeline had converted at
pre-COVID 19 rates, Revenue would have been at record levels of
c.GBP169m.
Group Underlying Operating Profit(1) for the 6 months to June
2022 was GBP14.2m, which whilst materially lower than the record
results posted last year (H1 2021: GBP27.3m), was 17% higher than
the equivalent period in 2019, the most recent comparable market,
and would have been over GBP6m higher had residential sales
conversion been at historical rates, which would have been a profit
over GBP20m, behind only the record-breaking profit in H1 2021. On
a statutory basis, Group operating profit was GBP8.7m (H1 2021:
GBP26.7m).
Total adjusted operating expenditure
Total adjusted operating expenses increased in the 6 months to
30 June 2022, by 5% to GBP147.6m (H1 2021: GBP140.9m). The majority
of this increase was due to a growth of more than GBP4m in employee
costs particularly in headcount investment in the Financial
Services Network business to support growth, annual pay awards
across the Group and reflecting the increase in employers NIC from
April 2022. Additionally, during H1 2022, the Group returned to a
more normalised level of operating expenses following the
disruption of COVID-19 on ways of working over the previously
reported periods. Furthermore, there have been cost increases in
other areas, notably, utilities.
Other operating income, gain on sale of property, plant, and
equipment
Other income was GBP1.1m (H1 2021: GBP0.5m). Rental income was
GBP0.3m (H1 2021: GBP0.5m), reducing year on year following the
disposal during 2021 of several freehold properties previously
leased out. During the period the fair value of units held in The
Openwork Partnership LLP was reassessed to GBP0.8m and is
recognised in other operating income.
Income / (loss) from joint ventures and associates
Losses from joint ventures and associates of GBP0.2m (H1 2021:
GBP0.9m profit) primarily relate to our share of set up costs of
Pivotal Growth. The prior year income mainly comprised our share of
LMS and TM Group profits prior to the disposal of our
investments.
Share-based payments
The share-based payment charge of GBP 1.5m (H1 2021: GBP0.5m)
consists of a charge in the period of GBP1.8m, offset by lapses and
adjustments for leavers and options exercised in the period. The
lower relative charge in 2021 largely resulted from scheme lapses
offsetting existing scheme charges.
Amortisation of intangible assets
The amortisation charge for H1 2022 was GBP2.1m (H1 2021:
GBP2.7m). The year-on-year decrease was as a result of some
Lettings books and intangible software investments reaching full
amortisation during 2021.
Exceptional items
There were exceptional costs of GBP2.0m in H1 2022 (H1 2021:
GBP1.7m), reflecting an impairment of goodwill in Marsh &
Parsons(2) . Prior year exceptional gains of GBP4.3m (H1 2022:
GBPnil) related to the disposal of the Group's joint venture
holding in LMS and a release in the PI Costs provision, netted off
against the Shareholder circular and restructuring costs.
Contingent consideration
The credit to the income statement in H1 2022 of GBP0.1m (H1
2021: charge GBP0.04m), relates mainly to the reassessment of the
contingent consideration liability for RSC, due to be paid in
2023.
Net finance costs
Net finance costs amounted to GBP1.3m (H1 2021: GBP1.3m) and
related principally to unwinding of the IFRS 16 lease liability of
GBP0.7m (H1 2021: GBP0.7m) and interest and fees on the revolving
credit facility of GBP0.5m (H1 2021: GBP0.5m).
Profit before tax
Profit before tax was GBP7.4m (H1 2021: GBP25.5m). This decrease
was largely driven by the reduction in Group Operating Profit, and
the prior year exceptional gain on the sale of the investment in
the LMS.
Taxation
The tax charge of GBP1. 6m (H1 2021: GBP2.9m) represents an
effective tax rate of 21.6%, slightly higher than the headline UK
tax rate of 19% largely as a result of disallowable expenses.
Deferred tax assets and liabilities are measured at 25% (2021:
25%), the tax rate effective from 1 April 2023.
Earnings Per Share (3)
The Basic Earnings Per Share was 5.7 pence (H1 2021: 21.8
pence), with diluted Earnings Per Share of 5.7 pence (H1 2021: 21.4
pence). The Adjusted Basic Earnings Per Share was 10.7 pence (H1
2021: 20.9 pence), a decrease of 49%, with adjusted diluted
Earnings Per Share of 10.7 pence (H1 2021: 20.6 pence).
Notes:
1 Group Underlying Operating Profit is before exceptional items,
contingent consideration, amortisation of intangible assets and
share-based payments (as set out in note 5 of the Financial
Statements)
2 Refer to note 10 of the Financial Statements
3 Refer to note 6 of the Financial Statements for the calculation
DIVISIONAL REVIEW
Financial Services Division
Summary
Financial Services Division reported an increase in revenue of
2% in H1 2022 compared to the same period in 2021 in a lending
market which was 10% lower. The Financial Services Network
Underlying Operating Profit was in line with the record prior year.
This was offset by a decrease in Financial Services Other profit
due to a materially smaller purchase market, resulting in overall
divisional Underlying Operating Profit for the half year of GBP6.1m
(H1 2021: GBP7.8m).
Total financial advisers at 30 June 2022 were up 186 to 2,930 on
the same time last year, a 7% increase. Our share of the UK
mortgage market grew to 10.1%(1) , further consolidating our
position as the UK's largest mortgage and insurance network(2)
.
We continued to support the future growth of our Financial
Services Division, with investment during the year in technology
and capability, across our Network and D2C businesses. We also
announced two acquisitions in the Pivotal Growth joint venture in
H1, and one in July taking the total to four. Whilst suppressing
profits in the short term, the investment made and future expected
Pivotal growth will start to show tangible returns, with more
material benefits expected in future periods.
Financial overview
Total revenue reported for the period was up 2% to GBP39.9m (H1
2021: GBP39.2m). Core Financial Services Network Revenue grew by
10% year-on-year benefiting from higher advisor numbers. Financial
Services Other revenue decreased by GBP1.7m versus the same period
last year mainly as a result of the materially smaller purchase
market. Financial Services Division Underlying Operating Profit(3)
was GBP6.1m (H1 2021: GBP7.8m). On a statutory basis, operating
profit was GBP4.9m (H1 2021: GBP3.9m).
The Division's revenue mix by product continues to highlight the
significance of our insurance business and its success in arranging
insurance products both on a standalone basis as well as when
needed at the time of a mortgage being arranged. In H1, these
remain broadly an equal split between mortgage related and
insurance related revenue. The split of Revenue by product type in
H1 2022 was 39% for mortgage fees (H1 2021: 39%), 42% for insurance
fees (H1 2021: 45%) and 19% in other fees (H1 2021: 16%).
Financial Services Network business
Our gross purchase and re-mortgage completion lending increased
by 11% to GBP15.2bn for the period (H1 2021: GBP13.7bn)
representing an increased share of the lending market excluding
product transfers(2) to 10.1% (2021: 9.0%). Including product
transfers, total gross mortgage lending was GBP20.5bn in H1 2022
(H1 2021: GBP19.3bn).
Gross revenues generated by the Financial Services Network
business (including the TMA mortgage club) increased by 1% to
GBP146.2m (H1 2021: GBP144.1m).
Gross revenue per average adviser in H1 was GBP43.6k (H1 2021:
GBP46.6k). In general, advisers joining the Financial Services
Network business take some time to reach maximum productivity, and
as such make a relatively small contribution to turnover in the
year of their joining. Revenue in the rest of 2022 will therefore
benefit from a full year of the advisers who joined in H2 2021 and
H1 2022.
Underlying Operating Profit(3) increased marginally to GBP7.5m
(H1 2021: GBP7.4m) with Underlying Operating margin(4) decreasing
to 36% (H1 2021: 40%) as we continue to invest in our businesses
and brought some cost categories in line with pre- COVID 19 levels
e.g. broker events and marketing support.
Financial Services Other
Financial Services Other generated an Underlying Operating
Loss(3) of GBP1.3m (H1 2022: profit GBP0.4m), which is stated after
our continued investment in the businesses that make it up,
including costs of the TPFG contract and the Pivotal Growth joint
venture set up costs. As previously reported, the TPFG contract
will continue to act as a drag on profitability in 2022. As well as
significant investment in the Mortgage Gym platform, we continued
to invest in the Financial Services Network business technology
platform (Toolbox), to deliver benefits to firms and their advisers
and create further efficiencies and improved functionality.
Financial Services Other D2C businesses were impacted by lower
activity levels in the new purchase market and continued delays in
conversion of our residential sales pipelines caused largely by
conveyancing issues in the market.
The Pivotal Growth joint venture was established in April 2021,
with a net loss in H1 2022 of GBP0.2m after acquisition costs and
overheads. The slower than expected momentum in acquisitions has
prevented reporting a profit as deal costs outweigh income but a
positive contribution is expected in 2023.
Surveying & Valuation Division
Summary
The Surveying & Valuation Division's Underlying Operating
Profit(3) increased by 14% in the 6 months to 30 June 2022 in
comparison to the same period in 2021, in a flat market for
mortgage and re-mortgage approvals. Surveyor capacity utilisation
continues to improve, with 8% more jobs performed whilst employing
similar levels of operational surveyors. Underlying Operating
margin(4) increased to 26% for the period (H1 2021: 25%), due
mainly to improved utilisation and a leading position in the
growing higher margin equity release segment.
We estimate that we increased market share in H1 2022, while
maintaining operational resilience and providing high-quality
service. We were named Best Surveying Firm at the 2022 Mortgage
Finance Gazette Awards and Best Surveyor at the 2022 Equity Release
Awards with Mortgage Solutions. During the 6 months to 30 June
2022, one key supplier contract was renewed in addition to one
renewal at the end of December 2021, increasing allocations. We
also achieved increases in allocations from some existing lender
clients. More than three quarters of our total annual volume is
currently secured for two or more years. Significant further
progress was made in our strategic objective of developing income
from private surveys and data, which increased by 73% to
GBP1.9m.
Financial overview
Revenue increased by 9% to a record GBP50.5m (H1 2021:
GBP46.2m). Underlying Operating Profit(3) increased by 14% to
GBP13.1m (H1 2021: GBP11.4m) the highest for 10 years. On a
statutory basis, operating profit was GBP12.9m (H1 2021:
GBP12.4m).
Income per job increased by 1% to GBP175 (H1 2021: GBP173), with
the higher volume of jobs performed reflecting the improved
capacity management with similar levels of operational surveyors.
During H1 2022, 73% of the Division's jobs derived from its top
five lender clients. This is broadly consistent with the
concentration of mortgage lending in the UK, where it is estimated
that the six largest lenders collectively account for around 70% of
the market. The total number of jobs performed during the period
was 288,000, which was 8% greater than the same period in 2021.
At 30 June 2022, the total provision for professional indemnity
(PI) costs was GBP3.9m (31 December 2021: GBP3.9m, 30 June 2021:
GBP5.5m). The Group continued to make positive progress in
addressing historic PI claims and the number of new valuation
claims provided for in the period remained very low.
The number of operational surveyors employed (FTE) at 30 June
2022 was 497, which was in line with June 2021 and an increase on
31 December 2021 at 489. The increase was as a result of our
graduate and trainee mentoring programmes, which continue to
provide new productive surveyors, to alleviate any capacity
constraints in the market.
Estate Agency Division
Summary
Residential sales exchange pipeline conversion rates remained
extremely slow across the market principally due to the continuing
industry-wide capacity issues in conveyancing, which impacted
residential exchange income and contributed to an Underlying
Operating Loss(3) of GBP1.0m in H1 2022. The residential sales
exchange pipeline grew significantly and now stands at a record
level of GBP26.7m, having increased by around GBP6m since 31
December 2021.
Financial overview
Revenue for the 6 months to 30 June 2022 at GBP70.6m was 13%
behind the period last year, a period of unusually high activity
ahead of the end of the Stamp Duty deadline (H1 2021: GBP81.2m).
Underlying Operating Loss(3) was GBP1.0m for the 6 months to 30
June 2022, reflecting the residential market dynamics described
above with lower new purchase activity and conveyancing issues. If
the sales pipeline had converted at pre-COVID rates, residential
and ancillary revenue would have been c.GBP8m higher, with a total
Divisional revenue of c.GBP79m. Had residential sales agreed
exchanged at this more usual rate, Underlying Operating Profits
would have been over GBP6m higher, a GBP1m increase on the GBP4.0m
achieved in H1 2019. On a statutory basis, operating loss was
GBP4.3m (H1 2021: profit GBP15.5m).
Residential Sales
Residential Sales exchange income decreased by 24% to GBP30.8m
(H1 2021: GBP40.4m). The Estate Agency Division consolidated the
market share gains made during 2021, maintaining share of
instructions in the locations we trade, and growing our market
share of housing transactions on a national level . The residential
sales pipeline increased significantly to GBP26.7m at 30 June 2022
(an LSL record, previous high at GBP26.4m in May 2021 just prior to
the Stamp Duty deadline), with no indication of a material increase
in fall-throughs.
Lettings
In the Lettings market there has been a very limited supply of
new instructions. Our focus has therefore been on reletting and
retaining our managed property portfolio. The total number of
managed properties at 30 June 2022 was 24,376, slightly below the
same date in 2021. Therefore, t otal Lettings income is flat
year-on-year at GBP30.1m supported by average rent increases across
all brands.
Other income
Other income was down 10% to GBP9.7m (H1 2021: GBP10.8m)
reflecting the impact of the slowdown in exchange volumes as
conveyancing and financial services income directly linked to
exchange volumes. Asset Management is slightly ahead of 2021
however market repossession volumes remain very low, albeit ahead
of the exceptionally low 2021 which was severely impacted by
COVID-19.
Notes:
1 New mortgage lending by purpose of loan, UK (BOE) - Table MM23 - May YTD
2 UK's largest mortgage and insurance network based on LSL estimates
3 Refer to note 4 of the Financial Statements
4 Divisional Underlying Operating Profit and Divisional
Underlying Operating Margin are stated on the same basis as
Group
BALANCE SHEET REVIEW
Goodwill
The carrying value of goodwill is GBP158.9m (H1 2021: GBP160.9m)
reflecting an impairment of GBP2m which was identified and
recognised in Marsh & Parsons at 30 June 2022(1) .
Other intangible assets and property, plant and equipment
We continued to invest in technology during the first half of
the year and total capital expenditure in the half amounted to
GBP2.2m (H1 2021: GBP3.0m), including GBP1.1m (H1 2021: GBP0.6m)
for further development of the Toolbox platform in the Financial
Services Division and investment by the Estate Agency Division in
third-party property software.
Financial assets and investments in joint ventures and
associates
Financial assets
Financial assets of GBP6.1m at 30 June 2022 (31 December 2021:
GBP5.7m, 30 June 2021: GBP7.7m) comprise investments in equity
instruments in unlisted companies. The largest investment is an
8.8% shareholding in Yopa Property Limited, a UK-based online
hybrid estate agent. The carrying value of this investment has been
assessed and a fair value reduction of GBP0.4m has been made
through the Statement of Other Comprehensive Income. The carrying
value of the Group's investment at 30 June 2022 is GBP4.1m (31
December 2021: GBP4.5m, 30 June 2021: GBP6.5m). During the period
the fair value of units held in The Openwork Partnership LLP was
reassessed to GBP0.8m (31 December 2021: GBPnil, 30 June 2021:
GBPnil).
Joint ventures
In April 2021 the Group established the Pivotal Growth joint
venture and hold a 47.8% interest at 30 June 2022. The joint
venture is equity accounted and is held on the balance sheet at
GBP2.3m at 30 June 2022 (31 December 2021: GBP1.6m, 30 June 2021:
GBP0.3m), representing equity investment during the period less our
share of profit/losses after tax for the period. Pivotal Growth
announced two further acquisitions in H1 2022 and another during
July 2022, taking the total to four, one of which is subject to
change of control approval by the FCA.
During 2021, we disposed of our entire holding in both non-core
businesses LMS (May 2021) and TM Group (July 2021) for total
proceeds of GBP41.3m. At 30 June 2022, TMG was held at GBP3.0m
under non-current assets held for sale.
Bank facilities / Net Bank Cash / Liquidity
At 30 June 2022, Net Cash was at a record high at a half year at
GBP30.7m (31 December 2021: Net Cash GBP48.5m, 30 June 2021: Net
Cash GBP17.0m) , providing flexibility to make further investments
to support growth. The Group has a GBP90 million committed
revolving credit facility, with a maturity date of May 2024, and a
GBP30m accordion, to be requested by LSL at any time, subject to
bank approval.
The Group generated adjusted cash from operations of GBP6.1m (H1
2021: GBP26.9m). After adjusting for tax payment deferrals agreed
with HMRC relating to 2020, the cash-flow conversion(2) rate in H1
2022 reverted to pre COVID-19 levels at 43%. H1 2021 conversion was
100% due to significantly higher EA revenues with high immediate
cash drop-through. The reported cash-flow conversion rate before
adjusting for tax deferral payments, was 37% (H1 2021: 68%).
The net decrease in cash and cash equivalents of GBP17.7m during
H1 2022 (H1 2021: GBP5.6m increase) included further investment in
Pivotal Growth (GBP0.9m), capital expenditure of GBP2.2m (H1 2021:
GBP3.0m), commencement of the share buy-back programme (GBP1.8m),
the purchase of GBP5.0m LSL shares for employee share schemes (EBT)
and payment of the 2021 Final dividend of GBP7.7m (H1 2021: GBPnil
dividends paid).
In April 2022, LSL announced the commencement of a share buyback
programme of up to GBP10.0m, with the repurchased shares placed
into Treasury. At 30 June 2022, there were 504,273 shares being
held in Treasury for a total consideration of GBP1.8m.
The Financial Services Network business has a regulatory capital
requirement associated with its regulated revenues. The regulatory
capital requirement was GBP5.9m at 30 June 2022 (31 December 2021:
GBP4.9m, 30 June 2021: GBP5.0m), with a surplus of GBP13.4m (31
December 2021: GBP14.2m, 30 June 2021: GBP14.6m).
Contingent consideration liabilities
Contingent consideration liabilities at end of H1 2022 was
GBP2.9m (H1 2021: GBP5.8m, 31 December 2021 GBP3.0m). Contingent
consideration liabilities relate primarily to the cost of acquiring
the remaining shares in RSC. The year-on-year reduction reflects
part settlement and an update to forecasts in relation to RSC and
the final settlement of the acquisition of the remaining shares in
Group First.
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 2021.
International Financial Reporting Standards (IFRS)
The Interim Condensed Consolidated Group Financial Statements
for the period ended 30 June 2022 have been prepared in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and UK adopted International
Accounting Standards.
Notes:
1 Refer to note 10 of the Financial Statements
2 Adjusted cash-flow conversion defined as cash generated from
operations (pre PI and post lease liabilities) divided by Group
Underlying Operating Profit
Principal Risks and Uncertainties
The principal risks and uncertainties relating to the Group's
operations remain consistent with those disclosed on pages 23 to 25
of the Group's Annual Report and Accounts 2021 (which can be
accessed on the Group's website: www.lslps.co.uk). Having
reconsidered these principal risks and uncertainties which are
summarised below, the Board has concluded that the principal risks
and uncertainties of the Group remain the same as those included
within the Annual Report and Accounts 2021.
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 2022 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
2 August 2022 2 August 2022
Interim Group Income Statement
for the six months ended 30 June 2022
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2022 2021 2021
Continuing Operations Note GBP'000 GBP'000 GBP'000
--------- --------- ------------
Revenue 4 160,869 166,456 326,832
Operating expenses:
Employee and subcontractor costs (104,851) (100,493) (202,269)
Establishment costs (4,590) (4,684) (10,071)
Depreciation on property, plant and
equipment (5,871) (6,303) (12,500)
Other operating costs (32,259) (29,418) (55,339)
--------- --------- ------------
(147,571) (140,898) (280,179)
Other operating income 1,085 496 937
(Loss) / gain on sale of property,
plant and equipment (2) 280 1,061
(Loss) / Income from joint ventures
and associates (208) 934 668
Share-based payments (1,500) (454) (1,916)
Amortisation of intangible assets (2,051) (2,677) (4,534)
Exceptional gains - 4,311 31,050
Exceptional costs 7 (2,000) (1,656) (2,045)
Contingent consideration 115 (44) 710
------------
Group operating profit 8,737 26,748 72,584
Finance income 6 - 14
Finance costs (1,310) (1,286) (2,709)
Net finance costs (1,304) (1,286) (2,695)
Profit before tax 7,433 25,462 69,885
Taxation charge 9 (1,608) (2,917) (7,985)
Profit for the period/year 5,825 22,545 61,904
--------- --------- ------------
Attributable to:
Owners of the parent 5,876 22,566 61,941
Non-controlling interest (51) (21) (37)
Earnings per share expressed in pence
per share:
Basic 6 5.7 21.8 59.6
Diluted 6 5.7 21.4 59.2
--------- --------- ------------
Interim Group Statement of Comprehensive Income
for the six months ended 30 June 2022
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2022 2021 2021
GBP'000 GBP'000 GBP'000
----------- ----------- -----------
Profit for the period 5,825 22,545 61,904
Items not to be reclassified to profit
and loss in subsequent periods:
Revaluation of financial assets not
recycled through income statement 11 (370) 443 (1,557)
Tax on revaluation - (119) (132)
----------- ----------- -----------
Net other comprehensive income (370) 324 -
----------- ----------- -----------
Total comprehensive income, net of
tax 5,455 22,869 60,215
----------- ----------- -----------
Attributable to:
Owners of the parent 5,506 22,890 60,252
Non-controlling interest (51) (21) (37)
Interim Group Balance Sheet
as at 30 June 2022
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2022 2021 2021
Note GBP'000 GBP'000 GBP'000
--------- ---------- ------------
Non-current assets
Goodwill 10 158,865 160,865 160,865
Other intangible assets 28,788 29,908 29,604
Property, plant and equipment 33,550 40,551 37,070
Financial assets 11 6,095 7,737 5,748
Investments in joint venture 15 2,338 268 1,610
Contract assets 521 836 733
--------- ---------- ------------
Total non-current assets 230,157 240,165 235,630
--------- ---------- ------------
Current assets
Trade and other receivables 38,944 38,449 33,829
Contract assets 424 424 424
Current tax asset 3,499 1,673 1,142
Cash and cash equivalents 30,708 17,039 48,464
------------
Total current assets 73,575 57,585 83,859
--------- ---------- ------------
Non-current assets held for sale - 3,016 -
--------- ---------- ------------
Total assets 303,732 300,766 319,489
--------- ---------- ------------
Current liabilities
Financial liabilities 13 (10,462) (11,083) (8,523)
Trade and other payables 12 (58,380) (73,918) (64,206)
Provisions for liabilities (870) (2,908) (775)
--------- ---------- ------------
Total current liabilities (69,712) (87,909) (73,504)
--------- ---------- ------------
Non-current liabilities
Financial liabilities 13 (18,088) (25,678) (22,602)
Deferred tax liability (1,933) (1,916) (2,073)
Provisions for liabilities (3,037) (2,694) (3,191)
--------- ---------- ------------
Total non-current liabilities (23,058) (30,288) (27,866)
--------- ---------- ------------
Total Liabilities (92,770) (118,197) (101,370)
--------- ---------- ------------
Net assets 210,962 182,569 218,119
--------- ---------- ------------
Equity
Share capital 210 210 210
Share premium account 5,629 5,629 5,629
Share-based payment reserve 5,830 4,483 5,263
Shares held by EBT (6,814) (4,165) (3,036)
Treasury shares (1,767) - -
Fair value reserve (15,643) (13,260) (15,273)
Retained earnings 223,047 189,135 224,832
--------- ---------- ------------
Equity attributable to the owners
of the parent 210,492 182,032 217,598
--------- ---------- ------------
Non-controlling interest 470 537 521
--------- ---------- ------------
Total Equity 210,962 182,569 218,119
--------- ---------- ------------
Interim Group Cash Flow Statement
for the six months ended 30 June 2022
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2022 2021 2021
Note GBP'000 GBP'000 GBP'000
--------- --------- ------------
Profit before tax 7,433 25,462 68,889
Adjustments for:
Exceptional operating items and contingent
consideration 1,885 (2,612) (29,716)
Depreciation of tangible assets 5,871 6,303 12,500
Amortisation of intangible assets 2,051 2,677 4,534
Share-based payments 1,500 454 1,916
Loss /(profit) on disposal of fixed
assets 2 (280) (1,061)
Loss/(profit) from joint ventures 208 (934) (688)
Finance income (6) - (14)
Finance costs 1,310 1,286 2,709
Operating cash flows before movements
in working capital 20,254 17,117 60,089
--------- --------- ------------
Movements in working capital
Increase in trade and other receivables (5,653) (9,779) (3,439)
(Decrease) / increase in trade and
other payables (5,486) 1,327 (8,919)
Decrease in provisions (59) (1,576) (3,213)
(11,198) (10,028) (15,571)
--------- --------- ------------
Cash generated from operations 9,056 22,328 44,518
Interest paid (1,277) (1,215) (2,554)
Income taxes paid (4,052) (4,451) (8,528)
Exceptional costs paid - (2,466) (2,045)
Net cash generated from operating
activities 3,727 14,196 31,191
--------- --------- ------------
Cash flows used in investing activities
Acquisitions of subsidiaries and other
businesses - (730) (730)
Payment of contingent consideration 13 (76) (302) (2,462)
Investment in joint venture (936) (765) (2,477)
Investment in financial assets 11 - (4) (14)
Dividend received from joint venture - 1,178 1,178
Cash received on sale of joint venture - 12,000 41,349
Receipt of lease income 33 26 20
Purchase of property, plant and equipment
and intangible assets (2,231) (2,957) (6,902)
Proceeds from sale of property, plant
and equipment 6 431 431
Net cash (expended) / generated on
investing activities (3,204) 8,877 30,393
--------- --------- ------------
Repayment of loans - (13,000) (13,000)
Payment of deferred consideration - (92) (122)
Purchase of LSL shares by the EBT (5,026) - -
Purchase of treasury shares (1,767) - -
Proceeds from the exercise of share
options 263 429 1,447
Payments of lease liabilities (4,095) (4,814) (8,922)
Dividends paid (7,654) - (4,166)
Net cash expended in financing activities (18,279) (17,451) (24,763)
--------- --------- ------------
Net (decrease) / increase in cash
and cash equivalents (17,756) 5,596 37,021
--------- --------- ------------
Cash and cash equivalents at the end
of the period / year 30,708 17,039 48,464
--------- --------- ------------
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June 2022
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 2022 210 5,629 5,263 (3,063) - (15,273) 224,832 217,598 521 218,119
--------- --------- ---------- -------- ---------- --------- ---------- -------------- ------------- --------
Other
comprehensive
income for the
period
Revaluation of
financial assets - - - - - (370) - (370) - (370)
Profit for the
period - - - - - - 5,876 5,876 (51) 5,825
Total
comprehensive
income for
the period - - - - - (370) 5,876 5,506 (51) 5,455
Acquisition of -
subsidiary - - - - - - - -
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 210 5,629 5,830 (6,814) (1,767) (15,643) 223,047 210,492 470 210,962
--------- --------- ---------- -------- ---------- --------- ---------- -------------- ------------- --------
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.
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June 2021
Share-
Share based Shares Fair Non-
Share premium payment held by value Retained controlling
capital account reserve EBT Reserve earnings interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------- ---------- ---------- ----------- ----------- ------------- --------
At 1 January 2021 210 5,629 3,942 (5,012) (13,584) 166,569 - 157,754
----------- ---------- ---------- ---------- ----------- ----------- ------------- --------
Other
comprehensive
income for the
period
Revaluation of
financial assets - - - - 324 - - 324
Profit for the
period - - - - - 22,566 (21) 22,545
Total
comprehensive
income for
the period - - - - 324 22,566 (21) 22,869
Acquisition of
subsidiary - - - - - - 558 558
Exercise of
options - - (418) 847 - - - 429
Share-based
payments - - 454 - - - - 454
Tax on
share-based
payments - - 505 - - - - 505
At 30 June 2021 210 5,629 4,483 (4,165) (13,260) 189,135 537 182,569
----------- ---------- ---------- ---------- ----------- ----------- ------------- --------
During the six-month period to 30 June 2021 a total of 241,476
share options were exercised relating to LSL's various share option
schemes resulting in the shares being sold by the
Trust. LSL received GBP429,000 on exercise of these options.
Group Statement of Changes in Equity
for the year ended 31 December 2021
Share- Equity
Share based Shares Fair attributable
Share premium payment held value Retained to owners of Non-controlling Total
capital account reserve by EBT reserve earnings the parent interest Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2021 210 5,629 3,942 (5,012) (13,584) 166,569 157,754 - 157,754
Profit for the
year - - - - - 61,941 61,941 (37) 61,904
Revaluation of
financial
assets - - - - (1,557) - (1,557) - (1,557)
Tax on
revaluations - - - - (132) - (132) - (132)
Total
comprehensive
income for
the year - - - - (1,689) 61,941 60,252 (37) 60,215
Acquisition of
subsidiary - - - - - - - 558 558
Issued share
capital in the
year - - - - - - - - -
Exercise of
options - - (990) 1,949 - 488 1,447 - 1,447
Dividend paid - - - - - (4,166) (4,166) - (4,166)
Share-based
payments - - 1,916 - - - 1,916 - 1,916
Tax on share
based
payments - - 395 - - - 395 - 395
At 31 December
2021 210 5,629 5,263 (3,063) (15,273) 224,832 217,598 521 218,119
--------- --------- -------- -------- --------- ---------- -------------- ----------------- --------
During the year ended 31 December 2021, the Trust acquired nil
LSL Shares. During the period, 555,824 share options were exercised
relating to LSL's various share option schemes resulting in the
Shares being sold by the Trust. LSL received GBP1.4m 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 2022 were approved by the LSL Board on
2 August 2022. The interim Financial Statements are not the
statutory accounts. The financial information for the year ended 31
December 2021 is extracted from the audited statutory accounts for
the year ended 31 December 2021, which have been filed with the
Registrar of Companies. The auditor's report on those 2021 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 2022 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 2021
which are included in LSL's Annual Report and Accounts 2021. The
Group's annual Financial Statements for the year ending 31 December
2022 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 a revolving credit facility. The
Group's banking facility, a GBP90 million committed revolving
credit facility has a maturity date of May 2024. As shown in Note
12 to these interim condensed consolidated Group Financial
Statements, the Group have not currently utilised the facility
leaving GBP90 million of available undrawn committed borrowing
facilities in respect of which all conditions precedent had been
met.
LSL has continued to run a variety of scenario models throughout
H1 to help the ongoing assessment of risks and opportunities. 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 close to the low point experienced during the Global
Financial Crisis. The scenario modelling also excludes further
actions that could be taken, such as cost mitigations that could be
applied in a severe scenario. Underpinned by LSL's strong balance
sheet and diverse 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 2023 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 2023. The Board have therefore continued
to adopt the Going Concern basis in preparing the Interim Condensed
consolidated Financial Statements.
2. Changes in significant accounting policies
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
2021.
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 2021. The assumptions are
discussed in detail in the Group's Annual Report and Accounts 2021.
The assumptions discussed are as follows:
Judgements
Areas of judgement that have the most significant effect on the
amounts recognised in the consolidated Financial Statements
are:
-- Deferred tax
Estimates
The key assumptions affected by future uncertainty that have
significant risks of causing material adjustment to the carrying
value of assets and liabilities within the next financial year
are:
-- Professional Indemnity (PI) claims
-- Lapse Provision
-- Valuation of financial assets
-- Impairment of intangible assets
-- Contingent consideration
-- Income tax
Goodwill
At the period ended 30 June 2022, the Management Team undertook
sensitivity analysis to determine the effect of changes in
assumptions on the H1 2022 impairment reviews. Marsh & Parsons
was impaired by GBP2.0m at the period end. A reasonable possible
change in either latest forecasts or the discount rate applied
could lead to further impairment. A reduction in the growth rate of
1.0% would mean a further impairment of GBP5.0m would be required
and a reduction in each of the three years of cash-flows forecast
by 7.5% (which represents a reduction of GBP0.5m in the third year
of cash-flow forecasts) would lead to a further impairment of
GBP5.0m. An increase to the discount factor applied from 12.2% to
13.2% would lead to a further impairment of GBP6.0m. Management do
not consider there to be any further impairment indicators for the
Marsh & Parsons goodwill at 30 June 2022.
4 . Segment analysis of revenue and operating profit
LSL reports three segments: Financial Services, Surveying and
Valuation Services, and Estate Agency:
-- The Financial Services segment arranges mortgages for a
number of lenders and arranges pure protection and general
insurance policies for a panel of insurance companies. Embrace
Financial Services and First2Protect, subsidiaries within the
Financial Services Division, make a commercially agreed introducers
fee to the Estate Agency Division;
-- The Surveying and Valuation Services segment provides a
valuations and professional surveying service of residential
properties to various lenders and individual customers;
-- The Estate Agency segment provides services related to the
sale and letting of residential properties. It operates a network
of high street branches. As part of this process, the Estate Agency
Division also provides marketing and arranges conveyancing
services. In addition, it provides repossession and asset
management services to a range of lenders. Embrace Financial
Services and First2Protect, subsidiaries within the Financial
Services Division, make a commercially agreed introducers fee to
the Estate Agency Division.
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 and profit information
regarding the Group's operating segments for the six months ended
30 June 2022, for the six months ended 30 June 2022 and for the
year ended 31 December 2021.
Unaudited - Six months ended 30 June 2022
Revenue Split by Stream - Unaudited - Six Months ended 30 June
2022
Surveying Residential
and Sales Asset
Financial Valuation exchange Lettings Management Other
Services Services (EA) (EA) (EA) (EA) Total
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 42,646 50,451 30,759 15,184 1,318 4,989 145,347
Services
transferred
over time - - - 14,929 593 - 15,522
------------- ------------- --------------- ------------ -------------- ----------- -------------
Total
revenue
from
contracts
with
customers 42,646 50,451 30,759 30,113 1,911 4,989 160,869
------------- ------------- --------------- ------------ -------------- ----------- -------------
Surveying
Financial and Valuation
Services Services Estate Agency Unallocated Total
Income statement information 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
------------- ---------------- ----------------- ------------- -----------
Segmental result:
Underlying Operating Profit 6,104 13,066 (973) (4,024) 14,173
Share-based payments 95 (185) (700) (710) (1,500)
Amortisation of intangible
assets (1,309) (16) (726) - (2,051)
Exceptional gains - - - - -
Exceptional costs - - (2,000) - (2,000)
Contingent consideration
credit/(charge) - - 115 - 115
------------- ---------------- ----------------- -------------
Operating profit / (loss) 4,890 12,865 (4,284) (4,734) 8,737
------------- ---------------- ----------------- -------------
Finance income 6
Finance costs (1,310)
-----------
Profit before tax 7,433
Taxation (1,608)
Profit for the period 5,825
-----------
Group Underlying Operating Profit is as defined in note 5 to
these condensed financial statements.
Surveying
Financial and Valuation
Services Services Estate Agency Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------------- ------------- ----------- --------
Balance sheet information
Segment assets - intangible 20,328 11,116 156,137 72 187,653
Segment assets - other 11,322 15,148 51,077 38,532 116,079
----------- ----------------- ------------- ----------- --------
Total Segment assets 31,650 26,264 207,214 38,604 303,732
Total Segment liabilities (21,385) (20,219) (46,390) (4,776) (92,770)
----------- ----------------- ------------- ----------- --------
Net assets 10,265 6,045 160,824 33,828 210,962
----------- ----------------- ------------- ----------- --------
The joint venture interests of the Group are recorded in the
Financial Services and Estate Agency segments.
Unallocated net assets comprise other intangibles GBP72,000, PPE
GBP2,751,000, cash GBP30,708,000, other assets GBP1,574,000,
current tax GBP3,499,000, other taxes GBP74,000, accruals
GBP(2,420,000), payables GBP(183,000), IFRS16 liabilities
(GBP323,000) and deferred tax GBP(1,933,000).
Unaudited - Six months ended 30 June 2021
Revenue Split by Stream - Unaudited - Six Months ended 30 June 2021
Surveying Residential
and Sales Asset
Financial Valuation exchange Lettings Management Other
Services Services (EA) (EA) (EA) (EA) Total
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 42,340 46,159 40,425 16,132 1,071 5,792 151,919
Services
transferred
over time - - - 13,948 589 - 14,537
------------- ------------- --------------- ------------ -------------- ----------- -------------
Total
revenue
from
contracts
with
customers 42,340 46,159 40,425 30,080 1,660 5,792 166,456
------------- ------------- --------------- ------------ -------------- ----------- -------------
Surveying
Financial and Valuation
Services Services Estate Agency Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------------- ----------------- ------------- -----------
Revenue from external
customers 42,340 46,159 77,957 - 166,456
Introducers fee (3,232) - 3,232 - -
------------- ---------------- ----------------- ------------- -----------
Total revenue 39,108 46,159 81,189 - 166,456
------------- ---------------- ----------------- ------------- -----------
Segmental result:
Underlying Operating Profit 7,823 11,419 12,527 (4,501) 27,268
Share-based payments (43) 32 (67) (376) (454)
Amortisation of intangible
assets (1,374) (230) (914) (159) (2,677)
Exceptional gains (1,764) 1,131 4,944 - 4,311
Exceptional costs (714) - (942) - (1,656)
Contingent consideration
credit/(charge) - - (44) - (44)
------------- ---------------- ----------------- -------------
Operating profit / (loss) 3,928 12,352 15,504 (5,036) 26,748
------------- ---------------- ----------------- -------------
Finance income -
Finance costs (1,286)
-----------
Profit before tax 25,462
Taxation (2,917)
Profit for the period 22,545
-----------
Surveying
Financial and Valuation
Services Services Estate Agency Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- -------------- --------------- ----------- ---------
Balance sheet information
Segment assets - intangible 18,834 11,051 158,634 2,254 190,773
Segment assets - other 10,890 14,956 59,275 24,872 109,993
----------- -------------- --------------- ----------- ---------
Total Segment assets 29,724 26,007 217,909 27,126 300,766
Total Segment liabilities (25,513) (24,489) (62,131) (6,064) (118,197)
----------- -------------- --------------- ----------- ---------
Net assets 4,211 1,518 155,778 21,062 182,569
----------- -------------- --------------- ----------- ---------
The joint venture interests of the Group are recorded in the
Estate Agency segment, with the associate interest recorded in the
Financial Services.
Unallocated net assets comprise other intangibles GBP2,253,000,
assets held for sale GBP3,016,000, cash GBP17,039,000, other assets
GBP3,138,000, other taxes GBP(182,000), accruals GBP(3,912,000),
payables GBP(266,000), deferred and current tax GBP(24,000).
Audited - Year ended 31 December 2021
Revenue Split by Stream - Audited - Year ended 31 Dec 2021
Surveying Residential
and Sales Asset
Financial Valuation exchange Lettings Management Other
Services Services (EA) (EA) (EA) (EA) Total
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 84,818 93,699 71,737 32,268 2,217 11,162 295,901
Services
transferred
over time - - - 29,783 1,148 - 30,931
------------- ------------- --------------- ------------ -------------- ----------- ------------
Total
revenue
from
contracts
with
customers 84,818 93,699 71,737 62,051 3,365 11,162 326,832
------------- ------------- --------------- ------------ -------------- ----------- ------------
Surveying
Financial and Valuation
Services Services Estate Agency Unallocated Total
Income Statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------------- --------------- ------------- ----------
Revenue from external
customers 84,818 93,699 148,315 - 326,832
Introducers fee (6,287) - 6,287 - -
----------- ---------------- --------------- ------------- ----------
Total revenue 78,531 93,699 154,602 - 326,832
----------- ---------------- --------------- ------------- ----------
Segmental result:
Underlying Operating
Profit 14,787 23,609 18,430 (7,507) 49,319
Share-based payments (270) (147) (429) (1,070) (1,916)
Amortisation of intangible
assets (2,496) (382) (1,656) - (4,534)
Exceptional gains - 1,641 29,409 - 31,050
Exceptional costs (2,045) - - - (2,045)
Contingent consideration
credit/(charge) - - 710 - 710
----------- ---------------- --------------- -------------
Operating profit / (loss) 9,976 24,721 46,464 (8,577) 72,584
----------- ---------------- --------------- -------------
Finance Income 14
Finance costs (2,709)
----------
Profit before tax 69,889
Taxation (7,985)
----------
Profit for the year 61,904
----------
Balance sheet information
Segment assets - intangible 20,779 11,086 158,531 73 190,469
Segment assets - other 9,891 12,772 55,046 51,311 129,020
----------- ---------------- --------------- ------------- ----------
Total Segment assets 30,670 23,858 213,577 51,384 319,489
Total Segment liabilities (25,343) (20,621) (50,130) (5,276) (101,370)
----------- ---------------- --------------- ------------- ----------
Net assets / (liabilities) 5,327 3,237 163,447 46,108 218,119
----------- ---------------- --------------- ------------- ----------
In the year the Group sold its interests in the two joint
ventures recorded in the Estate Agency Division, results for these
joint ventures are recorded to their disposal dates. The Group
acquired an interest in a joint venture in the Financial Services
Division during April 2021.
Unallocated net assets comprise intangible assets and plant and
equipment GBP0.1m, other assets GBP3.0m, cash GBP48.5m, accruals
and other payables GBP3.4m, current and deferred tax liabilities
GBP2.1m. Unallocated result comprises costs relating to the Parent
Company.
5. Adjusted performance measures
In addition to the various performance measures defined under
IFRS, the Group reports a number of alternative performance
measures that are designed to assist with the understanding of the
underlying performance of the Group. The Group seeks to present a
measure of underlying performance which is not impacted by the
inconsistency in profile of exceptional gains and exceptional
costs, contingent consideration, amortisation of intangible assets
and share-based payments. Share based payments are excluded from
the underlying performance due to the fluctuations that can impact
the charge, such as lapses and the level of annual grants.
The three adjusted measures reported by the Group are:
-- Group Underlying Operating Profit
-- Adjusted Basic EPS
-- Adjusted diluted EPS
The amortisation of intangible assets is not considered
representative of the underlying costs of the business and is
therefore excluded from adjusted earnings.
The Directors consider that these adjusted measures shown above
could help improve the understanding of, and is a consistent
indication of, the Group's underlying performance. These measures
form part of Management's internal financial review and are
contained within the monthly management information reports
reviewed by the Board.
The calculations of adjusted basic and adjusted diluted EPS are
given in Note 6 to these Interim Condensed Consolidated Group
Financial Statements and a reconciliation of Group Underlying
Operating Profit is shown below:
Unaudited Audited
Six months ended Year ended
30 June 31 December
2022 2021 2021
GBP'000 GBP'000 GBP'000
--------- --------- -------------
Group operating profit 8,737 26,748 72,584
Share-based payments 1,500 454 1,916
Amortisation of intangible assets 2,051 2,677 4,534
Exceptional gains - (4,311) (31,050)
Exceptional costs 2,000 1,656 2,045
Contingent consideration (credit)/charge (115) 44 (710)
Group Underlying Operating Profit 14,173 27,268 49,319
--------- --------- -------------
6. 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.
Unaudited - Six months ended 30 June
Weighted 2022 Weighted 2021
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 5,876 103,099,292 5.7 22,566 103,691,129 21.8
Effect of dilutive
share options 401,613 1,737,509
Diluted EPS 5,876 103,500,905 5.7 22,566 105,428,638 21.4
---------- ------------ ---------- ------------
Audited - Year ended 31 December 2021
Weighted 2021
Profit average Per share
after tax number of amount
GBP'000 shares Pence
---------- ----------- ------------
Basic EPS 61,941 103,912,148 59.6
Effect of dilutive
share options 688,806
Diluted EPS 61,941 104,600,954 59.2
---------- -----------
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
2022 2021 2021
GBP'000 GBP'000 GBP'000
Group Underlying Operating Profit 14,173 27,268 49,319
Loss attributable to non-controlling interest 51 21 37
Net finance costs (excluding exceptional
items, contingent consideration items and
discounting on lease liabilities) (549) (511) (1,047)
Normalised taxation (tax rate 19%) (2,599) (5,084) (9,171)
Adjusted profit after tax before exceptional
items, share-based payments and amortisation 11,076 21,694 39,138
------------ ------------ ---------------
Unaudited - Six months ended 30 June
Adjusted Adjusted
profit Weighted 2022 profit Weighted 2021
after average Per share after average Per share
tax number amount tax number amount
GBP'000 of shares Pence GBP'000 of shares Pence
Adjusted basic EPS 11,076 103,099,292 10.7 21,694 103,691,129 20.9
Effect of dilutive
share options 401,613 1,737,509
Adjusted diluted
EPS 11,076 103,500,905 10.7 21,694 105,428,638 20.6
--------- ------------ --------- ------------
Audited - Year ended 31 December 2021
Adjusted
profit Weighted 2021
after average Per share
tax number amount
GBP'000 of shares Pence
Adjusted basic EPS 39,138 103,912,148 37.7
Effect of dilutive
share options 688,806
--------- -------------
Adjusted diluted EPS 39,138 104,600,954 37.4
--------- -------------
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 19.00% (30 June 2021: 19.00% and 31 December 2021: 19.00%).
7. Exceptional items
Unaudited Audited
Six months ended Year ended
30 June 30 June 31 December
2022 2021 2021
GBP'000 GBP'000 GBP'000
--------- --------- ------------
Exceptional costs:
Impairment to subsidiary Marsh & Parsons 2,000 - -
Exceptional costs in relation to investment
in joint venture - 943 1,179
Embrace Financial Services Limited restructuring
project - 713 714
Dissolution and impairment of associate
Mortgage Gym Limited - - 152
--------- --------- ------------
2,000 1,656 2,045
--------- --------- ------------
Exceptional costs
Goodwill Impairment:
There was an impairment review carried out which resulted in an
impairment to goodwill in relation to Marsh & Parsons.
8. Dividends paid and declared
A final dividend in respect of the year ended 31 December 2021
at 7.4 pence per share (December 2020: GBPNil) was paid in the
period ended 30 June 2022. An interim dividend has been announced
amounting to 4.0 pence per share (June 2021: 4.0 pence per share).
Interim dividends are recognised when paid.
9. 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
2022 2021 2021
GBP'000 GBP'000 GBP'000
--------- -------- -----------
UK corporation tax:
- current year charge 1,687 3,008 7,873
- adjustment in respect of prior
years - (1) (251)
--------- -------- -----------
1,687 3,007 7,622
Deferred tax:
Origination and reversal of temporary
differences (61) (214) (179)
Adjustment in respect of prior year (18) 1 (20)
Changes in tax rates - 123 562
--------- -------- -----------
(79) (90) 363
Total tax charge in the income statement 1,608 2,917 7,985
--------- -------- -----------
The headline UK rate of corporation tax for the period is 19%
(2021: 19%), and the rate at which deferred tax has been provided
is 25% (2021: 25%). The expected impact on deferred tax balances of
the rate increase is estimated to be GBP(97,000).
Deferred tax charged directly to other comprehensive income
relating to the revaluation of financial assets is GBPnil. In the
six months ended 30 June 2021 GBP119,000 and year ended 31 December
2021 GBP132,000.
10. Goodwill
GBP'000
--------
Cost
At 1 January 2021 160,865
Arising on acquisitions -
--------
At 31 December 2021 160,865
--------
Arising on acquisitions -
Impairment (2,000)
At 30 June 2022 158,865
--------
Net book value
--------
At 30 June 2022 158,865
--------
At 31 December 2021 160,865
--------
The carrying amount of goodwill by cash generating unit is given
below:
2022 2021
GBP'000 GBP'000
-------- --------
Financial Services
Group First 13,913 13,913
RSC New Homes 7,128 7,128
First Complete 3,998 3,998
Advance Mortgage Funding 2,604 2,604
Personal Touch Financial Services 348 348
Direct Life and Pension Services 1,002 1,002
-------- --------
28,993 28,993
-------- --------
Surveying and Valuation segment company
-------- --------
e.surv 9,569 9,569
-------- --------
Estate Agency segment companies
Your Move & Reeds Rains 58,800 58,800
Marsh & Parsons 38,307 40,307
LSLi 22,512 22,512
Templeton LPA 336 336
Others 348 348
-------- --------
120,303 122,303
-------- --------
Total 158,865 160,865
-------- --------
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 Group First
o RSC New Homes
o First Complete
o Advance Mortgage Funding which includes BDS
o Personal Touch Financial Services
o Direct Life and Pensions Services Limited
-- Surveying and Valuation Services company
o e.surv
-- Estate Agency companies
o Your Move and Reeds Rains (including its share of cash-flows
from LSL Corporate Client Department)
o Marsh & Parsons
o LSLi
o Templeton LPA
o St Trinity
Recoverable amount of companies
The recoverable amount of the Financial Services, Surveying and
Valuation services and Estate Agency companies has been determined
based on a value-in-use calculation using cash-flow projections
based on financial budgets approved by the Board and in the
three-year plan. The discount rate applied to cash-flow projections
is 12.2% (2021: 12.2%) and cash-flows beyond the three year plan
are extrapolated using a 2.0% growth rate (2021: 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 the Management Team's 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 19.0%) of
12.2% (2021: 12.2%); external advice has been sought for certain
elements of the source data. This is the benchmark used by the
Management Team to assess operating performance and to evaluate
future acquisition proposals.
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.
There has been an impairment recorded in respect of the carrying
amount of goodwill in Marsh and Parsons of GBP2m within the Estate
Agency segment. In consideration of trading performance, market
conditions and subsequent revisions to cash-flow forecasts, we
concluded that an impairment review was required for Marsh and
Parsons. The recoverable amount, as determined by the Value in Use,
has reduced to GBP52.3m (December 2021: GBP60.4m). The carrying
value of the brand remains unchanged at GBP11.7m (2021: GBP11.7m).
Refer also to note 3 of the Financial Statements.
11. Financial assets
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2022 2021 2021
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Investment in equity instruments -
at fair value
Unquoted shares at fair value (FVOCI) 5,049 7,417 5,418
Unquoted shares at fair value (FVPL) 751 - -
IFRS 16 lessor financial assets 295 320 330
--------- -------- -----------
Total Financial Assets 6,095 7,737 5,748
Opening balance 5,748 9,561 9,561
Additions - 14 14
Fair value adjustment (OCI) (370) 443 (1,557)
Fair value adjustment (P&L) 751 - -
Disposals (34) (2,281) (2,270)
Closing balance 6,095 7,737 5,748
--------- -------- -----------
Non-current assets 6,095 7,737 5,748
Current assets - - -
--------- -------- -----------
6,095 7,737 5,748
--------- -------- -----------
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 2021 Group Financial
Statements).
Vibrant Energy Matters Limited (VEM)
The carrying value of the Group's investment in VEM at 30 June
2022 has been assessed as GBP729,000 (June 2021: GBP729,000 and
December 2021: GBP729,000), following a share transaction between
third party shareholders which valued LSLs holding at
GBP729,000.
NBC Property Master Limited
The carrying value of the Group's investment at 30 June 2022 has
been assessed as GBP78,000 (June 2021: GBP78,000 and December 2021:
GBP78,000).
Global Property Ventures Limited
On 6 January 2020, LSL acquired 76,000 additional shares in
Global Property Ventures Limited, for a consideration of
GBP8,275.
The carrying value of the Group's investment in Global Property
Ventures Limited at 30 June 2022 has been assessed as GBP115,000
(June 2021: GBP101,000 and December 2021: GBP101,000).
Yopa Property Limited
The carrying value of the Group's investment in Yopa at 30 June
2022 has been assessed as GBP4,125,000 (June 2021: GBP6,495,000 and
December 2021: GBP4,495,000), resulting in a GBP370,000 fair value
reduction. The method for valuing the Group's investment in Yopa
was changed in 2021 from a market approach to an income-based
valuation. This change was made due to the increasing age of the
most recent market transaction data previously used in the
valuation, resulting in management no longer considering this to be
an appropriate basis for the valuation.
Openwork Units
During the period the fair value of units held in The Openwork
Partnership LLP was reassessed to GBP751,000 (31 December 2021:
GBPnil, 30 June 2021: GBPnil), recognised in other operating
income.
12. Trade and other payables
Unaudited
Six Months Ended
Audited
Year Ended
30 June 30 June 31 December
2022 2021 2021
GBP'000 GBP'000 GBP'000
--------- --------- -------------
Current
Trade payables 10,179 9,568 8,207
Other taxes and social security payable 12,645 19,664 12,247
Other payables 2,177 3,852 3,600
Accruals 28,634 35,873 35,222
Lapse provision 4, 745 4,961 4,930
---------
58,380 73,918 64,206
--------- --------- -------------
Lapse Provision
Certain subsidiaries sell life assurance products which are
cancellable without a notice period, and if cancelled within a set
period require that a portion of the commission earned must be
repaid. The lapse provision is recognised as a reduction in revenue
which is based on historic lapses which have occurred. The
provision is managements best estimate of future clawed back
commission on life assurance policies, taking into account historic
lapse rates in each subsidiary.
13. Financial liabilities
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2022 2021 2021
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Current
IFRS 16 lessee financial liabilities 7,925 9,583 8,447
Deferred consideration - 30 -
Contingent consideration 2,537 1,470 76
10,462 11,083 8,523
--------- -------- -----------
Non-current
IFRS 16 lessee financial liabilities 17,775 21,313 19,670
Contingent consideration 313 4,365 2,932
18,088 25,678 22,602
--------- -------- -----------
Contingent consideration -
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2022 2021 2021
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Group First - 1,470 -
RSC 2,537 3,786 2,615
DLPS 313 579 393
2,850 5,835 3,008
--------- -------- -----------
Opening balance 3,008 5,447 5,447
Cash paid (76) (302) (2,462)
Acquisition - 579 579
Amounts recorded though income statement (82) 111 (556)
--------- -------- -----------
Closing balance 2,850 5,835 3,008
--------- -------- -----------
GBP2,537,000 of contingent consideration relates to RSC New
Homes (June 2021: GBP3,786,000 and December 2021: GBP2,615,000).
The additional consideration will be calculated using earnings
multiples of between five and six times EBITA (plus excess cash in
the business) and has been capped at a maximum of GBP7.5m.
GBP313,000 of contingent consideration 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 2022 GBP76,000 (June 2021:
GBP302,000 and December 2021: GBP2,462,000) of contingent
consideration was paid to former shareholders.
The table below shows the allocation of the contingent
consideration balance and income charge between the various
categories:
Unaudited Audited
Six Months Ended Year Ended
Contingent consideration balances relating 30 June 30 June 31 December
to amounts accounted for as: 2022 2021 2021
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Arrangement under IFRS 3 (115) 44 (710)
Unwinding of discount on contingent consideration 33 67 154
--------- -------- -----------
Charge / (credit) (82) 111 (556)
--------- -------- -----------
The contingent consideration charged to the Income Statement in
the period excluding the unwinding of discount relates to previous
acquisitions and relates to the acquisition of RSC New Homes credit
of GBP92,000 (June 2021: credit GBP44,000 and December 2021: credit
GBP417,000) and Direct Life and Pension Services credit of
GBP23,000 (June 2021: credit GBPnil and December 2021: credit
GBP248,000).
14. Analysis of Net cash
Unaudited Audited
Six Months Ended Year Ended
31 December
30 June 2022 30 June 2021 2021
GBP'000 GBP'000 GBP'000
------------- ------------ -----------
Interest bearing loans and borrowings
(including loan notes, overdraft,
IFRS16 lease liabilities, contingent
and deferred consideration
* Current 10,462 11,083 8,523
* Non-current 18,088 25,678 22,602
------------- ------------ -----------
28,550 36,761 31,125
Less: cash and short-term deposits (30,708) (17,039) (48,464)
IFRS 16 Lessee financial liabilities (25,700) (30,896) (28,117)
Less: deferred and contingent
consideration (2,850) (5,865) (3,008)
------------- ------------ -----------
Net (cash) / Bank Debt at the
end of the period (30,708) (17,039) (48,464)
------------- ------------ -----------
15. Investments in Joint Ventures and associates
30 June 31 December
2022 2021
GBP'000 GBP'000
-------- ------------
Investment in joint ventures and associates 2,338 1,610
-------- ------------
Investment in joint ventures
Opening balance (1 January) 1,610 11,406
Disposal of LMS - (8,249)
Disposal of TM Group - (3,120)
Dividend received from LMS - (1,178)
Equity investment in Pivotal Growth 936 2,477
Equity accounted (loss) / profit (208) 274
Closing balance 2,338 1,610
------- ---------
In February 2022, the group invested a further GBP0.9m in
Pivotal Growth and maintains a 47.8% holding in the entity.
16. Financial Instruments
Risk management
The financial risks the Group faces, and the methods used to
manage these risks have not changed since 31 December 2021. 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 2021.
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 2022, 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 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
-------- -------- -------- --------
Unaudited - 30 June 2021 Total Level Level Level 3
1 2
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Assets measured at fair value
Financial assets 7,417 - 729 6,688
-------- -------- -------- --------
Liabilities measured at fair value
Contingent consideration 5,835 - - 5,835
-------- -------- -------- --------
Audited - 31 December 2021 Total Level Level Level 3
1 2
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Assets measured at fair value
Financial assets 5,748 - - 5,748
-------- -------- -------- --------
Liabilities measured at fair value
Contingent consideration 3,008 - - 3,008
-------- -------- -------- --------
Of the investments totalling GBP6,095,000, GBP5,344,000 are
valued using Level 3 valuation techniques. The Directors reviewed
the fair value of the financial assets at 30 June 2022. The
underlying value of the investments will be driven by the
profitability of these businesses. If this was to drop by 10%, the
implied valuation is likely to also drop by around 10%,
approximately GBP0.6m. The GBP751,000 uplift in Openwork Units, has
been valued using Level 2 valuation techniques. The valuation is
based on recent external sales between independent 3rd parties.
The contingent consideration relates to amounts payable in the
future on acquisitions. The amounts payable are based on the
amounts agreed in the contracts and based on the future
profitability of each entity acquired. In valuing each provision,
estimates have been made as to when the options are likely to be
exercised and the future profitability of the entity at this date.
Further details of these provisions are shown in Note 13.
17. Events after the reporting period
On 8 July 2022, the Group invested an additional GBP1.4m in its
Pivotal Growth joint venture to fund its buy and build growth
strategy.
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 2021 (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 financial statements in the half-yearly financial report for the
six months ended 30 June 2022 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 17. 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
financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 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" 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 financial statements
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 of 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
financial statements 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
Liverpool
2 August 2022
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