TIDMLSL
RNS Number : 1363V
LSL Property Services PLC
05 August 2020
5 August 2020
LSL Property Services plc ("LSL" or "The Group")
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2020
LSL reports Underlying Operating Profit 3% ahead of 2019, with
strong trading in June and July following resilient performance
during the Covid-19 lockdown
2020 2019 change
---------------------------------------------- ------ ------- --------
Group Revenue - GBPm 114.9 154.1 -25%
Group Underlying Operating Profit(1) - GBPm 12.5 12.2 3%
Group Underlying Operating Margin - % 11% 8% 300bps
Covid-19 Related (cost) - GBPm (2.8) - nm
Net Exceptional (cost) - GBPm (4.4) (12.8) -65%
Group Operating Profit / (Loss) - GBPm 3.6 (2.8) nm
Profit / (Loss) Before tax - GBPm 2.0 (4.6) nm
Basic Earnings / (Loss) Per Share - pence 1.2 (3.1) nm
Adjusted Basic Earnings Per Share(2) - pence 9.4 9.0 +4%
Net Bank Debt(3) at 30 June - GBPm 12.7 52.0 -76%
Interim Dividend - pence nil 4.0 nm
---------------------------------------------- ------ ------- --------
nm: not meaningful
1 Group Underlying Operating Profit is before exceptional costs,
Covid-19 related costs, contingent consideration, amortisation of
intangible assets, share-based payments and includes GBP13.8m of
amounts receivable pursuant to the Coronavirus Job Retention Scheme
and utilised to pay employee salaries for those placed on furlough
(as set out in Note 6 of the financial statements). Segment
Underlying Operating Profit is stated on the same basis as Group
Underlying Operating profit.
2 Refer to Note 7 of the financial statements for the calculation
3 Refer to Note 14 of the financial statements for the calculation
HIGHLIGHTS
Robust financial performance, in context of the impact of the
Covid-19 outbreak on the UK economy and the housing market
-- Group Underlying Operating Profit(1) up by GBP0.3m to GBP12.5m over H1 2019.
-- Reported Group Revenue fell 25% to GBP114.9m (2019: GBP154.1m).
-- Revenue impacted by Covid-19, the closure in February 2019 of
164 estate agency branches to reshape the Your Move and Reeds Rains
networks, and the tenant fee ban introduced in June 2019.
-- Financial Services Underlying Operating Profit(1) up 14%.
-- Estate Agency Underlying Operating Profit(1) up 3%.
-- Surveying Underlying Operating Profit(1) down 23%, with
activity significantly impacted by lockdown preventing the
conducting of physical valuations.
-- Group Underlying Operating Profit is stated before the
recognition of GBP2.8m of Covid-19 related net costs, the charging
of net exceptional costs of GBP4.4m, contingent consideration,
amortisation, share based payments, and includes GBP13.8m of
amounts receivable through the Coronavirus Job Retention Scheme,
which has been used to meet the salary of employees placed on
furlough to secure as many long term jobs as possible.
-- Net Bank Debt(4) at 30 June 2020 of GBP12.7m, resulting in
modest gearing(3) at 0.25 X Adjusted EBITDA(2) .
Strong trading in June, which continued throughout July
-- The Group generated an Underlying Operating Profit in June of
GBP5.7m (2019: GBP3.4m), before GBP0.3m of Covid-19 related costs
recognised in the period and including GBP2.9m of amounts
receivable through the Coronavirus Job Retention Scheme.
-- Underlying Operating Profits in June 2020 compared to 2019:
o Financial Services: in line with 2019 notwithstanding the
contraction of the UK housing market in Q2.
o Estate Agency: +41% demonstrating a rapid recovery following
the lockdown.
o Surveying: +150%, benefiting from a strong lender pipeline and
back office cost savings following the closure of an administration
centre during Q1 2020.
-- July trading is extremely encouraging with strong front end
sales metrics across all three divisions:
o Financial Services reporting mortgage applications more than
20% ahead of prior year, the highest month in 2020 and 16% ahead of
June 2020.
o Estate Agency instructions c.20% ahead of July 2019 with sales
exchange pipeline at 31 July up 12% on prior year. Net Sales and
Instructions in July were the highest in 2020.
o Surveying valuation instruction volumes broadly in line with
July 2019.
The Board's focus is to position the Group to compete strongly
in 2021, whilst continuing to monitor market conditions closely
-- As at 31 July, around 2,800 of the c.3,300 employees
furloughed had returned to work, as the Group takes steps to secure
market share during 2020 to provide a solid base on which to build
in 2021.
-- More staff are being returned to work in August.
-- The Board will assess opportunities to recommence investment
activities, including lettings books acquisitions, whilst taking
full account of on-going risks to the markets in which the Group
operates.
-- Following a period of focus on cash conservation, a
controlled increase is underway in marketing spend and other
operational initiatives to build on strong market positions across
all three Divisions.
-- The Board remains alert to the risk of a further spike in
Covid-19 cases, as well as to weakening economic conditions, and
will take decisive action if necessary.
The Group remains well positioned to meet highly stressed
economic conditions
-- Revolving credit facility of GBP100m, committed to 11 May 2022.
-- Resilient performance during lockdown demonstrated underlying
strength of the business and its diversified revenue streams.
-- Stress testing carried out on entry to lockdown, assuming
significant market stress throughout 2020, indicated the Group
would retain sufficient liquidity throughout the year.
-- Group Net Banking Debt(4) at 30 June 2020 was GBP12.7m,
representing gearing(3) of 0.31 x 12 month rolling adjusted EBITDA,
against a covenant of 3.25 times.
-- Cash monitored carefully, with regular stress testing, and
decisive action will be put in place should market conditions
deteriorate.
-- The voluntary reduction of one third of salaries and fees by
all Executive and Non-Executive directors was introduced on 1 April
2020 and was still in place at the end of July.
-- The salaries of other senior managers who agreed a voluntary
reduction were reinstated from 1 July 2020.
-- No Interim dividend declared. Dividend policy remains under review .
Financial Services Division - H1 Review
-- Underlying Operating Profit increased by 14% to GBP4.9m (30
June 2019: GBP4.3m), despite reduced activity during the lockdown
period demonstrating the resilience of our Financial Services
business.
-- Total Financial Services Division Revenue decreased by 18%,
reflecting the impact of the lockdown as well as the reshaping of
the Your Move and Reeds Rains branch networks during Q1 2019.
-- Mortgage completions were broadly in line with the prior year
at GBP14.6bn, representing 9.2%(6) of the market, highlighting the
versatility of the range of product and service offerings.
-- Total appointed representative firms at 30 June 2020
increased by 4% to 896 (30 June 2019: 860), with a strong pipeline
of new applicants in place at 31 July 2020.
-- The number of financial advisers increased by 7% over the past 12 months to 2,431.
Estate Agency Division - H1 Review
-- Underlying Operating Profit increased to GBP4.1m (2019:
GBP4.0m), including strong trading in Q1 2020, the impact of
Covid-19 during the lockdown, followed by the easing of lockdown
restrictions on 13 May 2020.
-- Underlying Operating Profit benefited from the reshaping of
the Your Move and Reeds Rains branch networks undertaken in
2019.
-- Total like-for-like Residential Sales exchange income decreased by 25%.
-- Total like-for-like Lettings income decreased by 18%.
-- Total Estate Agency Revenue decreased 28% to GBP55.7m (2019:
GBP77.1m), reflecting the fall in activity during the lockdown, the
reduction in the size of the Your Move and Reeds Rains branch
networks and the tenant fee ban introduced in June 2019.
-- By 30 June 2020, the entire owned and operated branch network
had reopened, with the exception of five locations under
review.
-- 87% of employees previously furloughed have now returned to work.
-- Underlying Operating Profit is stated before the recognition
of GBP1.7m of Covid-19 related costs, principally relating to
property and other asset costs incurred whilst the lockdown was in
place.
-- The Group has not detected a material change in house prices caused by Covid-19.
Surveying Division - H1 Review
-- Performance in Surveying impacted heavily by the restriction
on physical valuations in England between 13 March and 18 May
2020.
-- The lifting of the restriction took effect in Northern
Ireland, Scotland and Wales in June 2020 .
-- During these periods all valuations undertaken remotely, with
weekly volumes falling to approximately 20% of those in January and
February 2020.
-- Total revenue reduced from 2019 by 27% to GBP31.1m and
Underlying Operating Profit by 23% to GBP4.9m
-- Performance in the periods outside lockdown have been strong.
Outlook
Current trading conditions are extremely encouraging, with
strong front-end metrics in all three divisions. The introduction
by the Government of a Stamp Duty Holiday for properties up to
GBP500,000 is expected to provide further support to the principal
markets in which the Group operates.
However, the future course of the Covid-19 virus and its impact
on the economy and markets in which the Group operates remains
highly uncertain. In these conditions, it is not possible to make
an accurate assessment of trading prospects, and the Board
therefore is unable to provide financial guidance for the year
ending 31 December 2020 and beyond. We will resume formal guidance
as soon as the position becomes clearer.
Commenting on today's announcement, Simon Embley, Group
Chairman, said:
"I am pleased to confirm that LSL has performed extremely well,
during a period of unprecedented uncertainty and disruption. This
is testament to the underlying strength of the Group, and its
ability to respond quickly and effectively to rapidly changing
market conditions.
After a strong first quarter, we reacted decisively to the
emergence of the Covid-19 virus, managing our operations and cash
position to secure the position of the Group, even in the event of
the lockdown continuing throughout the year. This same agility
served us well as restrictions eased, as we rebuilt our capability
quickly to trade strongly throughout June.
As a result, I can report an Underlying Operating Profit
slightly ahead of last year, and in so doing I cannot highlight
strongly enough the exceptional contribution made by management and
staff working in all parts of the Group. Their commitment to our
customers and to the Group has been exemplary and I would again
like to express my appreciation.
Although we remain alert to the risk of more disruption, and
will take prompt action should it occur, I am increasingly
optimistic about market conditions, and am confident in our ability
to compete successfully. Our focus is increasingly turning to
investing for future growth, as well as optimising current
performance. We have performed extremely well in 2020, and I am
confident about the future prospects of the Group."
For further information, please contact:
David Stewart, Group Chief Executive
Officer
Adam Castleton, Group Chief Financial
Officer
---------------------------
LSL Property Services plc 0207 382 0360
---------------------------
Helen Tarbet, Charlotte Slater
---------------------------
Buchanan 07872 604453, 07413 363367
---------------------------
Notes:
1 Group Underlying Operating Profit is before exceptional costs,
COVID-19 related costs, contingent consideration, amortisation of
intangible assets, share-based payments and includes GBP13.8m of
amounts receivable through the Coronavirus Job Retention Scheme (as
set out in Note 6 of the financial statements). Segment Underlying
Operating Profit is stated on the same basis as Group Underlying
Operating profit.
2 Group Adjusted EBITDA is Group Underlying Operating Profit
plus depreciation of right of use assets, plant, property and
equipment (as defined in Note 6 of the financial statements).
3 Gearing defined as Net Bank Debt divided by Group Adjusted
EBITDA. Excluding the impact of IFRS 16 gearing, and as reporting
for covenant purposes, is 0.31x, post IFRS 16 gearing is 0.25X.
4 Refer to Note 14 of the financial statements for the calculation
5 PRIMIS is the trading name of Advance Mortgage Funding
Limited, Fist Complete Limited and Personal Touch Financial
Services Limited.
6 Market share excludes Product Transfers and is as at May 2020
Notes on LSL
LSL is a leading provider of residential property services in
three key markets: financial services, estate agency and surveying
and valuation services. Services include: residential sales,
lettings, land and new homes, surveying, conveyancing support, and
mortgage and non-investment insurance brokerage and intermediary
network services. Services to mortgage lenders include: valuations
and panel management services, and asset management and property
management services. For further information, please visit LSL's
website: lslps.co.uk
Group Chief Executive's Review
Introduction
I am pleased to be able to report that LSL has performed
strongly, after a period of unprecedented market disruption and
uncertainty. Following a strong start to the year, we responded
decisively to the emergence of the Covid-19 virus, in doing so
highlighting our agility and focus, whilst our performance during
that period demonstrated the benefits of conservative financial
gearing. We reacted equally quickly to the easing of lockdown
restrictions to rapidly rebuild our activity in each of our
Divisions and help secure a Group Underlying Operating Profit for
the half year marginally ahead of 2019.
None of this would have been possible without the hard work and
support we received from colleagues working in all parts of our
business. Once again, I would like to record the Board's
appreciation for their tremendous efforts.
I would also note that in common with many other organisations,
LSL made use of the Coronavirus Job Retention Scheme, through which
we received GBP13.2m in the period . Around 3,300 colleagues were
placed on furlough. I am pleased to report that this number has now
reduced to around 500. This total includes some colleagues whose
personal circumstances mean it is difficult for them to return to
work at this time, factors which the Group continues to recognise
and support. We will continue to return more colleagues in the
coming months.
The future path of the virus remains impossible to predict with
any certainty, nor is the outlook for either the general economy or
housing market clear. Naturally, we will continue to monitor market
conditions carefully, remaining ready to react to any adverse
developments. However, we will also seek to maximise the
opportunities afforded by what are currently much improved
conditions whilst focusing on the further development of our
strategy for long term growth.
Financial and Operating Results
Group
Group Financials Summary Q1 Q2 H1
2020 2019 change 2020 2019 change 2020 2019 change
P&L (GBPm)
---------------------------- ------- ------- ------- ------- ------- ------- ---------- --------- -------
Revenue 69.6 77.1 -10% 45.3 77.0 -41% 114.9 154.1 -25%
Revenue (LFL variance) -6% -41% -24%
Group Underlying Operating
Profit 3.4 2.1 62% 9.2 10.1 -9% 12.5 12.2 3%
Group Underlying Operating
Margin 5% 3% 200bps 20% 13% 700bps 11% 8% 300bps
Group operating profit 3.6 (2.8) nm
Group Underlying Operating
Profit
---------------------------- ------- ------- ------- ------- ------- ------- ---------- --------- -------
Financial Services 2.3 1.8 27% 2.6 2.5 4% 4.9 4.3 14%
Estate Agency (0.8) (1.2) -34% 4.9 5.2 -5% 4.1 4.0 3%
Surveying 2.9 2.8 3% 2.0 3.5 -44% 4.9 6.3 -23%
Unallocated Central
Costs (1.0) (1.3) -23% (0.4) (1.2) -69% (1.4) (2.5) -45%
------- ------- ------- ------- ------- ------- ---------- --------- -------
Group Revenue in H1 2020 reduced by 25% to GBP114.9m. Much of
this reduction resulted from the restrictions arising from the
Covid-19 lockdown, between 23 March and 13 May 2020, which affected
the last weeks of Q1 2020, and much of Q2 2020 trading.
In the three-month period to 31 March 2020, Group Revenue
compared to the same period in 2019, decreased by 10% overall and
by 6% on a like-for-like basis, once the effect of the steps taken
in 2019 to reduce the size of the Estate Agency branch networks is
excluded. Otherwise, trading was generally strong in each of the
Divisions, with the remaining reduction attributed to the
introduction of the tenant fee ban in June 2019, and to the fall in
volumes both in the run up to and, more acutely, following the
announcement of the lockdown on 23 March 2020.
Over the six-month period, Group Underlying Operating Profit
increased by 3% to GBP12.5m. This figure excludes around GBP2.8m of
Covid-19 related costs, the substantial part of which relates to
property costs for locations closed during the period due to the
lockdown and adherence to social distancing requirements.
The year started strongly as political uncertainty receded, with
each of the Group's Divisions reporting improved performance over
2019, notwithstanding the impact of Covid-19 on March trading.
Underlying Operating Profit in Q1 2020 increased from GBP2.1m in
2019 to GBP3.4m in 2020, and Underlying Operating Margin from 3% to
5%.
Naturally, profitability reduced significantly during the
lockdown: April 2020 Group Underlying Operating Profit fell to
GBP1.6m from GBP2.9m before recovering quickly as restrictions
eased. June 2020 Group Underlying Operating Profit was GBP5.7m
compared to the 2019 figure of GBP3.4m, as the Group benefited from
new business and the clearance of pipelines and meeting pent-up
customer demand. Strong trading continued in July across all three
divisions:
o Financial Services reporting mortgage applications more than
20% ahead of prior year, the highest month in 2020 and 16% ahead of
June 2020.
o Estate Agency instructions c.20% ahead of July 2019 with sales
exchange pipeline at 31 July up 12% on prior year. Net Sales and
Instructions in July were the highest in 2020.
o Surveying valuation instruction volumes broadly in line with
July 2019.
In view of the significant improvement in trading, the Board has
considered carefully whether to recommend payment of an interim
dividend. The Board remains committed to its long term dividend
policy which has resulted in payments of between 30% and 40% of
Adjusted Profit After Tax, but also remains mindful of the
uncertain economic backdrop, and at this stage has concluded that
it is prudent not to pay an interim dividend as it has done in
previous years. This position will continue to be kept under
review.
Financial Services Division
Financial Services: Financials
Summary Q1 Q2 H1
2020 2019 change 2020 2019 change 2020 2019 change
P&L (GBPm)
-------------------------------- ------- ------- ------- ------- ------- -------- --------- --------- -------
Total Revenue 16.2 17.1 -6% 11.9 17.2 -31% 28.1 34.3 -18%
Revenue excluding Estate
Agency -3% -28% -16%
Expenditure (13.9) (15.3) -10% (9.3) (14.7) -37% (23.2) (30.0) -23%
Underlying Operating Profit 2.3 1.8 27% 2.6 2.5 4% 4.9 4.3 14%
Underlying Operating Margin 14% 11% 300bps 22% 15% 700bps 18% 13% 500bps
KPIs
-------------------------------- ------- ------- ------- ------- ------- -------- --------- --------- -------
LSL Mortgage Completion
Lending (GBPbn) 14.6 14.7 -0.4%
LSL Market Share(1) 9.2% 8.5% 70bps
Total advisers at 30 June 2,431 2,277 7%
Number of AR firms at 30
June 896 860 4%
FCA capital requirement 5.2 4.7 12.4%
Excess capital (GBPm) (2) 10.6 10.8 -2.1%
-------------------------------- ------- ------- ------- ------- ------- -------- --------- --------- -------
1. Market share excludes Product Transfers and is as at May 2020
2. 2020 FCA capital requirement and excess capital as at Q1
The importance of Financial Services to the Group has increased
consistently in recent years, reflecting the Board's strategy to
develop a broader and less volatile income stream in areas in which
it has significant experience. Over the 3 financial years ended 31
December 2019, Underlying Operating Profit increased by 41% to
GBP11.6m.
In doing so, LSL has become a major player in the provision of
mortgage brokerage, and in the first half of 2020 we provided
services in relation to GBP14.6bn of mortgage completions,
representing approximately 9.2%(1) of the UK market, up from 8.5%
in 2019.
The benefits of this strategy can be seen in the strong
performance of the Division in Q1 2020 and June 2020, as well as in
the significant contribution made during the lockdown.
Over the first 3 months of the year, profitability grew strongly
with Underlying Operating Profit up 27% to GBP2.3m, notwithstanding
reduced activity levels during the latter part of March 2020. Total
Financial Services Revenue during this period decreased by 6%, a
figure which includes a reduction from the impact of the reshaping
of the Your Move and Reeds Rains branch networks undertaken in
2019. Financial Services Revenue excluding Estate Agency's
contribution decreased by 3%.
During April 2020, Financial Services Revenue reduced by 18%
compared to the prior year, as activity focused on re-mortgage
business with demand for house purchase mortgages reducing to
negligible levels. Nevertheless, the Division still reported an
increase in Underlying Operating Profit to GBP0.9m (April 2019:
GBP0.7m).
Activity levels recovered significantly following the end of
lockdown restrictions, to give rise to an overall increase in H1
2020 Underlying Operating Profit of GBP0.6m (14%). GBP0.3m of costs
relating to Covid-19 have been excluded from the H1 2020 Underlying
Operating Profit. In large part, this growth was secured through
the Group's continuing success in attracting new appointed
representatives ("AR") firms to its PRIMIS network. Over the past
year, AR firms increased by 4% to 896, and the number of advisers
by 7% to 2,431.
The business mix of mortgage applications between purchase and
refinance, including both re-mortgage and product transfers, has
returned to normalised levels at around a 50/50 split. In April,
business was heavily skewed to re-finance at around 86%.
The growth in Financial Services brings with it different areas
of focus, and risk. Work was undertaken in 2019 to prepare for the
introduction by the Financial Conduct Authority ("FCA") of the
Senior Managers and Certification Regime ("SMCR"), and the
Nominations Committee has taken steps to ensure that the Board's
composition includes directors with significant experience of
operating in regulated financial services businesses. In addition,
during 2020 the independent member of the Financial Services
Management Committee took on the role of Chair of that Committee to
enhance the Division's governance arrangements.
In common with other regulated businesses, LSL's Financial
Services activities require the maintenance of minimum levels of
regulatory capital, calculated on the basis of revenue in related
activities. At the end of Q1 2020, the most recent regulatory
reporting period, the relevant businesses held total capital of
GBP15.8m, significantly ahead of the regulatory requirement of
GBP5.2m, indicative of the Group's prudent approach to balance
sheet management. This capital surplus could support significant
further growth in FCA regulated activities.
Estate Agency Division
Estate Agency:
Financials Summary Q1 Q2 H1
2020 2019 change 2020 2019 change 2020 2019 change
P&L (GBPm)
======================= ========= ======= ======== ========= ========= ======= ========= ============ =======
Residential Sales
Exchange Income 11.4 13.5 -16% 7.2 14.1 -49% 18.6 27.6 -33%
Lettings Income 15.4 17.3 -11% 12.0 16.5 -27% 27.4 33.8 -19%
Financial Services
Income 2.6 3.8 -31% 1.9 3.0 -36% 4.5 6.8 -33%
Conveyancing,
Franchise
and Other 2.3 3.4 -33% 0.9 3.0 -72% 3.2 6.5 -51%
Asset Management 1.3 1.2 9% 0.7 1.3 -47% 2.0 2.5 -20%
Total Revenue 33.0 39.2 -16% 22.7 37.9 -40% 55.7 77.1 -28%
Expenditure (33.8) (40.4) 16% (17.8) (32.7) -45% (51.6) (73.1) -29%
Underlying Operating
Profit (0.8) (1.2) -34% 4.9 5.2 -5% 4.1 4.0 3%
Underlying Operating
margin (2)% (3)% -100bps 22% 14% 800bps 7% 5% 200bps
KPIs
======================= ========= ======= ======== ========= ========= ======= ========= ============ =======
Branch numbers:
owned 231 229 1% 226 231 -2% 226 231 -2%
Branch numbers:
franchise 132 137 -4% 130 137 -5% 130 137 -5%
Exchange units
(000's) 3,049 4,451 -31% 1,936 4,044 -52% 4,985 8,495 -41%
Managed properties
(000's) 25,254 27,760 -9% 24,815 25,060 -1% 24,815 25,060 -1%
Average Residential
Sales Exchange
Fee per unit (GBP) 3,725 3,025 23% 3,739 3,489 7% 3,730 3,246 15%
Profit per branch
(core) - rolling
12 months (GBPk) 47.3 49.6 -5%
--------- ------- -------- --------- --------- ------- --------- ------------ -------
Estate Agency Revenue was heavily impacted by significantly
reduced activity levels, in particular Residential Sales, with a
number of residential housing market activities banned between 23
March and 13 May 2020. These included viewings, physical
valuations, removals and other essential parts of the residential
sales and lettings processes.
Overall volumes were budgeted to fall from those reported in
2019 as a result of the reshaping in Q1, 2019 of the Your Move and
Reeds Rains branch networks. The previous total of 308 branches was
reduced to 144 keystone branches, following the closure and merger
of 81 branches, the franchising of a further 39 and the closure of
44 locations.
These steps helped improve profitability at the start of the
year, as well as containing costs during the lockdown. Adjusting
for the reduced size of the network, first quarter like-for-like
Residential Sales exchange income increased by 1%, a performance
the Board regard as strong in view of the closure due to lockdown
on 23 March 2020 and the slowdown in the days and weeks before.
Nevertheless, Underlying Operating Loss reduced in Q1 2020 by
34% to GBP0.8m, reflecting improved margins and the benefits of the
branch restructuring undertaken last year.
Activity was extremely restricted in the period between 23 March
and 13 May 2020. Over this period, weekly Residential Sales
exchange income reduced by 63%, and new Lettings and Renewals by
24%. The Group responded quickly to the easing of restrictions,
having put in place detailed contingency plans in preparation. As a
result, by 31 May 2020, the Group had reopened 208 owned branches
in England, with a further 18 branches in Scotland and Wales
remaining closed until guidance changed on 29 June 2020. By the end
of June 2020, the total branch estate had reopened with the
exception of 5 branches under review and was operating with
comprehensive health and safety protections in place. As at 30 June
2020, 1,334 furloughed colleagues (from the peak of 2,085) have
returned back to work, with a further 473 brought back in July, as
the Division implements measures to build market share in a
controlled fashion.
We have yet to see the full benefit of much of this increased
activity given the time taken between taking on a new listing and
completion of sale. Nevertheless, Estate Agency income recovered
significantly in June to GBP10.3m (2019: GBP12.4m).
Across the whole of the first-half of the year, Estate Agency
Divisional Revenue was 28% below prior year at GBP55.7m. Adjusting
for the reshaping of the Estate Agency networks, like-for-like
revenue was down 25%. The benefits of the steps taken to
rationalise the network and focus on the most productive branches,
can be seen in improved average Sales Exchange Fees (up 15% from
GBP3,246 to GBP3,730) and reduced costs (down 29% to GBP51.6m),
which helped to drive a small increase in Underlying Operating
Profit (up GBP0.1m to GBP4.1m). A total of GBP1.7m of 2020 costs
have been separately identified as Covid-19 related costs and are
excluded from these numbers.
The performance of Marsh & Parsons is affected by the
particular conditions that pertain to the London markets. Q1, 2020
revenues increased 5% to GBP7.0m, whilst a strong recovery
following the lockdown in June 2020 (revenue GBP2.4m compared to
GBP2.8m in 2019), helped lift Underlying Operating Profit in June
2020 to GBP0.6m (2019: GBP0.5m), and that for the 6 months to
GBP1.0m (2019: GBP0.4m).
Surveying Division
Surveying: Financials
Summary Q1 Q2 H1
2020 2019 change 2020 2019 change 2020 2019 change
------- ------- ------- -------- --------- -------
P&L (GBPm)
------------------------ ------- ------- ------- -------- ------- ------- -------- --------- -------
Total Revenue 20.5 20.8 -2% 10.6 21.9 -51% 31.1 42.7 -27%
Expenditure (17.6) (18.0) -2% (8.6) (18.3) -53% (26.2) (36.4) -28%
Underlying Operating
profit 2.9 2.8 3% 2.0 3.5 -44% 4.9 6.3 -23%
Underlying Operating
margin 14% 13% 100bps 19% 16% 300bps 16% 15% 100bps
KPIs
------------------------ ------- ------- ------- -------- ------- ------- -------- --------- -------
Jobs performed (000's) 124 121 2% 73 129 -44% 196.6 250 -22%
Income per job (GBP) 166 171 -3% 146 169 -14% 158 170 -7%
Number of operational
surveyors (FTE) 506 481 5% 507 486 4% 507 486 4%
------------------------ ------- ------- ------- -------- ------- ------- -------- --------- -------
In Q1 2020, a total of 124,000 valuations were completed, 3,000
more than in 2019, but at a slightly lower average income (GBP166 v
GBP171). Average income per job is affected by a number of factors,
including the proportion undertaken remotely, the nature of the
valuation required and the work necessary to ensure an appropriate
valuation is reached.
A number of steps have been undertaken to improve margins in the
Division, a process that will continue. During Q1 2020, Surveying
administration functions were rationalised, resulting in annualised
savings of GBP1.0m. Notwithstanding the slight reduction in income,
and the onset of the lockdown restrictions in March 2020,
Underlying Operating Profit for Q1 2020 increased marginally over
2019 (GBP2.9m v GBP2.8m).
The Group undertook no physical valuations during the period
between 23 March and 18 May 2020, although it continued to perform
valuations on a remote basis, at a level equating to approximately
20% of normal activity. Following recommencing physical valuations
on 18 May 2020, the number of inspections increased steadily and in
June 2020 42,000 jobs were completed (2019: 42,000). It is
estimated that around 55% of the work undertaken in June related to
the clearance of lender pipelines, although the proportion of new
instructions continues to build.
The Division reported Underlying Operating Profit for Q2 2020 of
GBP2.0m (2019: GBP3.5m) to bring the half year total to GBP4.9m
(2019: GBP6.3m). However, performance in June 2020 was strong, with
Underlying Operating Profit of GBP2.4m, significantly ahead of the
GBP0.9m in June 2019. A total of GBP0.8m has been excluded from
these numbers and identified separately as Covid-19 related
costs.
The availability of qualified surveyors is a factor that has
been of some concern across the industry as a whole, and increasing
the Group's capacity in this regard has been an area of focus.
Against this background, the small increase in operational
surveyors over the past 12 months (from 486 FTE to 507 FTE) will
help to position the Group to meet future demand. At the half-year
end, a small number of operational surveyors remained on furlough
(15 out of the 440 placed on furlough), in large part reflecting
personal circumstances which make it difficult to return to work at
this time.
The Division continues to focus on meeting the needs of its
lender customers, paying close attention to service standards
whilst also seeking to develop new and improved products and
services. During 2020, new technology enhancements were released,
with more under development to deliver further quality and
efficiency improvements. The Group was also pleased in June 2020 to
secure a contract extension to supply UK residential survey and
valuation works to a major High Street bank.
Currently, just over 70% of the Division's revenue is derived
from its top five customers. This is not inconsistent with the
concentration in mortgage lending in the UK, where the six biggest
lenders collectively account for around 65% of the market.
Accounting for the impact of Covid-19 and Exceptional items
We have excluded Covid-19 related net costs of GBP2.8m from
Underlying Operating Profit and shown them separately in note 6 of
the Interim Statements. The majority of this total relates to
property and other asset costs incurred whilst the lockdown was in
place. These costs are net of property grants received and
separately identified to give full transparency of the impact of
Covid-19 on the Group.
Property Grants of GBP0.5m were received whilst premises were
closed during the lockdown and have been excluded from Underlying
Operating Profit. Following the re-opening of branches and other
premises, property costs and grants are included in Underlying
Operating Profit.
We have recognised GBP4.4m of exceptional costs in the period in
line with the Group's Accounting Policies. This includes GBP1.7m
relating to planned Surveying transformation and Estate Agency
branch/centre closure costs and GBP2.4m of aborted deal costs in
relation to the discussions for a potential all share combination
between LSL and Countrywide plc, which did not result in an offer
by LSL. Further details are set out in Note 8 to the financial
statements.
Group Liquidity and Banking Covenants
The Group maintains a prudent approach to financial gearing.
Reported Net Bank Debt at 30 June 2020 was GBP12.7m (June 2019:
GBP52.0m), resulting in modest gearing(2) at 0.25 X Adjusted
EBITDA(1) (June 2019: 1.11 X). Undrawn bank facilities at 30 June
2020 were GBP68.0m.
Net Bank Debt reduced between the end of Q1 and the end of Q2
2020, with careful cash control and cash conservation as well the
receipt of Coronavirus Job Retention Scheme payments. The Net Bank
Debt position was further reduced by payment deferrals put in place
to conserve cash, mainly in relation to tax payments due, with
deferrals agreed with HMRC. Adjusting for Covid-19 related payment
deferrals, the underlying Net Bank Debt position at 30 June 2020
was approximately GBP45.6m, with notional adjusted gearing(2) at
1.12 X Adjusted EBITDA(1) , and representing a fall on the
equivalent position in 2019.
LSL has considered a range of scenario throughout H1 2020 to
help the ongoing assessment of risks and opportunities. A highly
pessimistic scenario was modelled as part of the Going Concern
assessment, which included the pessimistic assumption that there is
a further lock down from September 2020 for the remainder of 2020,
impacting LSL's businesses, followed by a 2021 outlook in which
market transaction volumes reduced to a level close to the low
point experienced during the Global Financial Crisis.
The modelling has confirmed that the Group's current liquidity
position would enable it to operate under this scenario for a
period of at least 12 months from the date of signing these
financial statements within the terms of its current facilities and
that therefore it is appropriate to use the Going Concern basis of
preparation for this financial information.
Having due regard to these matters and after making appropriate
enquiries, the Board have therefore continued to adopt the Going
Concern basis in preparing this interim financial statement.
Strategy
The Board has previously set out a number of strategic goals and
objectives. We have developed these further during the course of
2020, with key elements including:
Group
-- To align LSL's operations to deliver a more seamless
proposition for the provision of residential property services;
-- To grow counter-cyclical and recurring revenue streams;
-- To leverage technology better to deliver product enhancements
and operational efficiency improvements;
-- To evaluate selective inorganic growth opportunities and pursue as appropriate;
-- To remain close to the markets in which it operates, managing
businesses with attention to detail and rigour; and
-- To position the Group to compete effectively in the digital
age, in each of its principal areas of activity.
Financial Services
-- To grow further the Group's Financial Services activities,
including considering entry to complementary markets in which the
Group has competitive advantages either from its existing
activities or its expertise;
-- To consolidate LSL's leading position as a distributor of
mortgages, and non-investment insurance products;
-- To develop further its distribution capability, identifying
new channels for client acquisition; and
-- To maintain a rigorous, compliant and customer focused
culture, in line with regulatory expectations and the Board's
values.
Estate Agency
-- To deliver first class service to vendors, landlords and other customers;
-- To grow market share;
-- To position LSL as a provider of choice for the provision of
products and services throughout the house buying and letting
chains;
-- To become a leading (top 3) estate agency in each of the
locations in which it has a physical presence, and in doing so to
grow operating profit per branch in normalised market
conditions;
-- To enhance further the position of Marsh & Parsons as a
leading estate agency in the markets it serves, including extension
of its branch network to geographically contiguous locations, in
particular outside Central London; and
-- To grow its provision of lettings services, including the
selective acquisition of lettings books.
Surveying and Valuation
-- To remain the pre-eminent provider of surveying and valuation services to UK lenders;
-- To develop market leading propositions that reflect changing
consumer and lender needs, including the use of technology to
reduce costs for the benefit of all market participants;
-- To be the acknowledged expert in its core markets; and
-- To improve operational efficiency, using its capacity
effectively and minimising surveyor downtime.
The resilient performance throughout H1 2020 is testament to the
underlying strength of the Group, its diversified revenue streams
and progress achieved in previous periods. The Financial Services
Division was a major contributor to performance through the period
of the lockdown, whilst the benefits of earlier investment in
technology was evidenced by the ability of all of the Group's
principal businesses to continue to operate effectively and to
secure such income opportunities as were available. The steps taken
in 2019 to reduce the size of the Estate Agency branch networks to
focus on profitable locations in which the Group has the potential
to maintain a strong market share also helped underpin
performance.
In the second half of 2020, the Group will continue to pursue
these objectives. In view of the improved trading conditions, we
have taken steps to increase capital expenditure and resume
investment in new products, as well as to provide additional
resources to management to build the Group's competitive position
in each of the principal markets in which the Group operates. The
Group will also work to develop its understanding of the
opportunities to develop LSL's digital propositions further. This
will include direct investment as well as working to maximise the
value of strategic investments.
The Board also considers it is now appropriate to once again
evaluate the benefits afforded by acquisitions, and in doing so
will consider carefully all attendant risks, including those
resulting from further widespread Covid-19 outbreaks, or worsening
economic conditions.
Management will continue to review the appropriateness of these
objectives, and develop new ones as appropriate, and more detailed
updates on overall progress will be given when market conditions
are clearer.
July trading and outlook
Current trading conditions are extremely encouraging with strong
front-end metrics in each of the three divisions. The introduction
by the Government of a Stamp Duty Holiday for properties up to
GBP500,000 is expected to provide further support to many of the
markets in which the Group operates, and should help underpin
financial performance.
However, the future course of the Covid-19 virus and its impact
on the economy and markets in which the Group operates remains
highly uncertain. In these conditions, it is not possible to
provide an accurate assessment of trading prospects, and the Board
therefore is unable to provide financial guidance for the year
ending 31 December 2020 and beyond. We will resume formal guidance
as soon as the position becomes clearer.
David Stewart
Group Chief Executive Officer
5 August 2020
1 Group Adjusted EBITDA is Group Underlying Operating Profit
plus depreciation of right of use assets, plant, property and
equipment (as defined in Note 6 of the financial statements).
2 Gearing defined as Net bank debt divided by Group Adjusted
EBITDA. Excluding the impact of IFRS 16 gearing, and as reporting
for covenant purposes, is 0.31x, post IFRS 16 gearing is 0.25X.
Principal risks and uncertainties
The key risks and uncertainties relating to the Group's
operations remain consistent with those disclosed in the Group's
Annual Report and Accounts 2019 on pages 36 to 41. The Annual
Report and Accounts 2019 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 continues to
consider them appropriate.
-- Covid-19 virus
-- UK housing market
-- New UK housing market entrants
-- Investment, acquisitions and growth initiatives
-- Professional services
-- Client contracts
-- Business infrastructure (including IT)
-- Information security (including data protection)
-- Regulatory and compliance
-- Employees
A recent Group Risk Appetite Assessment exercise included an
evaluation of developing areas of key risks and the effectiveness
of related business response plans.
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 2019.
Forward Looking Statement
This announcement contains certain statements that are
forward-looking statements. They appear in a number of places
throughout this announcement and include statements regarding LSL's
intentions, beliefs or current expectations and those of its
officers, directors and employees concerning, amongst other things,
LSL's results of operations, financial condition, liquidity,
prospects, growth, strategies and the business it operates. 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.
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 2019 (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.
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
has been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU;
-- 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
Interim Condensed Consolidated Group 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
5 August 2020 5 August 2020
Interim Group Income Statement
for the six months ended 30 June 2020
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2020 2019 2019
Continuing Operations Note GBP'000 GBP'000 GBP'000
--------- --------- ------------
Revenue 4,5 114,921 154,115 311,073
Operating expenses:
Employee and subcontractor costs (71,113) (96,958) (194,207)
Establishment costs (4,036) (7,341) (10,367)
Depreciation on property, plant and
equipment (7,184) (7,513) (14,842)
Other operating costs (22,929) (30,268) (56,098)
--------- --------- ------------
(105,262) (142,080) (275,514)
Other operating income 274 459 887
Gain / (loss) on sale of property,
plant and equipment 16 (6) 148
(Loss) / income from joint ventures
and associates (224) (331) 441
Share-based payments 673 (553) (312)
Amortisation of intangible assets (2,899) (2,236) (5,786)
Exceptional gains 8 - 593 2,487
Exceptional costs 8 (4,422) (13,380) (15,730)
Contingent consideration 504 652 2,054
------------
Group operating profit / (loss) 3,581 (2,767) 19,748
Finance income 9 5 10
Finance costs (1,579) (1,802) (3,744)
Net finance costs (1,570) (1,797) (3,734)
Profit / (loss) before tax 2,011 (4,564) 16,014
Taxation credit / (charge) 10 (764) 1,353 (3,045)
Profit / (loss) for the period/year 1,247 (3,211) 12,969
--------- --------- ------------
Earnings / (loss) per share expressed
in pence per share:
Basic 7 1.2 (3.1) 12.6
Diluted 7 1.2 (3.1) 12.6
--------- --------- ------------
Interim Group Statement of Comprehensive Income
for the six months ended 30 June 2020
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
----------- -------- -----------
Profit / (loss) for the period 1,247 (3,211) 12,969
Items not to be reclassified to profit
and loss in subsequent periods:
Revaluation of financial assets not
recycled through income statement - (3,006) (3,558)
Net other comprehensive (loss): - (3,006) (3,558)
----------- -------- -----------
Total other comprehensive income /
(loss) for the year, net of tax - (3,006) (3,558)
----------- -------- -----------
Total comprehensive income / (loss),
net of tax 1,247 (6,217) 9,411
----------- -------- -----------
Interim Group Balance Sheet
as at 30 June 2020
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2020 2019 2019
Note GBP'000 GBP'000 GBP'000
---------- ---------- ------------
Non-current assets
Goodwill 3 159,863 159,724 159,863
Other intangible assets 28,584 31,438 30,906
Property, plant and equipment 44,944 50,154 49,570
Financial assets 11 9,324 9,602 9,326
Investments in joint ventures and
associates 12,521 12,187 12,958
Contract assets 559 813 686
---------- ---------- ------------
Total non-current assets 255,795 263,918 263,309
---------- ---------- ------------
Current assets
Trade and other receivables 30,024 43,438 34,391
Contract assets 253 253 253
Current tax asset - 1,500 -
Cash and cash equivalents 19,263 4,984 -
------------
Total current assets 49,540 50,175 34,664
---------- ---------- ------------
Total assets 305,335 314,093 297,953
---------- ---------- ------------
Current liabilities
Financial liabilities 12 (13,699) (20,601) (11,113)
Trade and other payables (79,705) (58,826) (60,007)
Current tax liabilities (1,097) - (1,209)
Provisions for liabilities 13 (2,721) (5,734) (3,575)
---------- ---------- ------------
Total current liabilities (97,222) (85,161) (75,904)
---------- ---------- ------------
Non-current liabilities
Financial liabilities 12 (59,147) (90,375) (73,951)
Deferred tax liability (1,834) (2,634) (1,805)
Provisions for liabilities 13 (5,195) (6,052) (5,077)
---------- ---------- ------------
Total non-current liabilities (66,176) (99,061) (80,833)
---------- ---------- ------------
Total Liabilities (163,398) (184,222) (156,737)
---------- ---------- ------------
Net assets 141,937 129,871 141,216
---------- ---------- ------------
Equity
Share capital 208 208 208
Share premium account 5,629 5,629 5,629
Share-based payment reserve 3,369 4,671 4,429
Shares held by EBT (5,021) (5,224) (5,224)
Fair value reserve (13,584) (13,032) (13,584)
Retained earnings 151,336 137,619 149,758
---------- ---------- ------------
Total equity 141,937 129,871 141,216
---------- ---------- ------------
Interim Group Cash Flow Statement
for the six months ended 30 June 2020
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2020 2019 2019
Note GBP'000 GBP'000 GBP'000
--------- --------- ------------
Profit / (loss) before tax 2,011 (4,564) 16,014
Adjustments for:
Exceptional operating items and contingent
consideration 3,918 12,135 11,189
Depreciation of tangible assets 7,184 7,513 14,842
Amortisation of intangible assets 2,899 2,236 5,786
Share-based payments (673) 553 312
(Profit) / loss on disposal of fixed
assets (16) 6 (148)
Loss / (profit) from joint ventures 224 331 (441)
Finance income (9) (5) (10)
Finance costs 1,579 1,802 3,744
Operating cash flows before movements in
working capital 17,117 20,007 51,288
--------- --------- ------------
Movements in working capital
Decrease / (increase) in trade and
other receivables 4,708 (4,222) 5,462
Increase / decrease in trade and other
payables 19,080 (5,423) (6,181)
(Decrease) / increase in provisions (737) (836) (3,908)
23,051 (10,481) (4,627)
--------- --------- ------------
Cash generated from operations 40,168 9,526 46,661
Interest paid (1,411) (725) (3,289)
Income taxes paid (937) (2,685) (5,355)
Exceptional costs paid (3,952) (6,662) (8,799)
Net cash generated from operating activities 33,868 (546) 29,218
--------- --------- ------------
Cash flows used in investing activities
Acquisitions of subsidiaries and other
businesses (212) (1,300) (2,711)
Payment of contingent consideration 12 (55) (133) (7,890)
Investment in financial assets 11 (8) (1,750) (2,783)
Cash received on sale of financial
assets - 1,015 1,765
Purchase of property, plant and equipment
and intangible assets (1,656) (2,154) (4,892)
Proceeds from sale of property, plant
and equipment 130 - 367
Net cash (expended) / generated on
investing activities (1,801) (4,322) (16,144)
--------- --------- ------------
(Repayment) / drawdown of loans 12 (9,883) 22,500 7,383
Payment of deferred consideration - (2,000) (2,009)
Receipt of lease Income 19 33 76
Proceeds from the exercise of share
options 147 26 26
Payments of lease liabilities (3,087) (6,027) (9,761)
Dividends paid - (7,085) (11,194)
Net cash expended in financing activities (12,804) 7,447 (15,479)
--------- --------- ------------
Net increase / (decrease) in cash and
cash equivalents 19,263 2,579 (2,405)
--------- --------- ------------
Cash and cash equivalents at the end
of the period / year 19,263 4,984 -
--------- --------- ------------
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June 2020
Share Share- based
Share premium payment Shares held Fair value Retained
capital account reserve by EBT Reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------- ------------- ------------- ------------- ------------- --------
At 1 January 2020 208 5,629 4,429 (5,224) (13,584) 149,758 141,216
------------- ------------- ------------- ------------- ------------- ------------- --------
Other
comprehensive
income for the
period - - - - - - -
Profit for the
period - - - - - 1,247 1,247
Total
comprehensive
income for
the period - - - - - 1,247 1,247
Exercise of
options - - (77) 203 - 21 147
Share-based
payments - - (983) - - 310 (673)
Dividend
payment - - - - - - -
At 30 June 2020 208 5,629 3,369 (5,021) (13,584) 151,336 141,937
------------- ------------- ------------- ------------- ------------- ------------- --------
During the six month period to 30 June 2020 a total of 57,649
share options were exercised relating to LSL's various share option
schemes resulting in the shares being sold by the
Trust. LSL received GBP147,000 on exercise of these options.
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June 2019
Share Share- based
Share premium payment Shares held Fair value Retained
capital account reserve by EBT Reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------- ------------- ------------- ------------- ------------- --------
At 1 January 2019 208 5,629 4,129 (5,261) (11,727) 149,615 142,593
Adjustment on
initial
application of
IFRS 16 - - - - - - -
------------- ------------- ------------- ------------- ------------- ------------- --------
Revised opening
balance at 1
January 2019 208 5,629 4,129 (5,261) (11,727) 149,615 142,593
------------- ------------- ------------- ------------- ------------- ------------- --------
Revaluation of
financial assets - - - - (3,006) - (3,006)
Disposal of
financial asset - - - - 1,701 (1,701) -
Other
comprehensive
income for the
period - - - - (1,305) (1,701) (3,006)
Loss for the
period - - - - - (3,211) (3,211)
Total
comprehensive
income for
the period - - - - (1,305) (4,912) (6,217)
Exercise of
options - - (11) 37 - 1 27
Share-based
payments - - 553 - - - 553
Dividend
payment - - - - - (7,085) (7,085)
At 30 June 2019 208 5,629 4,671 (5,224) (13,032) 137,619 129,871
------------- ------------- ------------- ------------- ------------- ------------- --------
During the six month period to 30 June 2019 a total of 10,672
share options were exercised relating to LSL's various share option
schemes resulting in the shares being sold by the
Trust. LSL received GBP26,000 on exercise of these options.
Interim Group Statement of changes in equity
Audited - for the year ended 31 December 2019
Share Share- based
Share premium payment Shares held Fair value Retained Total
capital account reserve by EBT reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2019 208 5,629 4,129 (5,261) (11,727) 149,615 142,593
Adjustment on
initial
application
of IFRS 16 - - - - - 68 68
Revised
opening
balance 208 5,629 4,129 (5,261) (11,727) 149,683 142,661
Other
comprehensive
income for the
year
Revaluation of
financial
assets - - - - (3,558) - (3,558)
Disposal of
financial
assets - - - - 1,701 (1,701) -
Profit for the
year - - - - - 12,969 12,969
Total
comprehensive
(loss) /
income for
the year - - - - (1,857) 11,268 9,411
Exercise of
options - - (12) 37 - 1 26
Share-based
payments - - 312 - - - 312
Dividend
payment - - - - - (11,194) (11,194)
At 31 December
2019 208 5,629 4,429 (5,224) (13,584) 149,758 141,216
---------- ------------- ------------- ------------- ------------- -------------- ---------
During the year ended 31 December 2019, the Trust acquired nil
LSL Shares. During the period, 10,672 share options were exercised
relating to LSL's various share option schemes resulting in the
Shares being sold by the Trust. LSL received GBP24,000 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 2020 were approved by the LSL Board on
4(th) August 2020. The interim Financial Statements are not the
statutory accounts. The financial information for the year ended 31
December 2019 is extracted from the audited statutory accounts for
the year ended 31 December 2019, which have been filed with the
Registrar of Companies. The auditor's report 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 2020 have been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU, and
should be read in conjunction with the Group's annual Financial
Statements as at 31 December 2019 which are included in LSL's
Annual Report and Accounts 2019.
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 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
currently has a GBP100 million credit facility which was extended
in January 2019 and will now expire in May 2022. As shown in Note
12 to these interim condensed consolidated Group Financial
Statements, the Group has utilised GBP32 million of the facility
leaving GBP68 million of available undrawn committed borrowing
facilities in respect of which all conditions precedent had been
met. In the first half of 2020 the Group has utilised the
Coronavirus Job Retentions Scheme receiving GBP13.2m of cash with
an additional GBP0.6m received in July 2020.
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 further nationwide lock down from September 2020 for the
remainder of 2020, impacting LSL's businesses to the same degree as
the nationwide lockdown in Q2 2020, and 2021 assumptions modelled
with property market transaction volumes reducing close to the low
point experienced during the Global Financial Crisis. The scenario
modelling includes further prudent assumptions, for example, no
upside has been assumed due to the temporary increase to the Stamp
Duty Land Tax thresholds announced by the Government in July 2020.
We have considered further mitigations that could be applied in a
severe scenario and we have not applied them in this model.
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 for a period of at least
12 months from the date of signing these financial statements
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 these matters and after making appropriate
enquiries, the Directors have a reasonable expectation that the
Group and the Company have adequate resources to remain in
operation until at least 12 months after the approval of these
Interim Condensed Financial Statements. 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
2019.
3. Judgements and estimates
The preparation of financial information in conformity with IFRS
as adopted by the European Union 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 2019. These assumptions are
discussed in detail in the Group's Annual Report and Accounts 2019.
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
-- Exceptional items
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
-- Valuations in acquisitions
-- Impairment of intangible assets
-- Contingent consideration
-- Income tax
After a highly unusual H1 2020 due to Covid-19, the Board
determined the need for the Group to conduct an impairment review
at 30 June 2020 on the goodwill and intangible assets held on the
balance sheet. Cash generating units remain unchanged from those
identified in the Annual Report and Accounts 2019. The recoverable
amounts of the cash generating units has been determined based on a
value in use calculation using cash-flow projections considered
reasonably likely by management and reflecting consensus of
economists' views of the shape of the economic recovery from the
Covid-19 pandemic. The discount rate applied to the cash-flow
projections is 9.71% (2019: 9.51%). Management have concluded from
this impairment review that no impairment is required. No
reasonably possible change in assumptions would result in an
impairment at the interim.
4. Revenue
The Group's operations and main revenue streams are those
described in the latest Annual Financial Statements.
Disaggregation of Revenue
Set out below is the disaggregation of the Group's revenue from
contracts with customers:
Unaudited - Six Months ended 30 June 2020
Surveying
Residential and
Sales Asset Financial Valuation
exchange Lettings Management Services Services Other 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 18,595 12,640 1,463 32,611 31,095 3,151 99,555
Services
transferred
over time - 14,874 492 - - - 15,366
--------------- ------------ -------------- ------------- ------------- ----------- -------------
Total
revenue
from
contracts
with
customers 18,595 27,514 1,955 32,611 31,095 3,151 114,921
--------------- ------------ -------------- ------------- ------------- ----------- -------------
Unaudited - Six Months ended 30 June 2019
Surveying
Residential and
Sales Asset Financial Valuation
exchange Lettings Management Services Services Other 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 27,575 18,587 1,762 41,108 42,669 6,492 138,193
Services
transferred
over time - 15,234 688 - - - 15,922
--------------- ------------ -------------- ------------- ------------- ----------- -------------
Total
revenue
from
contracts
with
customers 27,575 33,821 2,450 41,108 42,669 6,492 154,115
--------------- ------------ -------------- ------------- ------------- ----------- -------------
Audited - Year ended 31 December 2019
Surveying
Residential Asset Financial and
Sales Lettings Management Services Valuation Other Total
exchange GBP'000 GBP'000 GBP'000 Services GBP'000 GBP'000
GBP'000 GBP'000
Timing of
revenue
recognition
Services
transferred
at a point
in
time 57,676 37,782 4,311 83,353 86,358 11,098 280,578
Services
transferred
over time - 29,535 960 - - - 30,495
---------------- ------------- --------------- -------------- ------------- ------------ ------------
Total
revenue
from
contracts
with
customers 57,676 67,317 5,271 83,353 86,358 11,098 311,073
---------------- ------------- --------------- -------------- ------------- ------------ ------------
5. Segment analysis of revenue and operating profit
LSL reports three segments: Financial Services; Estate Agency;
and Surveying and Valuation Services:
-- 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 via the
Estate Agency branches, the PRIMIS networks, Embrace Financial
Services, First2Protect, Mortgages First, Insurance First Brokers,
Linear Financial Services and RSC New Homes.
-- 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 property marketing services and arranges
conveyancing services. In addition, it provides repossession and
asset management services to a range of lenders. The Estate Agency
Division receives a commercially agreed commission payment from the
Financial Services Division (from Embrace Financial Services and
First2Protect). This arrangement reflects Financial Services income
generated by referrals from 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 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 2020, for the six months ended 30 June 2019 and for the
year ended 31 December 2019.
Unaudited - Six months ended 30 June 2020
Surveying
Financial and Valuation
Services Estate Agency Services Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ----------------- ---------------- ------------- -----------
Revenue from external
customers 32,611 51,215 31,095 - 114,921
Intersegment revenue (4,533) 4,533 - - -
------------- ----------------- ---------------- ------------- -----------
Total revenue 28,078 55,748 31,095 - 114,921
------------- ----------------- ---------------- ------------- -----------
Segmental result:
Group Underlying Operating
Profit 4,932 4,147 4,850 (1,385) 12,544
------------- ----------------- ---------------- ------------- -----------
Operating profit / (loss) 3,953 (1,567) 2,468 (1,273) 3,581
------------- ----------------- ---------------- -------------
Finance income 9
Finance costs (1,579)
-----------
Profit before tax 2,011
Taxation (764)
Profit for the period 1,247
-----------
Group Underlying Operating Profit is as defined in note 6 to
these condensed financial statements
Surveying
Financial and Valuation
Services Estate Agency Services Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- --------------- -------------- ----------- ---------
Balance sheet information
Segment assets - intangible 17,671 159,267 11,509 188,447
Segment assets - other 9,361 73,695 11,752 22,080 116,888
----------- --------------- -------------- ----------- ---------
Total Segment assets 27,032 232,962 23,261 22,080 305,335
Total Segment liabilities (28,252) (69,066) (28,311) (37,769) (163,398)
----------- --------------- -------------- ----------- ---------
Net assets/(liabilities) (1,220) 163,896 (5,050) (15,689) 141,937
----------- --------------- -------------- ----------- ---------
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 liabilities comprise plant and equipment
GBP14,000, IFRS 16 plant and equipment GBP5,000, other assets
GBP2,802,000, cash GBP19,263,000 other taxes GBP118,000, accruals
GBP(2,376,000), Other payables GBP(492,000), IFRS 16 financial
liabilities GBP(2,000), deferred and current tax GBP(3,014,000),
and revolving credit facility overdraft GBP(32,000,000).
Unaudited - Six months ended 30 June 2019
Surveying
Financial and Valuation
Services Estate Agency Services Unallocated Total
Income statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ----------------- ---------------- ------------- -----------
Revenue from external
customers 41,108 70,338 42,669 - 154,115
Intersegment revenue (6,797) 6,797 - - -
------------- ----------------- ---------------- ------------- -----------
Total revenue 34,311 77,135 42,669 - 154,115
------------- ----------------- ---------------- ------------- -----------
Segmental result:
Group Underlying Operating
Profit 4,326 4,017 6,318 (2,504) 12,157
------------- ----------------- ---------------- ------------- -----------
Operating profit / (loss) 4,020 (10,354) 6,342 (2,775) (2,767)
------------- ----------------- ---------------- -------------
Finance costs (1,797)
-----------
Profit before tax (4,564)
Taxation 1,353
Profit for the period (3,211)
-----------
Surveying
Financial and Valuation
Services Estate Agency Services Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- --------------- -------------- ----------- ---------
Balance sheet information
Segment assets - intangible 18,805 160,382 11,975 - 191,162
Segment assets - other 12,271 85,316 17,007 8,337 122,931
----------- --------------- -------------- ----------- ---------
Total Segment assets 31,076 245,698 28,982 8,337 314,093
Total Segment liabilities (22,383) (73,416) (28,741) (59,682) (184,222)
----------- --------------- -------------- ----------- ---------
Net assets/(liabilities) 8,693 172,282 241 (51,345) 129,871
----------- --------------- -------------- ----------- ---------
The joint venture interests of the Group are recorded in the
Estate Agency and Related Services segment, with the associate
interest recorded in the Financial Services.
Unallocated net liabilities comprise plant and equipment
GBP12,000, IFRS 16 plant and equipment GBP63,000, other assets
GBP1,779,000, other taxes GBP49,000, accruals GBP(35,000), IFRS 16
financial liabilities GBP(63,000), deferred and current tax
GBP(1,134,000), and revolving credit facility overdraft
GBP(52,016,000).
Audited - Year ended 31 December 2019
Surveying
Financial and Valuation
Services Estate Agency Services Unallocated Total
Income Statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- --------------- ---------------- ------------- ----------
Revenue from external
customers 83,353 141,362 86,358 - 311,073
Intersegment revenue (13,552) 13,552 - - -
----------- --------------- ---------------- ------------- ----------
Total revenue 69,801 154,914 86,358 - 311,073
----------- --------------- ---------------- ------------- ----------
Segmental result:
Group Underlying Operating
Profit 11,642 14,453 16,343 (5,403) 37,035
----------- --------------- ---------------- ------------- ----------
Operating profit / (loss) 10,022 (2,206) 17,450 (5,518) 19,748
----------- --------------- ---------------- -------------
Finance Income 10
Finance costs (3,744)
----------
Profit before tax 16,014
Taxation (3,045)
----------
Profit for the year 12,969
----------
Balance sheet information
Segment assets - intangible 18,088 160,942 11,739 - 190,769
Segment assets - other 9,078 81,934 14,822 1,350 107,184
----------- --------------- ---------------- ------------- ----------
Total Segment assets 27,166 242,876 26,561 1,350 297,953
Total Segment liabilities (25,895) (58,771) (25,020) (47,051) (156,737)
----------- --------------- ---------------- ------------- ----------
Net assets / (liabilities) 1,271 184,105 1,541 (45,701) 141,216
----------- --------------- ---------------- ------------- ----------
The joint venture interests of the Group are recorded in the
Estate Agency and Related Services segment, with the associate
interest recorded in the Financial Services.
Unallocated net liabilities comprise plant and equipment
GBP50,000, other assets GBP1,300,000, lease liabilities
GBP(34,000), 12% loan notes GBP(66,000), Bank overdraft
GBP(883,000), accruals GBP(1,916,000), deferred and current tax
liabilities GBP(3,152,000), and revolving credit facility overdraft
GBP(41,000,000).
6. 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,
share-based payments and costs relating to Covid-19. Share based
payments are excluded from the underlying performance due to the
fluctuations that can impact the charge, such as lapses and the
level of annual grants.
The four adjusted measures reported by the Group are:
-- Group Underlying Operating Profit
-- Adjusted Basic EPS
-- Adjusted diluted EPS
-- Group Adjusted EBITDA
The amortisation of intangible assets is not representative of
the underlying costs of the business, and is therefore excluded
from adjusted earnings.
The Directors consider that these adjusted measures shown above
give a better and more consistent indication of the Group's
underlying performance. These measures form part of Management's
internal financial review and are contained within the monthly
management information reports reviewed by the Board.
The calculations of adjusted basic and adjusted diluted EPS are
given in Note 7 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
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------- --------- -------------
Group operating profit / (loss) 3,581 (2,767) 19,748
Share-based payments (673) 553 312
Amortisation of intangible assets 2,899 2,236 5,786
Covid-19 related establishment costs 580 - -
Covid-19 related depreciation costs 1,646 - -
Covid-19 related other costs 593 - -
Exceptional gains - (593) (2,487)
Exceptional costs 4,422 13,380 15,730
Contingent consideration charge (504) (652) (2,054)
--------- --------- -------------
Group Underlying Operating Profit 12,544 12,157 37,035
Depreciation on property, plant and
equipment (excluding Covid-19 depreciation
charge) 5,538 7,513 14,842
Group Adjusted EBITDA 18,082 19,670 51,877
--------- --------- -------------
Costs relating to Covid-19 have been separately identified and
excluded from Group Underlying Operating Profit as the Directors
consider that these adjusted measures shown above give a better and
more consistent indication of the Group's underlying performance.
The most significant area of costs included in this relates to
property and other asset costs incurred during the enforced closure
of branches following the Government lockdown with any property
grants received in the same period reported in this line to sure
even-handedness in reporting. Group Underlying Operating Profit
includes GBP13.8m of amounts receivable relating to the Coronavirus
Job Retention Scheme .
7. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the
period attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
period.
Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
Unaudited - Six months ended 30 June
Weighted 2020 Weighted 2019
Profit average Per share Profit average Per
after number of amount after number share
tax shares Pence tax of shares amount
GBP'000 GBP'000 Pence
Basic EPS 1,247 102,726,654 1.2 (3,211) 102,666,615 (3.1)
Effect of dilutive
share options 363,335 984,381
Diluted EPS 1,247 103,089,989 1.2 (3,211) 103,650,996 (3.1)
---------- ------------ ---------- ------------
Audited - Year ended 31 December 2019
Weighted 2019
Profit average Per share
after tax number of amount
GBP'000 shares Pence
---------- ----------- ------------
Basic EPS 12,969 102,669,719 12.6
Effect of dilutive
share options 425,152
Diluted EPS 12,969 103,094,871 12.6
---------- -----------
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
2020 2019 2019
GBP'000 GBP'000 GBP'000
Group underlying operating profit 12,544 12,157 37,035
Net finance costs (excluding exceptional
items, lease liabilities and contingent
consideration items) (625) (788) (1,600)
Normalised taxation (2,265) (2,160) (6,733)
Adjusted profit after tax before exceptional
items, share-based payments and amortisation 9,654 9,209 28,702
------------ ------------ ---------------
Unaudited - Six months ended 30 June
Adjusted Adjusted
profit Weighted 2020 profit Weighted 2019
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 9,654 102,726,654 9.4 9,209 102,666,615 9.0
Effect of dilutive
share options 363,335 984,381
Adjusted diluted
EPS 9,654 103,089,989 9.4 9,209 103,650,996 8.9
--------- ------------ --------- ------------
Audited - Year ended 31 December 2019
Adjusted
profit Weighted 2019
after average Per share
tax number amount
GBP'000 of shares Pence
Adjusted basic EPS 28,702 102,669,719 28.0
Effect of dilutive
share options 425,152
--------- -------------
Adjusted diluted EPS 28,702 103,094,871 27.8
--------- -------------
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, share-based payments and costs related to Covid-19.
The effective tax rate used is 19.00% (30 June 2019: 19.00% and 31
December 2019: 19.00%)
8. Exceptional items
Unaudited Audited
Six months ended Year Ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------- --------- -------------
Exceptional costs:
Branch / centre closure and restructuring
costs including redundancy costs 1,667 13,081 14,645
Transition costs relating to surveying
contracts - 299 516
Aborted merger deal costs 2,403 - -
Other 352 - 569
--------- --------- -------------
4,422 13,380 15,730
--------- --------- -------------
Exceptional gains:
Exceptional gain in relation to historic
Professional Indemnity costs - (593) (2,487)
Exceptional costs
There were GBP1.7m (June 2019: GBP13.1m, December 2019:
GBP14.6m) of non-recurring and material exceptional costs relating
to the planned Surveying transformation in 2020 and Estate Agency
branch/centre closures and restructuring costs in 2019.
There were GBP2.4m of non-recurring and material costs relating
to aborted deal costs in relation to the discussions for a
potential all share combination between LSL and Countrywide plc,
which did not result in an offer by LSL.
In 2020 there were GBP0.4m of non-recurring costs in relation to
head office restructuring.
Exceptional Gains
Provision for professional indemnity (PI) claims and insurance
claim notification
Previous exceptional gains relate to the settling of historic PI
claims. There has been no gain in the first half of 2020 (June
2019: GBP0.6m, December 2019: GBP2.5m).
9. Dividends paid and proposed
No final dividend in respect of the year ended 31 December 2019
(Year ended December 2018: 6.9 pence per share) was paid in the
period ended 30 June 2020. An interim dividend will not be paid in
2020 (June 2019: 4.0 pence). Interim dividends are recognised when
paid.
10. Taxation
The major components of income tax charge in the interim Group
income statements are:
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------- -------- -----------
UK corporation tax:
- current year credit / (charge) (802) 1,503 3,993
- adjustment in respect of prior
years - - (56)
--------- -------- -----------
(802) 1,503 3,937
Deferred tax:
Origination and reversal of temporary
differences 38 (150) (588)
Adjustment in respect of prior year - - (304)
--------- -------- -----------
38 (150) (892)
--------- -------- -----------
Total tax credit / (charge) in the
income statement (764) 1,353 3,045
--------- -------- -----------
A change to the main UK corporation tax rate, announced in the
Budget on 11 March 2020, was substantively enacted on 17 March
2020. The rate applicable from 1 April 2020 now remains at 19%,
rather than the previously enacted reduction to 17%.
The headline UK rate of corporation tax for the period is
therefore 19% (2019: 19%), and the rate at which deferred tax has
been provided is also 19% (2019: 17%)
Deferred tax charged directly to other comprehensive income
relating to the revaluation of financial assets is GBPNil. In the
six months ended 30 June 2019 GBPNil and year ended 31 December
2019 GBP0.1m.
11. Financial assets
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Convertible loan notes - at fair value
Unsecured convertible loan notes - interest
free - 750 -
Secured convertible loan notes - 5% 2,000 1,000 2,000
--------- -------- -----------
2,000 1,750 2,000
--------- -------- -----------
Investment in equity instruments - at fair
value
Unquoted shares at fair value 6,960 7,545 6,952
Quoted shares at fair value - - -
6,960 7,545 6,952
--------- -------- -----------
IFRS 16 lessor financial assets 364 307 374
--------- -------- -----------
Total Financial Assets 9,324 9,602 9,326
Opening balance 9,326 11,566 11,566
Adjustment on initial recognition of IFRS
16 - 329 329
--------- -------- -----------
9,326 11,895 11,895
Acquisitions 8 1,750 2,783
Additional Subleases - - 114
Disposals (10) (1,037) (1,835)
Fair value adjustment recorded through OCI - (3,006) (3,558)
Deferred tax on fair value adjustment through
OCI - - (73)
Closing balance 9,324 9,602 9,326
--------- -------- -----------
Non-current assets 9,324 9,602 9,326
Current assets - -
--------- -------- -----------
9,324 9,602 9,326
--------- -------- -----------
Convertible loan notes at fair value
LSL has subscribed for GBP2,000,000 (June 2019: GBP1,000,000 and
December 2019: GBP2,000,000) of Convertible Secured Preference Loan
Notes with Mortgage Gym Limited. Interest on the Convertible
Secured Preference Loan Notes is 5% per annum. The final repayment
date of the Convertible Secured Preference Loan Notes is 5(th) June
2024. Repayment may take place before this date. The Convertible
Secured Preference Loan Notes are secured by way of debenture.
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 31 to the December 2019 Group Financial
Statements).
Vibrant Energy Matters Limited (VEM)
The carrying value of the Group's investment in VEM at 30 June
2020 has been assessed as GBP287,000 (June 2019: GBP722,000 and
December 2019: GBP287,000).
NBC Property Master Limited
The carrying value of the Group's investment at 30 June 2020 has
been assessed as GBP78,000 (June 2019: GBP78,000 and December 2019:
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 2020 has been assessed as GBP101,000
(June: 2019: GBP250,000 and December 2019: GBP93,000).
Yopa Property Limited
The carrying value of the Group's investment in Yopa at 30 June
2020 has been assessed as GBP6,495,000 (June 2019: GBP6,495,000 and
December 2019: GBP6,495,000).
12. Financial liabilities
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Current
Overdraft - - 883
2% and 12% unsecured loan notes - - 65
IFRS 16 lessee financial liabilities 11,621 12,273 9,431
Deferred consideration 80 86 80
Contingent consideration 1,998 8,242 654
13,699 20,601 11,113
--------- -------- -----------
Non-current
Bank loans - revolving credit facility (RCF) 32,000 57,000 41,000
IFRS 16 lessee financial liabilities 23,710 26,993 27,801
Contingent consideration 3,437 6,382 5,150
59,147 90,375 73,951
--------- -------- -----------
Bank loans - RCF and overdraft
The bank loan totalling GBP 32.0m (June 2019: GBP57.0m December
2019: GBP41.0m) and overdraft totalling GBPnil (June 2019: GBPnil
December 2019: GBP0.9m) are secured via cross guarantees issued
from all of the Group's subsidiaries excluding the following
subsidiaries: Lending Solutions Limited, Homefast Property
Services, Linear (Linear Mortgage Network and Linear Financial
Services), Templeton LPA, Group First, Personal Touch Financial
Services, and RSC New Homes.
The utilisation of the RCF may vary each month as long as this
does not exceed the maximum GBP100.0m facility (2019: GBP100.0m).
The Group's overdraft is also secured on the same facility, and the
combined overdraft and RCF cannot exceed GBP100.0m (2019:
GBP100.0m). The banking facility is repayable when funds permit on
or by May 2022.
Interest and fees payable on the RCF amounted to GBP0.6m (June
2019: GBP0.7m, December 2019: GBP1.6m). The interest rate
applicable to the facility is LIBOR plus a margin rate; the margin
rate is linked to the leverage ratio of the Group and the margin
rate is reviewed at six monthly intervals.
Contingent consideration -
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------- -------- -----------
LSLi contingent consideration 342 593 393
Group First 1,392 8,917 1,518
RSC 3,437 4,878 3,632
Other 264 236 261
--------- -------- -----------
5,435 14,624 5,804
--------- -------- -----------
Opening balance 5,804 15,038 15,038
Cash paid (55) (133) (7,890)
Acquisition 23 144 300
Amounts recorded though income statement (337) (425) (1,644)
--------- -------- -----------
Closing balance 5,435 14,624 5,804
--------- -------- -----------
GBP342,000 (June 2019: GBP593,000 and December 2019: GBP393,000)
of contingent consideration relates to amounts owed to third
parties in relation to the acquisition of LSLi and certain of its
subsidiaries between 2012 and 2016. This is typically payable
between three and five years after the acquisition dates depending
on the profitability of those subsidiaries in the relevant
years.
GBP1,392,000 of contingent consideration relates to Group First
(June 2019: GBP8,917,000 December 2019: GBP1,518,000) which is due
for payment in the first half of 2021. 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 GBP25.0m.
GBP3,437,000 of contingent consideration relates to RSC New
Homes (June 2019: GBP4,878,000 and December 2019: GBP3,632,000).
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 GBP7,500,000.
In the period ending 30 June 2020 GBP55,000 (June 2019:
GBP2,133,000 and December 2019: GBP7,890,000) of contingent
consideration was paid to third parties.
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: 2020 2019 2019
GBP'000 GBP'000 GBP'000
--------- -------- -----------
Arrangement under IFRS 3 5,435 14,624 5,804
--------- -------- -----------
Closing balance 5,435 14,624 5,044
--------- -------- -----------
Contingent consideration profit and loss
impact in the period
relating to amounts accounted for as:
Arrangement under IFRS 3 (504) (652) (2,054)
Unwinding of discount on contingent consideration 167 227 410
--------- -------- -----------
(Credit) / charge (337) (425) (1,644)
--------- -------- -----------
The contingent consideration charged to the Income statement in
the period excluding the unwinding of discount relates to both new
and previous acquisitions and relates to the acquisition of: LSLi
charge of GBP4,000 (June 2019: charge of GBP8,000, December 2019:
GBP14,000); Mortgage First credit of GBP175,000 (June 2019: charge
of GBP623,000, December 2019: GBP641,000); RSC New Homes credit of
GBP313,000 (June 2019: credit of GBP20,000, December 2019:
GBP1,408,000).
13. Provisions for liabilities
Unaudited - Six months ended 30 June:
2020 2019
Professional Professional
indemnity Onerous indemnity Onerous
claim provision leases Total claim provision leases Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ------------- ----------- -------------------- ----------- -----------
Balance at 1
January 8,212 440 8,652 12,430 130 12,560
Amount utilised (1,069) (124) (1,193) (1,507) (474) (1,981)
Amount released (4) - (4) (593) - (593)
Unwinding of
discount 1 - 1 15 - 15
Provided in the
period 460 460 520 1,265 1,785
Balance at 30
June 7,600 316 7,916 10,865 921 11,786
-------------------- ------------- ----------- -------------------- ----------- -----------
Current 2,545 176 2,721 5,228 506 5,734
Non-current 5,055 140 5,195 5,637 415 6,052
7,600 316 7,916 10,865 921 11,786
-------------------- ------------- ----------- -------------------- ----------- -----------
Audited - Year ended 31 December 2019
Professional
indemnity Onerous
claim provision leases Total
GBP'000 GBP'000 GBP'000
-------------------- ----------- -----------
Balance at 1 January 12,430 130 12,560
Amount utilised (2,257) (897) (3,154)
Amount released (2,489) - (2,489)
Unwinding of discount 30 - 30
Provided in financial year 498 1,207 1,705
Balance at 31 December 8,212 440 8,652
-------------------- ----------- -----------
Current 3,380 195 3,575
Non-current 4,832 245 5,077
8,212 440 8,652
-------------------- ----------- -----------
The PI Cost provision is to cover the costs of claims relating
to valuation services for clients which are not covered by PI
insurance. The PI Costs provision includes amounts for claims
already received from clients, claims yet to be received and any
other amounts which may be payable as a result of legal disputes
associated with provision of valuation services.
The provision is the Directors' best estimate of the likely
outcome of such claims, taking account of the incidence of such
claims and the size of the loss that may be borne by the claimant,
after taking account of actions that can be taken to mitigate
losses. The provision will be utilised as individual claims are
settled and the settlement amount may vary from the amount provided
depending on the outcome of each claim. It is not possible to
estimate the timing of payment of all claims and therefore a
significant proportion of the provision has been classified as
non-current.
At 30 June 2020 the total provision for PI Costs was GBP7.6m
(June 2019: GBP10.9m, December 2019: GBP8.2m). The Directors have
considered the sensitivity analysis on the key risks and
uncertainties discussed above.
Cost per claim
A substantial element of the PI Cost provision relates to
specific claims where disputes are on-going. These specific cases
have been separately assessed and specific provisions have been
made. The average cost per claim has been used to calculate the
IBNR. Should the costs to settle and resolve these claims and
future claims increase by 10%, an additional GBP0.9m would be
required.
Rate of claim
The IBNR assumes that the rate of claim for the high-risk
lending period in particular reduces over time. Should the rate of
reduction be lower than anticipated and the duration extend,
further costs may arise. An increase of 30% in notifications in
excess of that assumed in the IBNR calculations would increase the
required provision by GBP0.1m.
Notifications
The Group has received a number of notifications which have not
deteriorated into claims or loss. Should the rate of deterioration
increase by 50%, an additional provision of less than GBP0.1m would
be required.
Onerous leases
The provision for lease obligations relates to obligations under
leases on vacant properties. The final outcome depends upon the
ability of the Group to sublet or assign the lease over the related
properties.
14. Analysis of Net Bank Debt
Unaudited Audited
Six Months Ended Year Ended
31 December
30 June2020 30 June 2019 2019
GBP'000 GBP'000 GBP'000
------------ ------------- -----------
Interest bearing loans and borrowings
(including loan notes, overdraft,
IFRS16 lease liabilities, contingent
and deferred consideration
* Current 13,699 20,601 11,113
* Non-current 59,147 90,375 73,951
------------ ------------- -----------
72,846 110,976 85,064
Unsecured loan notes - - (65)
Less: cash and short-term deposits (19,263) (4,984) -
IFRS 16 Lessee financial liabilities (35,331) (39,266) (37,232)
Less: deferred and contingent
consideration (5,515) (14,710) (5,884)
------------ ------------- -----------
Net Bank Debt at the end of the
period 12,737 52,016 41,883
------------ ------------- -----------
15. Financial instruments - risk management
The financial risks the Group faces and the methods used to
manage these risks have not changed since 31 December 2019. Further
details of the risk management policies of the Group are disclosed
in Note 31 of the Group's Financial Statements for the year ended
31 December 2019.
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.
16. 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 2020, 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 2020 Total Level Level 2 Level 3
1
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Assets measured at fair value
Financial assets 9,324 - - 9,324
-------- -------- -------- --------
Liabilities measured at fair value
Contingent consideration 5,435 - - 5,435
-------- -------- -------- --------
Unaudited 30 June 2019 Total Level Level 2 Level 3
1
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Assets measured at fair value
Financial assets 9,295 - - 9,295
-------- -------- -------- --------
Liabilities measured at fair value
Contingent consideration 14,624 - - 14,624
-------- -------- -------- --------
Audited - 31 December 2019 Total Level Level 2 Level 3
1
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Assets measured at fair value
Financial assets 9,326 - - 9,326
-------- -------- -------- --------
Liabilities measured at fair value
Contingent consideration 5,804 - - 5,804
-------- -------- -------- --------
Of the investments totalling GBP9,324,000, all are valued using
Level 3 valuation techniques. The Directors reviewed the fair value
of the financial assets at 30 June 2020. Excluding loan notes, 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%,
GBP0.7m.
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. Acquisitions
Six months ended 30 June 2020
-- Lettings book acquisition
During the period, the Group acquired one lettings book for
initial consideration paid of GBP211,500, and a total consideration
of GBP235,000.
INDEPENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC
Introduction
We have been engaged by the Company to review the Interim
Condensed Consolidated Group Financial Statements in the
half-yearly financial report for the six months ended 30 June 2020
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.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. 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.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. 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 Ireland) 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.
Conclusion
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 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Leeds
5 August 2020
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR SSMFMLESSELA
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August 05, 2020 02:00 ET (06:00 GMT)
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