TIDMLSL

RNS Number : 4768H

LSL Property Services PLC

04 August 2021

4 August 2021

LSL Property Services plc ("LSL" or "The Group")

HALF YEAR RESULTS TO 30 JUNE 2021

STRONG H1 PERFORMANCE AND PROGRESS IN IMPLEMENTING STRATEGY. OUTLOOK CONFIRMED AND INTERIM DIVID DECLARED

 
  H1                               2021     2020    change 
                                  ------  ------- 
  Group Revenue (GBPm)             166.5   114.9      45% 
  Group Underlying Operating 
   Profit(1) (GBPm) 
   (post COVID-19 costs)           27.3     9.7      180% 
 
    Group Underlying Operating 
    margin (%) 
    (post COVID-19 costs)           16%      8%     +790bps 
  Exceptional Gains (GBPm)          4.3      -         - 
  Exceptional Costs (GBPm)         (1.7)   (4.4)      63% 
  Group operating profit 
   (GBPm)                          26.7     3.6      647% 
  Profit before tax (GBPm)         25.5     2.0      1166% 
--------------------------------  ------  -------  -------- 
  Basic Earnings per share(2) 
   (pence)                         21.8     1.2      1717% 
  Adjusted Basic Earnings 
   per share(2) (pence)            20.9     9.4      122% 
  Net Cash / (Net Bank Debt)(3) 
   at 30 June (GBPm)               17.0    (12.7)     nm 
  Interim Dividend (pence)          4.0     nil       nm 
  nm: not meaningful 
 
 

Notes:

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as set out in Note 6 of the financial statements).

   2                      Refer to Note 7 of the Financial Statements for the calculation 
   3                      Refer to Note 15 to the Financial Statements for the calculation 

HIGHLIGHTS

Record Group H1 Revenue, and Group Underlying Operating Profit with increasing balance sheet strength, enabling further investment to deliver the Group's ambitious growth strategy

   --    Group Revenue in H1 2021 of GBP166.5m, 45% higher than 2020 (H1 2020: GBP114.9m) 

-- Group Underlying Operating Profit(1) of GBP27.3m, significantly ahead of 2020 (H1 2020: GBP9.7m)

-- In H1 2020 COVID-19 costs of GBP2.8m were recognised in Group Underlying Operating Profit. Stated before COVID-19 costs, Group Underlying Operating Profit in H1 2020 was GBP12.5m

   --    Profit before tax increased to GBP25.5m (H1 2020: GBP2.0m) 

-- Very strong balance sheet, and the first time LSL has reported a Net Cash position since IPO in 2006, with Net Cash(2) of GBP17.0m (30 June 2020: Net Debt GBP12.7m)

Group Underlying Operating Profit driven by continuing Financial Services growth, supported by increasing market share in Estate Agency and significant increase in Surveying in very strong housing market

-- Financial Services Division Underlying Operating Profit(1) of GBP7.8m, increased by 68% with underlying operating margin rising to 20%. In H1 2020, COVID-19 costs of GBP0.3m were recognised in the Financial Services Division. Stated before COVID-19 costs, Underlying Operating Profit in H1 2020 was GBP4.9m and Underlying Operating Profit growth in H1 2021 was 59%

   --    LSL mortgage completion lending increased to GBP19.3bn, representing 9% of market(3) 

-- Financial adviser numbers increased 13% year-on-year to 30 June 2021. The pipeline of advisers also grew over the significant pipeline brought forward at 31 December 2020

-- Surveying and Valuation Services Division Underlying Operating Profit(1) of GBP11.4m, increased by 179% (H1 2020: GBP4.1m). In H1 2020, COVID-19 costs of GBP0.7m were recognised in the Surveying Division. Stated before COVID-19 costs, Underlying Operating Profit in H1 2020 was GBP4.9m

-- Surveying Underlying Operating Margin strengthened considerably to 24.7% (H1 2020: 13.1% post COVID-19 costs), benefiting from operational efficiency and improved income per job

-- LSL Estate Agency Division increased its residential market share in its core catchment areas to take full advantage of favourable market conditions.

-- Estate Agency Underlying Operating Profit(1) was GBP12.5m (H1 2020: GBP2.4m). In H1 2020, COVID-19 costs of GBP1.7m were recognised in the Estate Agency Division. Stated before COVID-19 costs, Underlying Operating Profit in H1 2020 was GBP4.1m

Continued progress in executing the Group's growth strategy, supported by strong balance sheet

-- On 8 July 2021 and 26 May 2021 LSL announced the sale of investments in non-core businesses to simplify the Group structure. The sales generated GBP41m of capital to deploy into new opportunities and accelerate the Group's growth strategy, in particular Financial Services

-- Announcement on 27 April 2021 of agreement to provide mortgage and protection advice services to The Property Franchise Group's network of over 400 franchisee estate agency offices

-- On 23 April 2021, LSL announced the creation of GBP200m Pivotal Growth joint venture with Pollen Street Capital, to create a "buy-and-build" mortgage broker which is now established and in position to make its first acquisitions

-- Announcement on 11 February 2021 of the acquisitions of the business and assets of Mortgage Gym Limited and a 60% stake in Direct Life Quote Holdings Limited ("Direct Life") as part of LSL's digital strategy to drive significant growth in mortgage and protection business

-- Investment being made in Mortgage Gym technology and the infrastructure required to deliver the strategic partnership with The Property Franchise Group ("TPFG"). The Board is confident these initiatives will deliver significant value to shareholders over the medium term

   --    Further senior appointments made to improve management bench strength 

July trading in line with the Board's expectations, following the tapering down of the Stamp Duty holiday on 30 June 2021

-- In line with the Board's expectations, expected activity in LSL's markets has slowed since the 30 June Stamp Duty deadline, meaning that LSL's Mortgage and Protection completion volumes, Surveying Revenue and instructions, and residential exchange activity have naturally reduced following the record market levels experienced in June

-- LSL retains a strong Residential Sales exchange pipeline as at 31 July 2021, at around 20% more than 2020 at the comparable date, and in-line with the large pipeline reported at 31 December 2020. Fall-throughs are at normal levels

The Board is encouraged by the significant steps taken to deliver its Financial Services led growth strategy and by the strong financial performance of its Estate Agency and Surveying divisions. The Board is confident that the Group will deliver a full year 2021 Group Underlying Operating Profit in line with its expectations and declares an interim dividend of 4 pence per share

-- At the 2020 Prelims, LSL restarted guidance with an improved growth profile, with Financial Services at the forefront. The Board confirms that LSL is on track to deliver its short and longer-term strategic and financial targets

-- Trading in the first half of 2021 was assisted by favourable housing market conditions. However, the Group's increasingly diversified revenue streams, and in particular the significant growth opportunities previously identified and on which management has started to execute, mean the Group is less dependent on housing market activity levels to drive medium term growth

-- Following the reinstatement of the dividend policy at the 2020 Prelims, the Board has declared an Interim dividend of 4.0 pence per share (H1 2020: Nil)

Commenting on today's announcement, David Stewart, Group Chief Executive, said:

"LSL performed strongly in the first half of 2021, as we took advantage of favourable market conditions whilst making significant progress in executing our strategy, which places Financial Services at the forefront, as described at the time of publishing our 2020 results.

"The investments we are making in technology and Financial Services will deliver tangible benefits from 2022 and we are confident they will generate substantial value for shareholders in the medium term. The opportunities for new value-add services in Surveying and Valuation Services further underpin our future growth, while we continue to perform well and take market share in Estate Agency.

"Our strategic progress also included the disposal of our non-core investments in LMS (May 2021) and TM Group (July 2021), for a combined GBP41m, as we focus both management time and capital on activities offering the best long-term return to shareholders. These successful divestments mean we have a very strong balance sheet, including cash resources of around GBP43m at 31 July 2021, positioning us to make further investments to secure our strategy. We continue to add depth to the management team and have made a number of senior appointments. This will support our strategic delivery and our ability to drive performance improvements from the business.

"The Group's results in the first half position us well for meeting the Board's expectations for 2021, and we look forward to delivering further organic and acquisitive growth in the coming years."

Notes:

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as set out in Note 6 of the financial statements). Divisional Underlying Operating Profit is stated on the same basis as Group Underlying Operating profit

   2                      Refer to Note 15 to the Financial Statements for the calculation 
   3                      Market share excludes Product Transfers - 2021 based on May YTD 
   4                      Refer to Note 7 of the Financial Statements for the calculation 

For further information, please contact:

 
 David Stewart, Group Chief Executive 
  Officer 
 Adam Castleton, Group Chief Financial 
  Officer 
                                        ------------------------------------ 
 LSL Property Services plc               investorrelations@lslps.co.uk 
                                        ------------------------------------ 
 
 Helen Tarbet 
                                        ------------------------------------ 
 Sophie Wills 
                                        ------------------------------------ 
 Buchanan                                0207 466 5000 / LSL@buchanan.uk.com 
                                        ------------------------------------ 
 

Notes on LSL

LSL is one of the largest providers of services to mortgage intermediaries and mortgage and protection advice to estate agency customers, completing GBP32.6bn of mortgages in 2020. It represents approximately 9% of the total purchase and remortgage market with around 2,700 financial advisers. It was named Mortgage Network of the Year by both Moneyfacts and Mortgage Introducer in their 2020 awards, as well as Best Network 300+ ARs by Mortgage Strategy.

e.surv is one of the UK's largest providers of surveying and valuation services, supplying seven out of the ten largest lenders in the UK, employing over 500 operational surveyors, and performing over 500,000 valuations and surveys per annum for key lender clients. It was named Best Surveyor/Valuer at the 2020 Mortgage Strategy awards.

LSL operates a network of 228 owned and 127 franchised estate agency branches, with brands that include Your Move, Reeds Rains and Marsh & Parsons. For further information please visit LSL's website: lslps.co.uk

PRIMIS is the trading style of First Complete Limited, Personal Touch Financial Services Limited and Advance Mortgage Funding Limited which are all authorised and regulated by the Financial Conduct Authority.

Group Chief Executive's Review

I am pleased to report on a period of strong trading and continued progress in strategic execution. Underlying Operating Profit increased by 180% to GBP27.3m (H1 2020: GBP9.7m), reflecting strong growth across all divisions. The implementation of the strategy we outlined with our 2020 results is on track, with several important initiatives announced during the first half. We have achieved these results while continuing to focus on protecting the health and wellbeing of our colleagues and customers during the ongoing COVID-19 pandemic.

Financial Services is at the centre of our strategy. PRIMIS's network of financial advisers grew year-on-year by 13% to 2,744 and we have a robust pipeline of applications to join us. This growth contributed to an increase of 68% in the division's Underlying Operating Profit to GBP7.8m (H1 2020: GBP4.6m).

The strong performance of Surveying and Valuation Services division is noteworthy. Underlying Operating Profit increased to GBP11.4m (H1 2020: GBP4.1m). This is a testament to the work put in to increase surveyor utilisation.

Our Estate Agency colleagues took full advantage of the increase in housing transactions, benefitting from the steps taken to improve our operational effectiveness. Pleasingly, this helped us to increase market share across our core catchment areas. The lettings market was generally softer, although the level of recurring income in this business underpinned Lettings revenue performance, highlighting how Estate Agency is not wholly dependent on transaction volumes. Underlying Operating Profit for the division was GBP12.5m, an increase of GBP10.1m from GBP2.4m in H1 2020.

Financial Services was substantially less affected than Estate Agency and Surveying and Valuation Services by the emergence of the COVID-19 virus in 2020 and although still significant its year-on-year growth was therefore less marked.

We continue to see significant long-term growth potential in Financial Services. We made good progress implementing our plans to take advantage of some of the opportunities identified, including announcing the acquisition of Mortgage Gym technology and the launch of our Pivotal Growth joint venture with Pollen Street Capital. We also secured an important contract with the UK's largest estate agency franchisor, The Property Franchise Group (TPFG), to provide mortgage and protection advice services to its franchisees.

Each of these initiatives is in the investment phase, as we build our capability and infrastructure, and we incurred additional associated costs of around GBP1.7m in the first half, with further investment planned over the next 12 months. We expect to see the benefits of these investments in 2022 and beyond and are confident they will deliver substantial value to shareholders in the medium-term.

Our strategic progress also included the disposal of our non-core investments in LMS (May 2021) and TM Group (July 2021), for a combined GBP41m, as we focus both management time and capital on activities offering the best long-term return to shareholders. These businesses contributed GBP1.4m to our Underlying Operating Profit in 2020. The successful sales mean we have a very strong balance sheet, including cash resources of around GBP43m at 31 July 2021, positioning us to make further investments to secure our strategy.

At the same time, we have continued to invest in the management team, to support delivery of our strategy, provide long-term bench strength and further improve our operational effectiveness. David Akinluyi has joined us as Group Chief Operating Officer, to drive forward our IT strategy and transformation programme.

Tom Adorian is to join the Group in October to lead our Financial Services Customer Direct operation, including responsibility for our relationship with TPFG. Tom has significant experience in the mortgage and protection market, as well as partnerships, gained over his time at HSBC (UK and Group) and Bank of Ireland UK.

Stuart Whittle will join the Group as CFO of the Financial Services division and brings a wealth of senior-level experience in the sector. Stuart's predecessor, Raj Raichura, will then move to support our Chief Strategy Officer Andy Deeks, with his remit including potential M&A activity.

Dividend

Alongside our 2020 results, we announced our intention to resume dividend payments in 2021 with a policy to pay out 30% of Underlying Operating Profit after finance and normalised tax charges, with an approximate 1:2 ratio between the interim and final dividends. The Board has declared an interim dividend of 4.0 pence per share in line with this policy.

The ex-dividend date for the interim dividend is 12 August 2021, with a record date of 13 August 2021 and a payment date of 17 September 2021. Shareholders can elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan. The election date is 26 August 2021.

Outlook

July trading was in line with the Board's expectations, following the tapering down of the Stamp Duty holiday on 30 June 2021.

We have previously noted the difficulty in predicting the level of housing market activity and this remains the case for the second half of 2021. Whilst there is a likelihood of a reduction in activity in H2 below the recent record peaks, performance in the first half was slightly ahead of our expectations, and t he Board is encouraged by the strategic progress and financial performance of the Group's businesses and is confident that the Group will deliver a full year 2021 Group Underlying Operating Profit in line with its expectations. The unusual market conditions in H1 mean that the split of H1:H2 Underlying Operating Profit in 2021 is expected to be substantially more H1 weighted than in previous years. We would expect to revert to a more typical split in 2022.

Looking ahead

Given the level of activity so far this year, housing market transactions in 2022 are expected to be below 2021. Growth in profits in 2022 will therefore need to come from further underlying performance improvement. The trajectory in Financial Services and the opportunities we have identified in Surveying and Valuation Services will continue to offer opportunities for growth in 2022 and beyond and we remain confident that our plans remain on track.

David Stewart

Group Chief Executive Officer

3 August 2021

Notes:

1 Intermediary Mortgage Lenders Association's ("IMLA) current estimate of gross new lending for 2021 - January 2021

Business Reviews

Group Summary

 
  Group Financials Summary                      H1 
                                      2021    2020     Var 
  P&L (GBPm) 
===================================  ======  ======  ======= 
  Revenue                             166.5   114.9    45% 
  Group Underlying Operating 
   Profit(1) 
   (post COVID-19 costs)              27.3     9.7     180% 
  Group Underlying Operating 
   margin 
   (post COVID-19 costs)               16%     8%     790bps 
  Group Underlying Operating 
   Profit(1) 
   (pre COVID-19 costs)               27.3    12.5     117% 
  Group Underlying Operating 
   margin 
   (pre COVID-19 costs)                16%     11%    550bps 
 
  Divisional Underlying Operating 
   Profit(1) 
   (post COVID-19 costs) 
===================================  ======  ======  ======= 
  Financial Services                   7.8     4.6     68% 
  Surveying and Valuation Services    11.4     4.1     179% 
  Estate Agency                       12.5     2.4     422% 
  Unallocated Central Costs           (4.5)   (1.4)   (215)% 
  Group Underlying Operating 
   Profit(1) 
   (post COVID-19 costs)              27.3     9.7     180% 
 
  Divisional Underlying Operating 
   Profit(1) 
   (pre COVID-19 costs) 
===================================  ======  ======  ======= 
  Financial Services                   7.8     4.9     59% 
  Surveying and Valuation Services    11.4     4.9     135% 
  Estate Agency                       12.5     4.1     202% 
  Unallocated Central Costs           (4.5)   (1.4)   (224)% 
  Group Underlying Operating 
   Profit(1) 
   (pre COVID-19 costs)               27.3    12.5     117% 
                                     ------  ------  ------- 
 

Notes:

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as set out in Note 6 of the Financial Statements). Divisional Underlying Operating Profit is stated on the same basis as Group Underlying Operating profit. Group Underlying Operating Profit for 2020 is shown pre COVID-19 costs

LSL traded well in favourable markets, with Group Revenue in H1 2021 of GBP166.5m, 45% higher than 2020 (H1 2020: GBP114.9m). Group Underlying Operating Profit of GBP27.3m was significantly greater than 2020 (H1 2020: GBP9.7m; GBP12.5m excluding GBP2.8m of COVID-19 costs). Group Underlying Operating margin of 16.4% was strong and grew materially in each Division. Profit before tax increased significantly to GBP25.5m (H1 2020: GBP2.0m).

LSL's profit turns into cash at a high rate, with cash conversion of profit to underlying operating cash-flow(1) of 100% in H1. The Group finished the first half with a very strong balance sheet, reporting Net Cash for the first time of GBP17.0m (30 June 2020: Net Debt GBP12.7m).

Each of LSL's Operating Divisions reported an Underlying Operating Profit materially higher than the comparable period in 2020. Whilst the Surveying and Valuation Services and Estate Agency Divisions' performances are strongly linked to the favourable housing market, the increase in the Financial Services Division's Underlying Operating Profit of 68% highlights the consistent growth in financial adviser numbers in recent years, the Group's focus on Financial Services and updated commercial arrangements between Embrace Financial Services ("EFS"), First2Protect and the Estate Agency Division as set out later. Unallocated Central Costs increased, as the Group invested in key strategic management hires and other project costs to support the development of the new strategy.

Notes:

1 Underlying operating cash-flow is after adjusting for the payment In H1 2021 of deferred HMRC payments from 2020, and as converted from Group Underlying Operating Profit

Financial Services Division

 
  Financial Services: Financials 
   Summary                                    H1 
                                    2021    2020     Var 
  P&L (GBPm) 
=================================  ======  ======  ======= 
  Total revenue                     39.1    28.1     39% 
  Underlying Operating Profit(1) 
   (post COVID-19 costs)             7.8     4.6     68% 
  Underlying Operating margin 
   (post COVID-19 costs)             20%     17%    350bps 
  Underlying Operating Profit(1) 
   (pre COVID-19 costs)              7.8     4.9     59% 
  Underlying Operating margin 
   (pre COVID-19 costs)              20%     18%    250bps 
 
  KPIs 
=================================  ======  ======  ======= 
  LSL Mortgage Completion 
   Lending(2) (GBPbn)               19.3    14.6     32% 
  LSL Market Share(3)                9%      9%       - 
  Annualised Premium Income 
   (API) (GBPm)                     32.5    25.6     27% 
  Total advisers                    2,744   2,431    13% 
  Number of AR firms                 952     896      6% 
  FCA capital requirement(4)         5.0     5.2     (4)% 
  Excess capital(4)                 14.6    10.6     38% 
  Lapse provision                    5.0     4.8      3% 
                                   ------  ------  ------- 
 

Notes:

1 Underlying Operating Profit is stated on the same basis as Group Underlying Operating profit (as set out in Note 6 of the Financial Statements)

   2          LSL mortgage completions lending quoted includes product transfers 
   3          Market share excludes Product Transfers - 2021 based on May YTD 
   4          2021 Q1 FCA capital requirement and excess capital 

Performance Summary

The Financial Services Division traded well in favourable markets, with Revenue in H1 2021 of GBP39.1m, 39% higher than H1 2020 (H1 2020: GBP28.1m). Q1 Revenue was up 18% year on year, whilst Q2 was up 69% against the COVID-19 impacted comparable period in 2020. Underlying Operating Profit of GBP7.8m was 68% more than 2020 (H1 2020: GBP4.6m), with an improved Underlying Operating Margin of 20%, which includes the impact of commercial terms in 2021 with the Estate Agency Division which have been set in line with market norms, as set out later in this section.

In H1 2020, COVID-19 costs of GBP0.3m were recognised in the Financial Services Division. Stated before COVID-19 costs, Underlying Operating Profit in H1 2020 was GBP4.9m and Underlying Operating Profit growth in H1 2021 was 59%.

LSL is a leading player in the provision of mortgage brokerage. LSL's total gross purchase and remortgage completions increased by 41% to GBP13.7bn (H1 2020: GBP9.7bn), giving LSL approximately 9% of the total purchase and remortgage market. These figures do not include the increasingly important activity of advising customers switching mortgage schemes with their existing lender (product transfers). LSL's product transfers increased by 14% to GBP5.5bn (H1 2020: GBP4.9bn). LSL's total gross mortgage completions (including product transfers) increased by 32% to GBP19.3bn (H1 2020: GBP14.6bn).

The mix of mortgage applications between purchase and refinance (including both remortgages and product transfers), has continued to move towards more typical levels during H1 2021. LSL cases were heavily skewed to refinance during H1 2020, at c.60%, with a more normal 50/50 split for most of H2 2020. The proportion of LSL mortgage refinance applications in H1 2021 has reduced even further to around 44%, as the market has been focused on new purchase applications as a result of the market activity levels.

LSL's total Direct-to-Consumer revenue grew by 30%. In the Estate Agency channel, Revenue grew 37%, benefiting from generally buoyant market conditions in H1 2021, the phased return of EFS advisers to the estate agency branches following social distancing requirements and the updated commercial arrangement with Estate Agency division. Investments in MortgageGym and Direct Life are also now included in the results following acquisition in H1 2021. Revenue in the New Build Home channel increased by 12% year-on-year, recovering more slowly, as builders returned to sites and the mortgage market went through a period of considerable change, with the conclusion of the previous Help-to-Buy scheme and its replacement with new initiatives to support purchasers with smaller deposits.

LSL is a leading player in the provision of general and protection insurance, generating an increase of 27% of annualised premiums to GBP32.5m in H1 2021 (H1 2020: GBP25.6m).

The Division's revenue mix by product highlights the significance of LSL's insurance business and its success in arranging protection products, both on a standalone basis as well as when needed at the time of a mortgage being arranged.

The split of revenue by type is as follows:

 
 Total Group Financial 
  Services Revenue Mix 
  by Type (%) - H1 
                    2021   2020 
 Mortgage Fees      39%    41% 
 Life & General 
  Insurance fees    46%    46% 
 Other fees         15%    13% 
 Total Revenue      100%   100% 
-----------------  -----  ----- 
 

Strategic and operational developments to support growth

The importance of Financial Services to the Group continues to increase, reflecting the Board's strategy to develop broader and less volatile income streams in sectors in which it has significant experience. The Financial Services Division has enhanced its profit consistently over recent years, demonstrating resilience and the capacity to grow across a wide range of market conditions.

During the first half, several significant strategic developments were announced, and LSL further increased its investment in technology and business development. The Financial Services Division will be strengthened with key senior hires to join in H2, to support the Group's significant growth ambitions.

During H1 2021, a strategic partnership was announced with TPFG, to provide mortgage and insurance advice to the customers of TPFG and their franchisees. Franchisees can choose to refer customers to EFS, LSL's in-house mortgage advice team or become an Appointed Representative (AR) of PRIMIS and take on their own adviser. Since launch, LSL has been working with TPFG to engage with each franchisee and determine the best solution for each business. The first mortgage leads were received at the end of June, in line with plan.

The acquisition of 60% of Direct Life completed in H1 2021. The integration of this business post acquisition has been effective, and the Direct Life proposition will be promoted to PRIMIS and TMA firms during H2.

The technology assets of Mortgage Gym were acquired in H1 2021, and work is underway to develop further and deploy this software to LSL's direct distribution, both in the New Homes mortgage channel and in EFS.

PRIMIS has continued to invest in the Toolbox platform during H1, to deliver benefits to advisers and create further efficiencies and in training, support and coaching for advisers. High levels of engagement are a key feature of the PRIMIS culture, and this continued throughout lockdown and the COVID-19 restrictions. A new, updated Training & Competence scheme was launched in H1, to help ensure that advisers are fully able to provide the most appropriate advice to customers.

As part of LSL's focus on the growth of Financial Services, the management of LSL's Home Insurance brokerage business, First2Protect, transferred into the Financial Services Division on 1 January 2021. We expect this to increase the Home Insurance cross-sale opportunities for Group customers and to leverage the size of the PRIMIS/TMA distribution by increasing referrals to First2Protect.

A full strategic and operational review of EFS took place in H1, which led to the strengthening of the management team, identification of further technology enhancements and planned improvement of the customer journey for specific customer segments. These new processes will be embedded during H2 alongside further technology enhancements and are expected to deliver an improvement in EFS adviser productivity and profitability in future years.

Focus on network growth

LSL continued to be successful in attracting new appointed representative firms to its PRIMIS network. In the year to 30 June 2021, the number of appointed representative firms increased by 6% to 952, and the number of advisers by 13% to 2,744. The pipeline of advisers has also increased further over the significant pipeline at 31 December 2021. Further recruitment of new firms and advisers is expected to support ongoing profitable growth for PRIMIS.

The launch of Pivotal Growth and the further expansion of the Group's mortgage and protection advice service to estate agency customers provide additional opportunities for growth in the number of PRIMIS advisers, underpinning the Group's leading position in this sector.

Intra Group commercial terms

Total Financial Services Revenue reported by the Group in H1 2021 was GBP42.3m, with GBP39.1m being reported in the Financial Services Division and GBP3.2m in the Estate Agency Division. The latter represents a variable commission payment from Embrace Financial Services Ltd (EFS), a subsidiary within LSL's Financial Services Division, reflecting the Estate Agency Division's role in introducing customers to Embrace advisers. LSL accounts for its revenue in its Intermediary Network on a net revenue basis, which reflects the commission retained by PRIMIS.

As communicated at the 2020 Preliminary Results, the arrangements between the Estate Agency Division and Embrace have been reviewed to align them more closely with market rates, based on an arm's length relationship. This has resulted in lower payments from Embrace to Estate Agency, and a move in profits from the Estate Agency Division to the Financial Services Division. Around GBP1m of profit in H1 2021 has been recognised in the Financial Services Division, which would have been recognised in the Estate Agency Division under the previous commercial arrangement. A review of commercial terms will be made at the end of each financial year, to ensure terms reflect market norms. Not including the benefit of the new commercials, Underlying Operating Profit increased by c.48%.

Surveying and Valuation Services Division

 
 Surveying and Valuation 
  Services: 
  Financials Summary                  H1 
                            2021    2020      Var 
  P&L (GBPm) 
=========================  ======  ======  ======== 
  Total revenue             46.2    31.1      48% 
  Underlying Operating 
   Profit (1) 
   (post COVID-19 costs)    11.4     4.1     179% 
  Underlying Operating 
   margin 
   (post COVID-19 costs)     25%     13%    1160bps 
  Underlying Operating 
   Profit (1) 
   (pre COVID-19 costs)     11.4     4.9     135% 
  Underlying Operating 
   margin 
   (pre COVID-19 costs)      25%     16%    910bps 
 
  KPIs 
=========================  ======  ======  ======== 
  Jobs performed (000's)     267     197      36% 
  Revenue from Private 
   Surveys (GBPm)            1.1     0.5     130% 
  Income per job (GBP)       173     158      9% 
  Operational Surveyors 
   Employed (FTE(2) )        497     507     (2)% 
  Balance Sheet (GBPm) 
=========================  ======  ======  ======== 
  PI Costs Provision        (5.5)   (7.6)     28% 
-------------------------  ------  ------  -------- 
 

Notes:

1 Underlying Operating Profit is stated on the same basis as Group Underlying Operating profit (as set out in Note 6 of the Financial Statements)

   2          Full Time Equivalent (FTE) 

Financial summary

The Surveying and Valuation Services Division's strong performance in H1 2021 was built on a core capability to deliver high-quality, large volume valuation and survey work to the UK's leading banks, building societies and specialist lenders. In H1 2021, LSL estimates that it increased its market share while maintaining operational resilience and providing high-quality of service in a very busy market.

Surveying and Valuation Services Division Revenue in H1 2021 of GBP46.2m was 48% higher than H1 2020 (H1 2020: GBP31.1m). Q1 Revenue was up 5% year on year, whilst Q2 increased 132% against the same period in 2020, which was significantly impacted by COVID-19. Underlying Operating Profit of GBP11.4m was 179% more than 2020 (H1 2020: GBP4.1m). In H1 2020, COVID-19 costs of GBP0.7m were recognised in the Surveying and Valuation Services Division. Stated before COVID-19 costs, Underlying Operating Profit in H1 2020 was GBP4.9m.

The Surveying and Valuation Services Division's underlying operating margin of 25% was strong, benefiting from improved utilisation, higher income per job and cost restructuring undertaken in Q1 2020.

Income per job in H1 2021 increased to GBP173 (H1 2020: GBP158), reflecting an improved lender mix and a slightly lower proportion of remote valuations in H1 2021 of 20%, compared to the COVID-19 impacted period in 2020 during which remote valuations made up 22% of the total. Remote valuations take less surveyor time to complete than physical valuations, bringing capacity advantages to mitigate the lower income per job.

During H1 2021, just over 71% of the Surveying and Valuation Services Division's revenues derived from its top five customers. This is broadly consistent with the concentration of mortgage lending in the UK, where it is estimated that the six largest lenders collectively account for around 70% of the market. The total number of jobs performed during the period was 267k, which was 36% greater than H1 2020.

At 30 June 2021, the total provision for professional indemnity (PI) costs was GBP5.5m (31 December 2020: GBP7.0m). In H1 2021, the Group continued to make positive progress in addressing historic PI claims and there was a net GBP1.1m exceptional gain in the period.

Strategic and operational developments to support growth

The recruitment, development and retention of surveyors remains a high priority. In a competitive recruitment market, the number of operational surveyors employed (FTE) at 30 June 2021 remained broadly flat at 497 (30 June 2020: 507). The Division is continuing to focus on its recognised and successful graduate programme, to alleviate the impact of capacity constraints in the market. In addition, the business continues to recognise other industry bodies to increase the pool of surveyors, supporting trainees with its established mentoring programme.

The Surveying and Valuation Services Division plans to continue to supplement its contractually secured valuation work over the next two years with the introduction of margin-enhancing specialist services, including the opportunity to commercialise valuable data gathered as part of the valuation process. The response from lenders has been encouraging.

Estate Agency Division

 
  Estate Agency: Financials 
   Summary                                   H1 
                                   2021     2020    vs 2020 
  P&L (GBPm) 
===============================  =======  =======  ======== 
  Residential Sales Exchange 
   Income                          40.4     18.6     117% 
  Lettings Income                  30.1     27.4      9% 
  Financial Services Income        3.2      4.5      (29)% 
  Franchise income                 1.4      0.7       93% 
  Conveyancing & Other(1)          4.4      2.5       79% 
  Asset Management                 1.7      2.0      (15)% 
  Total revenue                    81.2     55.7      46% 
  Underlying Operating Profit 
   (2) 
   (post COVID-19 costs)           12.5     2.4      422% 
  Underlying Operating margin 
   (post COVID-19 costs)           15%       4%     1110bps 
  Underlying Operating Profit 
   (2) 
   (pre COVID-19 costs)            12.5     4.1      202% 
  Underlying Operating margin 
   (pre COVID-19 costs)            15%       7%     800bps 
 
  KPIs 
===============================  =======  =======  ======== 
  Exchange units                  10,158   4,985     104% 
  Managed Properties              24,474   24,815    (1)% 
  Average Residential Sales 
   Exchange Fee per unit (GBP)    3,980    3,730      7% 
-------------------------------  -------  -------  -------- 
 

Notes:

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

2 Underlying Operating Profit is stated on the same basis as Group Underlying Operating profit (as set out in Note 6 of the Financial Statements)

Financial summary

Total Estate Agency Division revenue in H1 was GBP81.2m, 46% higher than the COVID-19 impacted H1 2020. The strong sales pipelines coming into 2021 and favourable market conditions contributed to the strong residential sales exchange income performance in H1 2021. H1 2021 Underlying Operating Profit of GBP12.5m was very significantly higher than H1 2020 (H1 2020: GBP2.4m), benefiting from good trading in favourable markets, with market share gains achieved by LSL.

In H1 2020, COVID-19 costs of GBP1.7m were recognised in the Estate Agency Division. Stated before COVID-19 costs, Underlying Operating Profit in H1 2020 was GBP4.1m with Underlying Operating Profit growth in H1 2021 of 202%.

Strategic and operational developments to support growth

The LSL brands have invested in additional marketing and in lead management systems to capture new instructions more effectively and take advantage of the more favourable market. In H1 2021 the Division grew market share versus 2020 in the catchments in which we compete. LSL has also expanded the Homefast Property Services conveyancing proposition to franchisees.

H1 market

Residential sales exchanges started strongly in Q1 2021, as very strong pipelines converted. The number of new sales instructions coming to market at the start of the year was below 2020, when the market was buoyed by greater buyer confidence post the Brexit deal being agreed and before the impact of the pandemic at the end of Q1 2020. However, the announcement on 3 March 2021 of the Stamp Duty holiday extension, combined with improved availability of higher LTV mortgages, gave the market a boost. The number of instructions coming to market then slowed in the latter part of H1.

It is common in a fast-moving sales market for available stock to be constrained, and this was the case in H1. From March to June, properties sold quickly, and June, LSL saw record activity across its estate agency brands.

The substantial increase in the number of house sales over the last 12 months gave rise to sizeable pressures throughout the housing chain, notably a market-wide shortage in conveyancing capacity. This resulted in the average time taken to exchange and complete on agreed sales being higher than previous years during H2 2020 and generally throughout H1 2021, with a notable increase in pipeline conversion in June 2021, ahead of the tapering of Stamp Duty relief on 30 June 2021.

The lettings market exhibited differences between London and the rest of the UK. In London, the market has suffered from a lack of demand from overseas tenants (students and workers) and an increase in supply, as short-term lets entered the long-term rental market due to the decline in tourism, impacting the average value of each rental transaction.

Residential Sales

Residential Sales exchange income increased by 117% to GBP40.4m (H1 2020: GBP18.6m). The number of exchange units increased by 104% on the prior year. This is ahead of the overall market trend on a national level, reflecting the increase in market share in the locations traded by LSL.

Residential Sales exchange income was up by 66% in Q1 2021, with high exchange volumes in the lead up to the anticipated Stamp Duty holiday ending in March. The subsequent Stamp Duty extension, combined with a low base in 2020, saw Q2 2021 up 198% against Q2 2020.

Notwithstanding the high level of exchanges in June, the Residential Sales pipeline at 30 June 2021 is 41% up compared to the same date in 2020. There has been no evidence of any material increase in Residential Sales fall-through trends due to transactions not completing before the Stamp Duty deadline.

Average residential sales exchange fees per unit increased by 7% to GBP3,980 (H1 2020: GBP3,730), reflecting house price increases, and sales skewed to higher value properties towards the end of the higher Stamp Duty tapering at 30 June 2021.

Lettings

Total Lettings income of GBP30.1m increased by 9% over 2020 which was affected in Q2 by the severity of the first national lockdown and social distancing restrictions. The total number of managed properties at 30 June 2021 was 24,474, maintained broadly in line with the same date in 2020.

Financial Services Income

The Estate Agency Division receives an arm's length variable commission payment from EFS and First2Protect, subsidiaries within LSL's Financial Services Division, reflecting its role in introducing customers to EFS and First2Protect advisers. Financial Services income of GBP3.2m was down compared to 2020 (H1 2020: GBP4.5m), reflecting a review of the commercial arrangements, to align them more closely with market rates, based on an arm's length relationship and objective market data.

Around GBP1m of profit in H1 2021 has been recognised in the Financial Services Division, which would have been recognised in the Estate Agency Division under the previous commercial arrangement. We will review commercial terms annually at the end of each financial year to ensure terms reflect market norms.

Franchise income

Franchise income of GBP1.4m was 93% higher than 2020. This reflects LSL's share of increased franchisee revenues, which benefited from the more favourable market activity in H1 2021.

Conveyancing and other income

Conveyancing and other income of GBP3.2m was 48% more than the comparable period in 2020, with the increased residential exchange activity resulting in more demand for conveyancing services.

Asset Management

Asset Management revenues of GBP1.7m reduced by 15% compared to 2020, as lenders exercised forbearance to protect customers whose personal and financial situation was impacted by COVID-19. This was reinforced strongly in the FCA's COVID-19 guidance, in effect since 19 March 2020, that lenders should not enforce repossessions before 1 April 2021, except in exceptional circumstances.

Marsh & Parsons

H1 2021 Total revenue of GBP17.7m increased by 46% compared to the same period last year (H1 2020 GBP12.1m) and H1 2021 Underlying Operating Profit increasing significantly compared to the same period last year.

Branch numbers

LSL owns one of the largest combined estate agencies in the UK. It operates a network of 228 owned and 127 franchised estate agency branches, with brands that include Your Move, Reeds Rains and Marsh & Parsons. The total number of Estate Agency branches reduced by one in H1 2021, following two new office openings in Marsh & Parsons, and the closure of three franchise branches in the Your Move and LSLi estates to address less-productive branches.

Breakdown of LSL's Estate Agency branches as at 30 June 2021 and 31 December 2020:

 
                                       Total:   Total: 
                                       30 June   31 Dec 
                  Owned    Franchise    2021      2020 
----------------  -----  -----------  --------  ------- 
Your Move          89        77         166       168 
Reeds Rains        56        49         105       105 
----------------  -----  -----------  --------  ------- 
Sub total          145       128        273       273 
LSLi               51         1          52       53 
Marsh & Parsons    32         0          32       30 
----------------  -----  -----------  --------  ------- 
Total              228       127        355       356 
----------------  -----  -----------  --------  ------- 
 

Financial Review

Income Statement

Group Operating Profit

On a statutory basis, Group operating profit increased 647% to GBP26.7m (H1 2020: GBP3.6m).

Group Underlying Operating Profit(1)

Group Underlying Operating Profit of GBP27.3m was 181% above 2020 (GBP9.7m). In H1 2020, COVID-19 costs of GBP2.8m were recognised in Group Underlying Operating Profit. Stated before these COVID-19 costs, Group Underlying Operating Profit in H1 2020 was GBP12.5m. The Group has not claimed any Coronavirus Job Retention Scheme Funds in 2021.

Other operating income

Other operating income, relating to rental income, was GBP0.5m (H1 2020: GBP0.3m).

Gain on sale of property, plant, and equipment

A gain on sale of GBP0.3m (H1 2020: GBP0.02m) resulted from the disposal of two commercial properties, for consideration of GBP0.4m.

Income from joint ventures and associates

Income from joint ventures and associates was GBP0.9m, an improved performance compared to H1 2020 (H1 2020: loss GBP0.2m), as a result of stronger performances by LMS and TM Group in favourable markets, and LSL's share of losses in the Mortgage Gym associate in H1 2020.

Share-based payments

The share-based payment charge of GBP0.5m (H1 2020: GBP0.7m credit, as a result of scheme lapses) consists of a charge in the period of GBP0.8m, offset by the lapse of the 2017 SAYE scheme and adjustments for leavers and options exercised in the period.

Amortisation of intangible assets

The amortisation charge for H1 2021 was GBP2.7m (H1 2020: GBP2.9m). The year-on-year decrease was the result, of lettings books, reaching full amortisation during 2020.

Exceptional items

The exceptional gain of GBP4.3m (H1 2020: GBPnil) relates to the gain on disposal of the Group's joint venture holding in LMS of GBP3.2m and a release in the PI Costs provision of GBP1.1m.

The exceptional cost of GBP1.65m (H1 2020: GBP4.4m) relates to a Shareholder circular published on 5 July 2021 and general meeting held on 22 July 2021 (GBP0.9m) and restructuring costs in EFS (GBP0.7m).

Contingent consideration

The charge to the income statement in H1 2021 of GBP0.04m (H1 2020: credit GBP0.5m), mainly relates to reassessment of the contingent consideration liability for RSC, due to be paid in 2023.

Net financial costs

Net financial costs amounted to GBP1.3m (H1 2020: GBP1.6m) and related principally to unwinding of the IFRS 16 lease liability of GBP0.7m (H1 2020: GBP0.8m) and interest and fees on the RCF of GBP0.5m (H1 2020: GBP0.6m)

Profit before tax

Profit before tax increased to GBP25.5m (H1 2020: GBP2.0m). This increase was largely driven by the increase in Group Operating Profit and gain on the sale of the investment in the LMS joint venture.

Taxation

The tax charge of GBP2.9m (H1 2020: GBP0.8m credit) gives an effective tax rate of 11.5%, lower than the headline UK tax rate of 19%, mainly due to profits on the sale of joint venture investments not being subject to corporation tax. Deferred tax assets and liabilities are revalued to 25% (H1 2020: 19%), the tax rate effective from 1 April 2023.

Basic and Adjusted Basic Earnings Per Share(2)

The Basic Earnings Per Share was 21.8 pence (H1 2020: 1.2 pence). The Adjusted Basic Earnings Per Share was 20.9 pence (H1 2020: 9.4 pence), an increase of 122%.

Balance sheet

Goodwill

The carrying value of goodwill is GBP160.9m (31 December 2020: GBP159.9m), with GBP1.0m added due to the acquisition of Direct Life. No indicators of impairment have been identified at 30 June 2021.

Mortgage Gym

In February 2021, the Group acquired the trade and assets of Mortgage Gym Limited, a former associate of the Group, for GBP2.4m. The loan notes valued at GBP2.24m at 31 December 2020 were offset against the consideration for the purchase from the administrators, reducing the balance of these loan notes to nil.

Financial assets

LSL holds financial assets of GBP7.7m (31 December 2020: GBP9.6m) comprising investment in equity instruments. The decrease in the year was substantially due to the impact of the settlement of secured loan notes, as consideration for the purchase of the trade and assets of Mortgage Gym Limited.

LSL holds a small number of investments in unlisted companies. The largest investment is an 8.8% shareholding in Yopa Property Limited, a UK-based online hybrid estate agent. The carrying value of this investment has been assessed, including a review of its latest financial performance, which is positive, with the valuation remaining unchanged from 31 December 2020 at GBP6.5m.

Joint ventures

The Group had two joint ventures at 30 June 2021: 32.3% (31 December 2020: 33.3%) interest in TM Group, whose principal activity is to provide property searches, and a 47.8% (31 December 2020: Nil) interest in Pivotal Growth which is equity accounted and is held on the balance sheet at GBP0.3m at 30 June 2021, representing initial equity investment less LSL's share of costs for the period.

In July 2021, the Group disposed of its entire holding in TM Group for proceeds of GBP29.3m. At 30 June 2021, the equity accounted carrying value of TM Group of GBP3.0m has been classified as held for sale.

Deferred and contingent consideration

At 30 June 2021, LSL reports GBPNil (31 December 2020: GBP0.1m) deferred consideration and GBP5.8m (31 December 2020: GBP5.4m) of contingent consideration. The contingent consideration relates primarily to the cost of acquiring the remaining shares in Group First (GBP1.5m for the remaining 5%) and RSC (GBP3.8m for the remaining 40%, with an increase reflecting an update to RSC forecasts), with additions in the period due to the acquisition of Direct Life (GBP0.6m).

Professional indemnity (PI) claim provision

At 30 June 2021, the total provision for historic PI Costs was GBP5.5m (31 December 2020: GBP7.0m). In 2021, the Group continued to make progress in addressing historic claims with a GBP1.1m exceptional release in the period.

Regulatory Capital

LSL has a regulatory capital requirement amounting to 2.5% of regulated financial services revenue. At 31 March 2021, this regulatory capital requirement was GBP5.0m (31 March 2020: GBP5.2m). LSL held a surplus of GBP14.6m over this requirement (31 March 2020: GBP10.6m).

Statement of Cash-flows

The Group generated cash from operations of GBP20.3m (H1 2020: GBP39.1m) After adjusting for payments made in H1 2021 for tax payment deferrals agreed with HMRC relating to 2020, the cash-flow conversion rate(3) in H1 2021 was 100% (H1 2020: 50%). Before this adjustment, the cash-flow conversion rate was 68%.

International Financial Reporting Standards (IFRS)

The Interim Condensed Consolidated Group Financial Statements for the period ended 30 June 2021 have been prepared in accordance with UK-adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the UK's Financial Conduct Authority.

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as set out in Note 6 of the financial statements

   2                      Refer to Note 7 of the Financial Statements for the calculation 

3 Cash-flow conversion defined as cash-flow from operations (pre PI and exceptionals) divided by Group Underlying Operating Profit

Principal Risks and Uncertainties

The principal risks and uncertainties relating to the Group's operations remain consistent with those disclosed on pages 37 to 41 of the Group's Annual Report and Accounts 2020. The Annual Report and Accounts 2020 can be accessed on the Group's website: www.lslps.co.uk. Having reconsidered these principal risks and uncertainties which are summarised below, the Board has concluded that the principal risks and uncertainties of the Group remain the same as those included within the Annual Report and Accounts 2020.

   --    COVID-19 virus 
   --    UK housing market and mortgage lending 
   --    Market disruption 
   --    Execution of growth strategy 
   --    Professional services 
   --    Client contracts 
   --    Business infrastructure (including technology) 
   --    Information security (including data protection) 
   --    Regulatory and compliance 
   --    Environmental, social and governance (ESG) 
   --    Employee resources and talent 

Forward-Looking Statements

This announcement contains certain statements that are forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding 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 2020 (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 for the period ended 30 June 2021 have been prepared in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the UK's Financial Conduct Authority;

   --    The interim management report includes a fair review of the information required by: 

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related-party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related-party transactions described in the last annual report that could do so.

By order of the Board

David Stewart Adam Castleton

Director, Group Chief Executive Officer Director, Group Chief Financial Officer

3 August 2021 3 August 2021

Interim Group Income Statement

for the six months ended 30 June 2021

 
 
                                                     Unaudited            Audited 
                                                  Six Months Ended     Year Ended 
                                                 30 June    30 June   31 December 
                                                    2021       2020          2020 
Continuing Operations                    Note    GBP'000    GBP'000       GBP'000 
                                               ---------  ---------  ------------ 
 
 Revenue                                 4,5     166,456    114,921       266,742 
 
 Operating expenses: 
  Employee and subcontractor costs             (100,493)   (71,113)     (162,455) 
 Establishment costs                             (4,684)    (4,036)       (9,528) 
 Depreciation on property, plant and 
  equipment                                      (6,303)    (7,184)      (13,929) 
 Other operating costs                          (29,418)   (22,929)      (46,938) 
                                               ---------  ---------  ------------ 
                                               (140,898)  (105,262)     (232,850) 
 
 Other operating income                              496        274           783 
 Gain on sale of property, plant and 
  equipment                                          280         16            15 
 Income / (loss) from joint ventures 
  and associates                                     934      (224)           493 
 Share-based payments                              (454)        673          (18) 
 Amortisation of intangible assets               (2,677)    (2,899)       (5,395) 
 Exceptional gains                        8        4,311          -           674 
 Exceptional costs                        8      (1,656)    (4,422)       (7,076) 
 Contingent consideration                           (44)        504           544 
                                                                     ------------ 
 Group operating profit                           26,748    3,581          23,912 
 
 Finance income                                        -          9           144 
 Finance costs                                   (1,286)    (1,579)       (3,134) 
 Net finance costs                               (1,286)    (1,570)       (2,990) 
 
 Profit before tax                                25,462      2,011        20,922 
 
 Taxation charge                          10     (2,917)      (764)       (4,596) 
 
 Profit for the period/year                       22,545      1,247        16,326 
                                               ---------  ---------  ------------ 
 Attributable to: 
 Owners of the parent                             22,566      1,247        16,326 
 Non-controlling interest                           (21)          -             - 
 
 Earnings per share expressed in pence 
  per share: 
  Basic                                   7         21.8        1.2          15.9 
  Diluted                                 7         21.4        1.2          15.7 
                                               ---------  ---------  ------------ 
 

Interim Group Statement of Comprehensive Income

for the six months ended 30 June 2021

 
                                                      Unaudited             Audited 
                                                   Six Months Ended      Year Ended 
                                                  30 June      30 June  31 December 
                                                     2021         2020         2020 
                                                  GBP'000      GBP'000      GBP'000 
                                              -----------  -----------  ----------- 
 
 Profit for the period                             22,545        1,247       16,326 
 Items not to be reclassified to profit 
  and loss in subsequent periods: 
 Revaluation of financial assets not 
  recycled through income statement       11          443            -            - 
 Income tax effect                                  (119)            -            - 
                                              -----------  -----------  ----------- 
 Net other comprehensive income                       324            -            - 
                                              -----------  -----------  ----------- 
 
 Total comprehensive income, net of 
  tax                                              22,869        1,247       16,326 
                                              -----------  -----------  ----------- 
 
 

Interim Group Balance Sheet

as at 30 June 2021

 
                                                   Unaudited             Audited 
                                                Six Months Ended      Year Ended 
                                               30 June     30 June   31 December 
                                                  2021        2020          2020 
                                      Note     GBP'000     GBP'000       GBP'000 
                                            ----------  ----------  ------------ 
 
 Non-current assets 
 Goodwill                              3       160,865     159,863       159,863 
 Other intangible assets                        29,908      28,584        27,894 
 Property, plant and equipment                  40,551      44,944        42,741 
 Financial assets                      11        7,737       9,324         9,561 
 Investments in joint ventures and 
  associates                           16          268      12,521        11,406 
 Contract assets                                   836         559           433 
                                            ----------  ----------  ------------ 
 Total non-current assets                      240,165     255,795       251,898 
                                            ----------  ----------  ------------ 
 
 Current assets 
 Trade and other receivables                    38,449      30,024        28,438 
 Contract assets                                   424         253           253 
 Current tax asset                               1,673           -           184 
 Cash and cash equivalents                      17,039      19,263        11,443 
                                                                    ------------ 
 Total current assets                           57,585      49,540        40,318 
                                            ----------  ----------  ------------ 
 Non current assets held for sale      16        3,016           -             - 
                                            ----------  ----------  ------------ 
 Total assets                                  300,766     305,335       292,216 
                                            ----------  ----------  ------------ 
 
 Current liabilities 
 Financial liabilities                 13     (11,083)    (13,699)      (12,466) 
 Trade and other payables                     (73,918)    (79,705)      (72,936) 
 Current tax liabilities                             -     (1,097)             - 
 Provisions for liabilities            14      (2,908)     (2,721)       (2,998) 
                                            ----------  ----------  ------------ 
 Total current liabilities                    (87,909)    (97,222)      (88,400) 
                                            ----------  ----------  ------------ 
 
 Non-current liabilities 
 Financial liabilities                 13     (25,678)    (59,147)      (40,060) 
 Deferred tax liability                        (1,916)     (1,834)       (1,822) 
 Provisions for liabilities            14      (2,694)     (5,195)       (4,180) 
                                            ----------  ----------  ------------ 
 Total non-current liabilities                (30,288)    (66,176)      (46,062) 
                                            ----------  ----------  ------------ 
 Total Liabilities                           (118,197)   (163,398)     (134,462) 
                                            ----------  ----------  ------------ 
 
 Net assets                                    182,569     141,937       157,754 
                                            ----------  ----------  ------------ 
 
 Equity 
 Share capital                                     210         208           210 
 Share premium account                           5,629       5,629         5,629 
 Share-based payment reserve                     4,483       3,369         3,942 
 Shares held by EBT                            (4,165)     (5,021)       (5,012) 
 Fair value reserve                           (13,260)    (13,584)      (13,584) 
 Retained earnings                             189,135     151,336       166,569 
                                            ----------  ----------  ------------ 
 Equity attributable to the owners 
  of the parent                                182,032    141,937        157,754 
                                            ----------  ----------  ------------ 
 Non-controlling interest                          537       -                 - 
                                            ----------  ----------  ------------ 
 Total Equity                                  182,569    141,937        157,754 
                                            ----------  ----------  ------------ 
 

Interim Group Cash Flow Statement

for the six months ended 30 June 2021

 
                                                             Unaudited            Audited 
                                                          Six Months Ended     Year Ended 
                                                         30 June    30 June   31 December 
                                                            2021       2020          2020 
                                                 Note    GBP'000    GBP'000       GBP'000 
                                                       ---------  ---------  ------------ 
 Profit before tax                                        25,462      2,011        20,922 
 Adjustments for: 
 Exceptional operating items and contingent 
  consideration                                          (2,612)      3,918         5,857 
 Depreciation of tangible assets                           6,303      7,184        13,929 
 Amortisation of intangible assets                         2,677      2,899         5,395 
 Share-based payments                                        454      (673)            18 
 (Profit) on disposal of fixed assets                      (280)       (16)          (15) 
 (Profit) / loss from joint ventures                       (934)        224         (493) 
 Finance income                                                -        (9)         (144) 
 Finance costs                                             1,286      1,579         3,134 
 Operating cash flows before movements in 
  working capital                                         32,356     17,117        48,603 
                                                       ---------  ---------  ------------ 
 Movements in working capital 
 (Increase) / decrease in trade and 
  other receivables                                      (9,779)      4,708         8,553 
 Increase in trade and other payables                      1,327     19,080        13,606 
 Decrease in provisions                                  (1,576)      (737)       (1,474) 
                                                        (10,028)     23,051        20,685 
                                                       ---------  ---------  ------------ 
 
 Cash generated from operations                           22,328     40,168        69,288 
 
 Interest paid                                           (1,215)    (1,411)       (2,581) 
 Income taxes paid                                       (4,451)      (937)       (6,093) 
 Exceptional costs paid                                  (2,466)    (3,952)       (7,311) 
 Net cash generated from operating activities             14,196     33,868        53,303 
                                                       ---------  ---------  ------------ 
 
 Cash flows used in investing activities 
 Cash acquired on acquisition of subsidiary                1,070          -             - 
 Acquisitions of subsidiaries and other 
  businesses                                             (1,800)      (212)         (293) 
 Payment of contingent consideration              13       (302)       (55)         (169) 
 Investment in joint venture                               (765)          -             - 
 Investment in financial assets                   11         (4)        (8)         (418) 
 Dividend received from joint venture                      1,178          -             - 
 Cash received on sale of joint venture                   12,000          -             - 
 Purchase of property, plant and equipment 
  and intangible assets                                  (2,957)    (1,656)       (4,050) 
 Proceeds from sale of property, plant 
  and equipment                                              431        130           138 
 Net cash generated / (expended) on 
  investing activities                                     8,851    (1,801)       (4,792) 
                                                       ---------  ---------  ------------ 
 
 Repayment of loans                               15    (13,000)    (9,883)      (28,883) 
 Payment of deferred consideration                          (92)          -          (80) 
 Receipt of lease Income                                      26         19            23 
 Proceeds from the exercise of share 
  options                                                    429        147           176 
 Payments of lease liabilities                           (4,814)    (3,087)       (8,304) 
 Dividends paid                                                -          -             - 
 Net cash expended in financing activities              (17,451)   (12,804)      (37,068) 
                                                       ---------  ---------  ------------ 
 
 Net increase in cash and cash equivalents                 5,596     19,263        11,443 
                                                       ---------  ---------  ------------ 
 
 Cash and cash equivalents at the end 
  of the period / year                                    17,039     19,263        11,443 
                                                       ---------  ---------  ------------ 
 

Interim Group Statement of changes in equity

Unaudited - for the six months ended 30 June 2021

 
 
                                                 Share- 
                                      Share       based      Shares         Fair                        Non- 
                          Share     premium     payment     held by        value     Retained    controlling 
                        capital     account     reserve         EBT      Reserve     earnings       interest     Total 
                        GBP'000     GBP'000     GBP'000     GBP'000      GBP'000      GBP'000        GBP'000   GBP'000 
                    -----------  ----------  ----------  ----------  -----------  -----------  -------------  -------- 
 At 1 January 2021          210       5,629       3,942     (5,012)     (13,584)      166,569              -   157,754 
                    -----------  ----------  ----------  ----------  -----------  -----------  -------------  -------- 
 Other 
 comprehensive 
 income for the 
 period 
 Revaluation of 
  financial assets            -           -           -           -          324            -              -       324 
 Profit for the 
  period                      -           -           -           -            -       22,566           (21)    22,545 
    Total 
     comprehensive 
     income for 
     the period               -           -           -           -          324       22,566           (21)    22,869 
    Acquisition of 
     subsidiary               -           -           -           -            -            -            558       558 
    Exercise of 
     options                  -           -       (418)         847            -            -              -       429 
    Share-based 
     payments                 -           -         454           -            -            -              -       454 
    Tax on share 
     based 
     payments                 -           -         505           -            -            -              -       505 
 At 30 June 2021            210       5,629       4,483     (4,165)     (13,260)      189,135            537   182,569 
                    -----------  ----------  ----------  ----------  -----------  -----------  -------------  -------- 
 

During the six month period to 30 June 2021 a total of 241,476 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the

Trust. LSL received GBP429,000 on exercise of these options.

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 
                    -------------  -------------  -------------  -------------  -------------  -------------  -------- 
 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) 
 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

Audited - for the year ended 31 December 2020

 
 
                                         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 
      2020                  208          5,629          4,429        (5,224)       (13,584)         149,758    141,216 
     Profit for the 
      year                    -              -              -              -              -          16,326     16,326 
     Total 
      comprehensive 
      income for 
      the year                -              -              -              -              -          16,326     16,326 
     Issued share 
      capital in 
      the year                2              -              -              -              -               -          2 
     Exercise of 
      options                 -              -           (80)            212              -              44        176 
     Share-based 
      payments                -              -          (423)              -              -             441         18 
     Tax on share 
      based 
      payments                -              -             16              -              -               -         16 
     At 31 December 
      2020                  210          5,629          3,942        (5,012)       (13,584)         166,569    157,754 
 
 

During the year ended 31 December 2020, the Trust acquired 167,083 LSL Shares. During the period, 60,565 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the Trust. LSL received GBP176,000 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 2021 were approved by the LSL Board on 3 August 2021. The interim Financial Statements are not the statutory accounts. The financial information for the year ended 31 December 2020 is extracted from the audited statutory accounts for the year ended 31 December 2020, 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 2021 have been prepared in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority, and should be read in conjunction with the Group's annual Financial Statements as at 31 December 2020 which are included in LSL's Annual Report and Accounts 2020. The Group's annual Financial Statements for the year ending 31 December 2021 will be prepared in accordance with UK adopted IFRSs.

The Interim Condensed Consolidated Group Financial Statements do not include all the information and disclosures required for a complete set of IFRS Financial Statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual Financial Statements.

Going Concern

The UK Corporate Governance Code requires the Board to assess and report on the prospects of the Group and whether the business is a Going Concern. In considering this requirement, the Directors have taken into account the Group's forecast cash flows, liquidity, borrowing facilities and related covenant requirements and the expected operational activities of the Group.

The Group expects to continue to meet its day to day working capital requirements through a revolving credit facility. The Group announced a new banking facility in February 2021, a GBP90 million committed revolving credit facility with a maturity date of May 2024. As shown in Note 15 to these interim condensed consolidated Group Financial Statements, the Group has not currently utilised the facility leaving GBP90 million of available undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

LSL has continued to run a variety of scenario models throughout H1 to help the ongoing assessment of risks and opportunities. A severe downside scenario has been modelled as part of the Going Concern assessment, which includes the pessimistic assumption that there is a significant reduction in market transaction volumes reducing close to the low point experienced during the Global Financial Crisis. The scenario modelling includes further prudent assumptions, for example, such as cost 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 to 31 December 2022 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 to 31 December 2022. 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 2020.

   3.     Judgements and estimates 

The preparation of financial information in conformity with UK adopted IFRS and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority requires management to make judgements, estimates and assumptions that affect the application of policies and reporting amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next six months are the same as those as at 31 December 2020, with the exception of valuations in acquisitions, which is a key assumption for 2021. The assumptions are discussed in detail in the Group's Annual Report and Accounts 2020. 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 
   --      Impairment of intangible assets 
   --      Contingent consideration 
   --      Income tax 

Valuations in acquisitions

The measurement of intangible assets other than goodwill on a business combination involves the estimation of future cash-flows and other inputs relevant to the valuation model being applied. Brands are valued using the royalty relief method. The internally generated software from the acquisitions of Direct Life and Pension Services and Mortgage Gym were valued using a discounted cash-flow model.

Goodwill

At the year ended 31 December 2020 the Management Team undertook sensitivity analysis to determine the effect of changes in assumptions on the 2020 impairment reviews. Marsh & Parsons had headroom of GBP12.8m and in this instance a reasonable possible change in either the financial budgets in the three year plan or the discount rate applied could lead to impairment. A reduction in each of the 3 years of cash-flow forecast by 15%, or an increase to the discount factor applied from 11.68% to 13.39% would lead to an impairment. Although a reasonably possible change in assumptions used in the 2020 impairment review would lead to an impairment for Marsh & Parsons, management do not consider there to be any impairment indicators for the Marsh & Parsons goodwill at 30 June 2021.

   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 2021 
                                     Surveying 
                                           and      Residential 
                      Financial      Valuation            Sales                         Asset 
                       Services       Services         exchange      Lettings      Management        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                42,340         46,159           40,425        16,132           1,071        5,792        151,919 
    Services 
     transferred 
     over time                -              -                -        13,948             589            -         14,537 
                  -------------  -------------  ---------------  ------------  --------------  -----------  ------------- 
    Total 
     revenue 
     from 
     contracts 
     with 
     customers           42,340         46,159           40,425        30,080           1,660        5,792        166,456 
                  -------------  -------------  ---------------  ------------  --------------  -----------  ------------- 
 
 
                                          Unaudited - Six Months ended 30 June 2020 
                                     Surveying 
                                           and      Residential 
                      Financial      Valuation            Sales                         Asset 
                       Services       Services         exchange      Lettings      Management        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                32,611         31,095           18,595        12,640           1,463        3,151         99,555 
    Services 
     transferred 
     over time                -              -                -        14,874             492            -         15,366 
                  -------------  -------------  ---------------  ------------  --------------  -----------  ------------- 
    Total 
     revenue 
     from 
     contracts 
     with 
     customers           32,611         31,095           18,595        27,514           1,955        3,151        114,921 
                  -------------  -------------  ---------------  ------------  --------------  -----------  ------------- 
 
 
                                             Audited - Year ended 31 December 2020 
                                     Surveying 
                                           and       Residential 
                      Financial      Valuation             Sales                           Asset 
                       Services       Services          exchange       Lettings       Management         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                70,845         77,125            48,821         29,211            2,602         7,592       236,196 
    Services 
     transferred 
     over time                -              -                 -         29,390            1,156             -        30,546 
                  -------------  -------------  ----------------  -------------  ---------------  ------------  ------------ 
    Total 
     revenue 
     from 
     contracts 
     with 
     customers           70,845         77,125            48,821         58,601            3,758         7,592       266,742 
                  -------------  -------------  ----------------  -------------  ---------------  ------------  ------------ 
 
   5 .             Segment analysis of revenue and operating profit 

LSL reports three segments: Financial Services, Surveying and Valuation Services, and Estate Agency:

-- The Financial Services segment arranges mortgages for a number of lenders and arranges pure protection and general insurance policies for a panel of insurance companies. Embrace Financial Services and First2Protect, subsidiaries within the Financial Services Division, make a commercially agreed introducers fee to the Estate Agency Division;

-- The Surveying and Valuation Services segment provides a valuations and professional surveying service of residential properties to various lenders and individual customers;

-- The Estate Agency segment provides services related to the sale and letting of residential properties. It operates a network of high street branches. As part of this process, the Estate Agency Division also provides marketing and arranges conveyancing services. In addition, it provides repossession and asset management services to a range of lenders. Embrace Financial Services and First2Protect, subsidiaries within the Financial Services Division, make a commercially agreed introducers fee to the Estate Agency Division.

The Management Team monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects, as explained in the table below, is measured differently from operating profit or loss in the Group Financial Statements. Head Office costs, Group financing (including finance costs and finance income) and income taxes are managed on a Group basis and are not allocated to operating segments.

Operating segments

The following tables presents revenue and profit information regarding the Group's operating segments for the six months ended 30 June 2021, for the six months ended 30 June 2020 and for the year ended 31 December 2020.

Unaudited - Six months ended 30 June 2021

 
                                                      Surveying 
                                    Financial     and Valuation 
                                     Services          Services      Estate Agency    Unallocated        Total 
 Income statement information         GBP'000           GBP'000            GBP'000        GBP'000      GBP'000 
                                -------------  ----------------  -----------------  -------------  ----------- 
 
  Revenue from external 
   customers                           42,340            46,159             77,957              -      166,456 
  Introducers fee                     (3,232)                 -              3,232              -            - 
                                -------------  ----------------  -----------------  -------------  ----------- 
  Total revenue                        39,108            46,159             81,189              -      166,456 
                                -------------  ----------------  -----------------  -------------  ----------- 
 
  Segmental result: 
  Group Underlying Operating 
   Profit                               7,823            11,419             12,527        (4,501)       27,268 
                                -------------  ----------------  -----------------  -------------  ----------- 
  Operating profit                      3,928            12,352             15,504        (5,036)       26,748 
                                -------------  ----------------  -----------------  ------------- 
 
  Finance income                                                                                             - 
  Finance costs                                                                                        (1,286) 
                                                                                                   ----------- 
  Profit before tax                                                                                     25,462 
  Taxation                                                                                             (2,917) 
  Profit for the period                                                                                 22,545 
                                                                                                   ----------- 
 

Group Underlying Operating Profit is as defined in note 6 to these condensed financial statements

 
 
                                                   Surveying 
                                Financial      and Valuation 
                                 Services           Services  Estate Agency  Unallocated      Total 
                                  GBP'000            GBP'000        GBP'000      GBP'000    GBP'000 
                              -----------  -----------------  -------------  -----------  --------- 
Balance sheet information 
Segment assets - intangible        18,834             11,051        158,634        2,254    190,773 
Segment assets - other             10,890             14,956         59,275       24,872    109,993 
                              -----------  -----------------  -------------  -----------  --------- 
Total Segment assets               29,724             26,007        217,909       27,126    300,766 
Total Segment liabilities        (25,513)           (24,489)       (62,131)      (6,064)  (118,197) 
                              -----------  -----------------  -------------  -----------  --------- 
Net assets                          4,211              1,518        155,778       21,062    182,569 
                              -----------  -----------------  -------------  -----------  --------- 
 

The joint venture interests of the Group are recorded in the Financial Services and Estate Agency segments.

Unallocated net assets comprise other intangibles GBP2,253,000, assets held for sale GBP3,016,000, cash GBP17,039,000, other assets GBP3,138,000, other taxes GBP(182,000), accruals GBP(3,912,000), payables GBP(266,000), deferred and current tax GBP(24,000).

Unaudited - Six months ended 30 June 2020

 
                                                      Surveying 
                                    Financial     and Valuation 
                                     Services          Services      Estate Agency    Unallocated        Total 
 Income statement information         GBP'000           GBP'000            GBP'000        GBP'000      GBP'000 
                                -------------  ----------------  -----------------  -------------  ----------- 
 
  Revenue from external 
   customers                           32,611            31,095             51,215              -      114,921 
  Intersegment revenue                (4,533)                 -              4,533              -            - 
                                -------------  ----------------  -----------------  -------------  ----------- 
  Total revenue                        28,078            31,095             55,748              -      114,921 
                                -------------  ----------------  -----------------  -------------  ----------- 
 
  Segmental result: 
  Group Underlying Operating 
   Profit                               4,932             4,850              4,147        (1,385)       12,544 
                                -------------  ----------------  -----------------  -------------  ----------- 
  Operating profit / (loss)             3,953             2,468            (1,567)        (1,273)        3,581 
                                -------------  ----------------  -----------------  ------------- 
 
  Finance income                                                                                             9 
  Finance costs                                                                                        (1,579) 
                                                                                                   ----------- 
  Profit before tax                                                                                      2,011 
  Taxation                                                                                               (764) 
  Profit for the period                                                                                  1,247 
                                                                                                   ----------- 
 
 
 
                                           Surveying 
                                Financial   and Valuation 
                                 Services   Services         Estate Agency  Unallocated      Total 
                                  GBP'000         GBP'000          GBP'000      GBP'000    GBP'000 
                              -----------  --------------  ---------------  -----------  --------- 
Balance sheet information 
Segment assets - intangible        17,671          11,509          159,267                 188,447 
Segment assets - other              9,361          11,752           73,695       22,080    116,888 
                              -----------  --------------  ---------------  -----------  --------- 
Total Segment assets               27,032          23,261          232,962       22,080    305,335 
Total Segment liabilities        (28,252)        (28,311)         (69,066)     (37,769)  (163,398) 
                              -----------  --------------  ---------------  -----------  --------- 
Net assets/(liabilities)          (1,220)         (5,050)          163,896     (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(499,000), IFRS 16 financial liabilities GBP(2,000), deferred and current tax GBP(3,014,000), and revolving credit facility overdraft GBP(32,000,000).

Audited - Year ended 31 December 2020

 
                                                     Surveying 
                                   Financial     and Valuation 
                                    Services          Services    Estate Agency    Unallocated       Total 
  Income Statement information       GBP'000           GBP'000          GBP'000        GBP'000     GBP'000 
                                 -----------  ----------------  ---------------  -------------  ---------- 
 
 Revenue from external 
  customers                           70,845            77,125          118,772              -     266,742 
 Introducers fee                     (9,889)                 -            9,889              -           - 
                                 -----------  ----------------  ---------------  -------------  ---------- 
 Total revenue                        60,956            77,125          128,661              -     266,742 
                                 -----------  ----------------  ---------------  -------------  ---------- 
 
 Segmental result: 
 Group Underlying Operating 
  Profit - pre COVID -19 
  costs                               13,451            17,871           15,554        (5,335)      41,541 
 Group Underlying Operating 
  Profit - post COVID -19 
  costs                               12,287            16,193           12,071        (5,368)      35,183 
                                 -----------  ----------------  ---------------  -------------  ---------- 
 Operating profit / (loss)            10,679            14,680            3,802        (5,249)      23,912 
                                 -----------  ----------------  ---------------  ------------- 
 
 Finance Income                                                                                        144 
 Finance costs                                                                                     (3,134) 
                                                                                                ---------- 
 Profit before tax                                                                                  20,922 
 Taxation                                                                                          (4,596) 
                                                                                                ---------- 
 Profit for the year                                                                                16,326 
                                                                                                ---------- 
 
 Balance sheet information 
 
 Segment assets - intangible          17,109            11,280          159,367              -     187,756 
 Segment assets - other                7,935            13,571           68,993         13,961     104,460 
                                 -----------  ----------------  ---------------  -------------  ---------- 
 Total Segment assets                 25,044            24,851          228,360         13,961     292,216 
 Total Segment liabilities          (26,010)          (27,398)         (63,640)       (17,414)   (134,462) 
                                 -----------  ----------------  ---------------  -------------  ---------- 
 
 Net assets / (liabilities)            (966)           (2,547)          164,720        (3,453)     157,754 
                                 -----------  ----------------  ---------------  -------------  ---------- 
 
 

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 GBP13,000, other assets GBP2,505,000, cash GBP11,443,000, accruals and other payables GBP(2,532,000), current and deferred tax liabilities GBP(1,882,000), and revolving credit facility overdraft GBP(13,000,000). Unallocated result comprises costs relating to the Parent Company.

   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 and, share-based payments. Share based payments are excluded from the underlying performance due to the fluctuations that can impact the charge, such as lapses and the level of annual grants.

In the prior year, costs relating to COVID-19 were separately identified and excluded from Group Underlying Operating Profit as the Directors considered that these adjusted measures shown give a better and more consistent indication of the Group's underlying performance. The most significant areas of costs relating to COVID-19 were employee costs and property and related asset costs. In 2021, the group has not incurred separately identifiable costs related to COVID-19 and has not excluded any from Group underlying operating profit.

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 
                                                    2021       2020           2020 
                                                 GBP'000    GBP'000        GBP'000 
                                               ---------  ---------  ------------- 
 
 Group operating profit                           26,748      3,581         23,912 
 Share-based payments                                454      (673)             18 
 Amortisation of intangible assets                 2,677      2,899          5,395 
 Exceptional gains                               (4,311)          -          (674) 
 Exceptional costs                                 1,656      4,422          7,076 
 Contingent consideration charge / (credit)           44      (504)          (544) 
 Total COVID-19 related costs                          -      2,819          6,358 
                                               ---------  ---------  ------------- 
 Group Underlying Operating Profit                27,268     12,544         41,541 
                                               ---------  ---------  ------------- 
 Depreciation on property, plant and 
  equipment                                        6,303      5,538          7,571 
                                               ---------  ---------  ------------- 
 Group Adjusted EBITDA                            33,571     18,082         49,112 
                                               ---------  ---------  ------------- 
 
   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         2021                  Weighted      2020 
                           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                 22,566   103,691,129         21.8       1,247   102,726,654       1.2 
  Effect of dilutive 
   share options                      1,737,509                                363,335 
 Diluted EPS               22,566   105,428,638         21.4       1,247   103,089,989       1.2 
                       ----------  ------------               ----------  ------------ 
 

Audited - Year ended 31 December 2020

 
                                           Weighted          2020 
                                Profit      average     Per share 
                             after tax    number of        amount 
                               GBP'000       shares         Pence 
                            ----------  -----------  ------------ 
 
Basic EPS                       16,326  102,939,680          15.9 
    Effect of dilutive 
     share options                          947,704 
    Diluted EPS                 16,326  103,887,384          15.7 
                            ----------  ----------- 
 

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 
                                                            2021          2020             2020 
                                                         GBP'000       GBP'000          GBP'000 
    Group underlying operating profit                     27,268        12,544           41,541 
    Loss attributable to non controlling interest             21             -                - 
  Net finance costs (excluding exceptional 
   items, contingent consideration items and 
   discounting on lease liabilities)                       (511)         (625)          (1,062) 
  Normalised taxation (tax rate 19%)                     (5,084)       (2,265)          (7,691) 
  Adjusted profit after tax before exceptional 
   items, share-based payments and amortisation           21,694         9,654           32,788 
                                                    ------------  ------------  --------------- 
 

Unaudited - Six months ended 30 June

 
                        Adjusted                              Adjusted 
                          profit      Weighted         2021     profit      Weighted         2020 
                           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       21,694   103,691,129         20.9      9,654   102,726,654          9.4 
  Effect of dilutive 
   share options                     1,737,509                               363,335 
  Adjusted diluted 
   EPS                    21,694   105,428,638         20.6      9,654   103,089,989          9.4 
                       ---------  ------------               ---------  ------------ 
 

Audited - Year ended 31 December 2020

 
                             Adjusted 
                               profit       Weighted         2020 
                                after        average    Per share 
                                  tax         number       amount 
                              GBP'000      of shares        Pence 
 
 Adjusted basic EPS            32,788    102,939,680         31.9 
  Effect of dilutive 
   share options                             947,704 
                            ---------  ------------- 
  Adjusted diluted EPS         32,788    103,887,384         31.6 
                            ---------  ------------- 
 

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 2020: 19.00% and 31 December 2020: 19.00%)

   8.     Exceptional items 
 
                                                          Unaudited             Audited 
                                                       Six months ended      Year Ended 
                                                      30 June    30 June    31 December 
                                                         2021       2020           2020 
                                                      GBP'000    GBP'000        GBP'000 
                                                    ---------  ---------  ------------- 
 Exceptional costs: 
 Shareholder circular and general meeting                 943          -              - 
 Embrace Financial Services Limited restructuring         713          -              - 
  project 
 Branch / centre closure and restructuring 
  costs including redundancy costs                          -      1,667          2,312 
 Aborted merger deal costs                                  -      2,403          2,350 
 Impairment of investment in associate                      -          -          1,992 
 Other                                                      -        352            422 
                                                    ---------  ---------  ------------- 
                                                        1,656      4,422          7,076 
                                                    ---------  ---------  ------------- 
 Exceptional gains: 
 Exceptional gain in relation to historic 
  PI costs                                            (1,131)          -          (674) 
 Exceptional gain in relation to sale of              (3,180)          -              - 
  joint venture 
                                                    ---------  ---------  ------------- 
                                                      (4,311)          -          (674) 
                                                    ---------  ---------  ------------- 
 

Exceptional costs

Shareholder circular and general meeting

There were GBP0.9m (2020: nil) of non recurring and material exceptional costs relating to the shareholder circular published on 5 July 2021 and the general meeting held on 22 July 2021.

Embrace Financial Services Limited restructuring project

There were GBP0.7m (2020: nil) of non recurring and material exceptional costs relating to the planned restructure of Embrace Financial Services Limited. No further costs are expected in relation to this.

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 a gain of GBP1.1m in the first half of 2021 (June 2020: GBPnil and December 2020: GBP0.7m).

Disposal of interest in associate

In May 2021, the Group disposed of its 49.6% interest in Cybele Solutions Holdings Limited ("LMS") for consideration of GBP12m. The net gain recognised on sale of LMS was GBP3.2m.

   9.     Dividends paid and declared 

No final dividend in respect of the year ended 31 December 2020 (December 2019: GBPNil) was paid in the period ended 30 June 2021. An interim dividend has been announced amounting to 4.0 pence per share (June 2020: GBPNil). 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 
                                                  2021      2020         2020 
                                               GBP'000   GBP'000      GBP'000 
                                             ---------  --------  ----------- 
 UK corporation tax: 
 - current year credit / (charge)                3,008       802        5,111 
 - adjustment in respect of prior 
  years                                            (1)         -        (409) 
                                             ---------  --------  ----------- 
                                                 3,007       802        4,702 
 Deferred tax: 
 Origination and reversal of temporary 
  differences                                    (214)        38        (597) 
 Adjustment in respect of prior year                 1         -          248 
 Changes in tax rates                              123         -          243 
                                             ---------  --------  ----------- 
                                                  (90)        38        (106) 
 
 Total tax charge in the income statement        2,917       764        4,596 
                                             ---------  --------  ----------- 
 

In March 2021, the 2021 Budget included an announcement to increase the standard rate of corporation tax rate from 19% to 25% from 1 April 2023. This was substantively enacted during Summer 2021

The headline UK rate of corporation tax for the period is therefore 19% (2020: 19%), and the rate at which deferred tax has been provided is 25% (2020: 19%). The expected impact on deferred tax balances of the rate increase is estimated to be GBP246,000

Deferred tax charged directly to other comprehensive income relating to the revaluation of financial assets is GBP119,000. In the six months ended 30 June 2020 GBPNil and year ended 31 December 2020 GBPNil.

   11.   Financial assets 
 
                                                   Unaudited           Audited 
                                                Six Months Ended    Year Ended 
                                                30 June   30 June  31 December 
                                                   2021      2020         2020 
                                                GBP'000   GBP'000      GBP'000 
                                              ---------  --------  ----------- 
 Convertible loan notes - at fair value 
 Secured convertible loan notes - 5%                  -     2,000        2,240 
 Secured convertible loan notes - interest 
  free                                                -         -           10 
                                              ---------  --------  ----------- 
                                                      -     2,000        2,250 
                                              ---------  --------  ----------- 
 Investment in equity instruments - at fair 
  value 
                                              ---------  --------  ----------- 
 Unquoted shares at fair value                    7,417     6,960        6,961 
                                              ---------  --------  ----------- 
 
 IFRS 16 lessor financial assets                    320       364          350 
                                              ---------  --------  ----------- 
 
 Total Financial Assets                           7,737     9,324        9,561 
 
 Opening balance                                  9,561     9,326        9,326 
 Additions                                           14         8          418 
 Fair value adjustment                              443         -            - 
 Disposals                                      (2,281)      (10)        (183) 
 Closing balance                                  7,737     9,324        9,561 
                                              ---------  --------  ----------- 
 
 Non-current assets                               7,737     9,324        9,561 
 Current assets                                       -         -            - 
                                              ---------  --------  ----------- 
                                                  7,737     9,324        9,561 
                                              ---------  --------  ----------- 
 

Convertible loan notes at fair value

In 2020 LSL held secured loan notes of GBP2,240,000 with Mortgage Gym Limited, in February 2021 these loan notes were settled as consideration for the acquisition of the trade and assets of Mortgage Gym.

Investment in equity instruments

The financial assets include unlisted equity instruments which are carried at fair value. Fair value is judgemental given the assumptions required and have been valued using a level 3 valuation techniques (see Note 32 to the December 2020 Group Financial Statements).

Vibrant Energy Matters Limited (VEM)

The carrying value of the Group's investment in VEM at 30 June 2021 has been assessed as GBP729,000 (June 2020: GBP287,000 and December 2020: GBP287,000), following a share transaction between third party share holders which valued LSLs holding at GBP729,000.

NBC Property Master Limited

The carrying value of the Group's investment at 30 June 2021 has been assessed as GBP78,000 (June 2020: GBP78,000 and December 2020: 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 2021 has been assessed as GBP115,000 (June 2020: GBP101,000 and December 2020: GBP101,000).

Yopa Property Limited

The carrying value of the Group's investment in Yopa at 30 June 2021 has been assessed as GBP6,495,000 (June 2020: GBP6,495,000 and December 2020: GBP6,495,000).

   12.   Trade and other payables 
 
                                                    Unaudited 
                                                 Six Months Ended 
                                                                          Audited 
                                                                       Year Ended 
                                                30 June    30 June    31 December 
                                                   2021       2020           2020 
                                                GBP'000    GBP'000        GBP'000 
                                              ---------  ---------  ------------- 
 Current 
 Trade payables                                   9,568     12,388         11,733 
    Other taxes and social security payable      19,664     33,662         24,971 
    Other payables                                3,852      2,890          2,291 
    Accruals                                     35,873     25,969         29,412 
    Lapse provision                               4,961      4,796          4,529 
                                              --------- 
                                                 73,918     79,705         72,936 
                                              ---------  ---------  ------------- 
 

Lapse Provision

Certain subsidiaries sell life assurance products which are cancellable without a notice period, and if cancelled within a set period require that a portion of the commission earned must be repaid. The lapse provision is recognised as a reduction in revenue which is based on historic lapses which have occurred. The provision is managements best estimate of future clawed back commission on life assurance policies, taking into account historic lapse rates in each subsidiary.

   13.   Financial liabilities 
 
                                                     Unaudited           Audited 
                                                  Six Months Ended    Year Ended 
                                                  30 June   30 June  31 December 
                                                     2021      2020         2020 
                                                  GBP'000   GBP'000      GBP'000 
                                                ---------  --------  ----------- 
 Current 
 IFRS 16 lessee financial liabilities               9,583    11,621       10,550 
 Deferred consideration                                30        80          122 
 Contingent consideration                           1,470     1,998        1,794 
                                                   11,083    13,699       12,466 
                                                ---------  --------  ----------- 
 Non-current 
 Bank loans - revolving credit facility (RCF)           -    32,000       13,000 
 IFRS 16 lessee financial liabilities              21,313    23,710       23,407 
 Contingent consideration                           4,365     3,437        3,653 
                                                   25,678    59,147       40,060 
                                                ---------  --------  ----------- 
 

Bank loans - RCF and overdraft

The bank loan totalling GBPnil (June 2020: GBP32.0m and December 2020: GBP13.0m) is secured via cross guarantees issued from the following Group companies: LSL Property Services plc, Your-move.co.uk Limited, Reeds Rains Limited, e.surv Limited, Lending Solutions Holdings Limited, First Complete Limited, New Daffodil Limited, St Trinity Limited, LSL Corporate Client Services Limited, Advance Mortgage Funding Limited, Marsh & Parsons Limited, Marsh & Parsons (Holdings) Limited, LSLi Limited, Davis Tate Limited, Lauristons Limited, David Frosts Estate Agents Limited, ICIEA Limited, GFEA Limited, JNP Estate Agents Limited, Vitalhandy Enterprises Limited, Mortgages First Limited, Insurance First Brokers Limited, Group First Limited, Personal Touch Financial Services Limited, Personal Touch Administration Services Limited, Embrace Financial Services Limited.

The utilisation of the RCF may vary each month as long as this does not exceed the maximum GBP90.0m facility (2020: GBP100.0m). The Group's overdraft is also secured on the same facility, and the combined overdraft and RCF cannot exceed GBP90.0m (2020: GBP100.0m). The banking facility is repayable when funds permit or by May 2024.

Interest and fees payable on the RCF amounted to GBP0.5m (June 2020: GBP0.6m and December 2020: GBP1.2m). 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 
                                                 2021      2020         2020 
                                              GBP'000   GBP'000      GBP'000 
                                            ---------  --------  ----------- 
 
 LSLi contingent consideration                      -       342          302 
 Group First                                    1,470     1,392        1,470 
 RSC                                            3,786     3,437        3,653 
 DLPS                                             579         -            - 
 Other                                              -       264           22 
                                            ---------  --------  ----------- 
                                                5,835     5,435        5,447 
                                            ---------  --------  ----------- 
 
 Opening balance                                5,447     5,804        5,804 
 Cash paid                                      (302)      (55)        (171) 
 Acquisition                                      579        23           23 
 Amounts recorded though income statement         111     (337)        (209) 
                                            ---------  --------  ----------- 
 Closing balance                                5,835     5,435        5,447 
                                            ---------  --------  ----------- 
 

There was GBPNil (June 2020: GBP342,000 and December 2020: GBP302,000) contingent consideration relating 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.

GBP1,470,000 of contingent consideration relates to Group First (June 2020: GBP1,392,000 and December 2020: GBP1,470,000) which is due for payment in 2021. The additional consideration is 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.

GBP3,786,000 of contingent consideration relates to RSC New Homes (June 2020: GBP3,437,000 and December 2020: GBP3,653,000). 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.

GBP579,000 of contingent consideration relates to Direct Life and Pension Services Limited, acquired in January 2021. The additional consideration will be calculated using earnings multiples of between five and six times EBITA

In the period ending 30 June 2021 GBP302,000 (June 2020: GBP55,000 and December 2020: GBP171,000) of contingent consideration was paid to former shareholders.

The table below shows the allocation of the contingent consideration balance and income charge between the various categories:

 
                                                          Unaudited           Audited 
                                                       Six Months Ended    Year Ended 
 
   Contingent consideration balances relating          30 June   30 June  31 December 
   to amounts accounted for as:                           2021      2020         2020 
                                                       GBP'000   GBP'000      GBP'000 
                                                     ---------  --------  ----------- 
 
 Arrangement under IFRS 3                                   44     (504)        (544) 
 Unwinding of discount on contingent consideration          67       167          335 
                                                     ---------  --------  ----------- 
 Charge / (credit)                                         111     (337)        (209) 
                                                     ---------  --------  ----------- 
 

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 nil (June 2020: GBP4,000 and December 2020: GBP4,000); Mortgage First charge of nil (June 2020: credit GBP175,000 and December 2020: credit GBP146,000); RSC New Homes charge of GBP44,000 (June 2020: credit GBP313,000 and December 2020: credit GBP216,000).

   14.   Provisions for liabilities 

Unaudited - Six months ended 30 June:

 
                                             2021                                             2020 
                             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                        7,042            136        7,178                8,212            440        8,652 
    Amount utilised                 (632)           (46)        (678)              (1,069)          (124)      (1,193) 
    Amount released               (1,131)              -      (1,131)                  (4)              -          (4) 
    Unwinding of 
     discount                           -              -            -                    1              -            1 
    Provided in the 
     period                           233              -          233                  460                         460 
    Balance at 30 
     June                           5,512             90        5,602                7,600            316        7,916 
                      -------------------  -------------  -----------  -------------------  -------------  ----------- 
 
    Current                         2,854             54        2,908                2,545            176        2,721 
    Non-current                     2,658             36        2,694                5,055            140        5,195 
                                    5,512             90        5,602                7,600            316        7,916 
                      -------------------  -------------  -----------  -------------------  -------------  ----------- 
 

Audited - Year ended 31 December 2020

 
                                         Professional 
                                            indemnity      Onerous 
                                      claim provision       leases        Total 
                                              GBP'000      GBP'000      GBP'000 
                                 --------------------  -----------  ----------- 
 
    Balance at 1 January                        8,212          440        8,652 
    Amount utilised                           (1,707)            -      (1,707) 
    Amount released                             (679)        (304)        (983) 
    Unwinding of discount                           2            -            2 
    Provided in financial year                  1,214            -        1,214 
    Balance at 31 December                      7,042          136        7,178 
                                 --------------------  -----------  ----------- 
 
    Current                                     2,926           72        2,998 
    Non-current                                 4,116           64        4,180 
                                                7,042          136        7,178 
                                 --------------------  -----------  ----------- 
 

The PI Cost provision is to cover the costs of claims relating to valuation services for clients. 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 2021 the total provision for PI Costs was GBP5.5m (June 2020: GBP7.6m and December 2020: GBP7.0m). 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.

   15.   Analysis of Net cash 
 
                                                     Unaudited           Audited 
                                                  Six Months Ended    Year Ended 
                                                                     31 December 
                                         30 June 2021  30 June 2020         2020 
                                              GBP'000       GBP'000      GBP'000 
                                        -------------  ------------  ----------- 
Interest bearing loans and borrowings 
 (including loan notes, overdraft, 
 IFRS16 lease liabilities, contingent 
 and deferred consideration 
 
   *    Current                                11,083        13,699       12,466 
 
   *    Non-current                            25,678        59,147       40,060 
                                        -------------  ------------  ----------- 
                                               36,761        72,846       52,526 
 
Less: cash and short-term deposits           (17,039)      (19,263)     (11,443) 
IFRS 16 Lessee financial liabilities         (30,896)      (35,331)     (33,957) 
Less: deferred and contingent 
 consideration                                (5,865)       (5,515)      (5,569) 
                                        -------------  ------------  ----------- 
Net (cash) / Bank Debt at the 
 end of the period                           (17,039)        12,737        1,557 
                                        -------------  ------------  ----------- 
 
   16.   Investments in Joint Ventures and associates 
 
                                                30 June   31 December 
                                                   2021          2020 
                                                GBP'000       GBP'000 
                                               --------  ------------ 
 Investment in joint ventures and associates        268        11,406 
                                               --------  ------------ 
 

Investment in joint ventures

 
    Opening balance (1 January)                          11,406    10,305 
    Income / (loss) from joint ventures                     934     1,314 
    Shareholder service charge not equity accounted       (394)     (213) 
    Investment in Pivotal                                   765         - 
    Dividend received from LMS                          (1,178)         - 
    Disposal of LMS                                     (8,249)         - 
    Transfer of TM group to non current assets 
     held for sale                                      (3,016)         - 
 Closing balance                                            268    11,406 
                                                      ---------  -------- 
 

The Group holds a 32.34% (2020: 33.33%) interest in TM Group (UK) limited (TM Group), a joint venture whose principal activity is to provide searches. The principal place of business of TM Group is the United Kingdom. On 8 July 2021, the Group announced the sale of its holding in TM Group, details of which are included in Note 20. The processes of the transaction were ongoing at 30 June 2021, and so the carrying value of the Groups investment in TM Group was classified as held for sale, and recognised as such on the Group balance sheet.

In May 2021, the Group sold its 50% (2020: 50%) interest in LMS, a joint venture whose principal activity is to provide conveyancing panel management services. The carrying value of LMS at the time of disposal was GBP8,249,000. LSL received GBP12,000,000 as consideration for its share of LMS.

Claims indemnity provision and contingency

Included in the sale agreement of LMS was a claims indemnity of GBP2,000,000, for which the group has provided GBP571,000, which it considers to be the most likely outcome. Further cases exist and are considered possible, not probable, therefore no further provision has been made for these cases in the interim financial statements. Should these claims succeed the estimated further cost would be GBP1,429,000.

In April 2021, the group formed Pivotal Growth Limited (Pivotal) a joint venture whose principal activity is to become a national mortgage broker. The Group acquired a 47.80% holding in Pivotal for initial investment of GBP765,000.

Investment in associate

The Group had a 45.20% holding in Mortgage Gym at the end of 2020, a digital mortgage business. The carrying value at December 2020 was nil. In February 2021, LSL acquired the trade and assets of mortgage gym from administrators, details of the acquisition can be found in note 19.

   17.   Financial instruments - risk management 

The financial risks the Group faces and the methods used to manage these risks have not changed since 31 December 2020. Further details of the risk management policies of the Group are disclosed in Note 32 of the Group's Financial Statements for the year ended 31 December 2020.

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.

   18.   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 2021, 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 2021                Total     Level   Level 2   Level 3 
                                                       1 
                                       GBP'000   GBP'000   GBP'000   GBP'000 
                                      --------  --------  --------  -------- 
 Assets measured at fair value 
 Financial assets                        7,417         -       729     6,688 
                                      --------  --------  --------  -------- 
 Liabilities measured at fair value 
 Contingent consideration                5,835         -         -     5,835 
                                      --------  --------  --------  -------- 
 
 
 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 
                                      --------  --------  --------  -------- 
 
 
 Audited - 31 December 2020              Total     Level   Level 2   Level 3 
                                                       1 
                                       GBP'000   GBP'000   GBP'000   GBP'000 
                                      --------  --------  --------  -------- 
 Assets measured at fair value 
 Financial assets                        9,561         -         -     9,561 
                                      --------  --------  --------  -------- 
 Liabilities measured at fair value 
 Contingent consideration                5,447         -         -     5,447 
                                      --------  --------  --------  -------- 
 

Of the investments totalling GBP7,417,000, GBP6,688,000 are valued using Level 3 valuation techniques. The Directors reviewed the fair value of the financial assets at 30 June 2021. The underlying value of the investments will be driven by the profitability of these businesses. If this was to drop by 10%, the implied valuation is likely to also drop by around 10%, approximately GBP0.7m.

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.

   19.   Acquisitions during the period 

Direct Life and Pension Services Limited

On 22 January 2021, the Group acquired 60% of the issued share capital of Direct Life and Quote Holdings Limited and its subsidiary company, Direct Life and Pensions Services Limited. Direct Life and Pension Services Limited is a financial intermediary providing systems and services that enable consumer brands and intermediaries to market, sell and transact protection insurance. Direct Life and Pension Services Limited is authorised by the Financial Conduct Authority (FCA).

The consideration for the initial investment was GBP2,379,000 with GBP1,800,000 paid on completion and a present value contingent consideration on GBP579,000 in 2021. The contingent consideration is due for repayment in January 2024.

The purchase price allocations for the acquisition are disclosed below:

 
                                                     Fair value 
                                                        GBP'000 
                                                    ----------- 
 Intangible assets                                        1,641 
 Property, plant and equipment                              102 
 Investments                                                  1 
 Trade and other receivables                                511 
 Cash and cash equivalents                                1,070 
 Current tax assets                                         207 
 Trade and other payables                                 (749) 
 Provision for liabilities                                (438) 
 Deferred tax liabilities                                 (410) 
 Total identifiable net assets acquired                   1,935 
 Purchase consideration                                   2,379 
 Non Controlling interest                                   558 
 Goodwill                                                 1,002 
 
 Purchase consideration discharged by:                  GBP'000 
                                                    ----------- 
 Cash                                                     1,800 
 Present value contingent consideration (Note 13)           579 
                                                    ----------- 
                                                          2,379 
                                                    ----------- 
 
 

On acquisition of Direct Life and Quote Holdings Limited and Direct Life and Pension Services Limited, intangible assets were valued at GBP1,641,000. The intangible assets valued relate to customer contracts and in-house developed software. On recognition of the intangible assets, deferred tax liabilities of GBP410,000 were created. The goodwill represents expected synergies and intangible assets that do not qualify for separate recognition.

The non controlling interest has been measured at fair value at the date of acquisition.

From the date of acquisition, Direct Life and Pension Services Limited has contributed GBP1,786,000 of revenue and GBP112,000 loss to the continuing operations of the Group. If the acquisition had taken place at the beginning of the year, revenue from continuing operations would have been GBP1,805,000 and the loss from operations would have been GBP116,000.

The Group has recognised costs of GBP30,000 relating to the acquisition.

Mortgage Gym Limited

In February 2021, the Group acquired the trade and assets of Mortgage Gym Limited from administrators. Mortgage Gym Limited research, develop and deliver an online technology platform that matches mortgage borrowers with mortgage lenders in a digital marketplace. Mortgage Gym Limited is an appointed representative of PRIMIS Mortgage Network, a trading name for First Complete Limited, which is authorised and regulated by the Financial Conduct Authority (FCA).

Prior to February 2021, Mortgage Gym Limited was an associate of the Group, with the Group holding an interest of 34.69%.

The consideration paid for the trade and assets of Mortgage Gym Limited, considered to be entirely attributable to the intangible asset, was GBP2,384,000, which was settled by offsetting LSL as a secured creditor. The fair value of the secured loan notes at the date of acquisition was GBP2,240,000 with accrued interest of GBP144,000.

From the date of acquisition, Mortgage Gym Limited has contributed GBP333,000 of revenue and GBP603,000 loss before tax to the continuing operations of the Group.

The Group has recognised costs of GBP150,000 relating to the acquisition.

   20.   Events after the reporting period 

On 8 July 2021, the Group sold its investment in TM Group (UK) Limited, a provider of property searches and services, to Dye & Durham (UK) Limited. The cash consideration for the disposal of the Group's shares was GBP29,300,000. The Group's carrying value and share of net assets of the TM Group investment as at 30 June 2021 was GBP3.0m.

INDEPENDENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 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 relates Notes 1 to 20. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in note 1, the annual financial statements of the Group will be prepared in accordance with UK adopted IFRSs. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with UK adopted International Accounting Standard 34, "Interim Financial Reporting".

Responsibilities of the directors

The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority

Auditor's Responsibilities for the review of the financial information

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statement in the half-yearly financial report. Our conclusion, is based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK 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.

Ernst & Young LLP

Leeds

3 August 2021

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END

IR FFFIITAIVIIL

(END) Dow Jones Newswires

August 04, 2021 02:00 ET (06:00 GMT)

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