Half-year Report

31 July 2019 Countrywide plc

Interim Results for the six months ended 30 June 2019

Countrywide plc (LSE: CWD) announces its results for the six months ended 30 June 2019.

Commenting on the results and outlook for the Group, Executive Chairman, Peter Long said:

"The fundamental changes we have made to our business in the last 18 months are beginning to bear fruit. Our register and pipeline of agreed sales is healthy and we continue to rebuild market share(1), re-establishing our market-leading position across both Sales and Lettings. The market, however, remains weak, affected by political and Brexit uncertainty. In view of this environment, during the first half, we took a series of further self-help actions to accelerate and reset our cost structure in order to reflect current activity levels with significant benefits starting to flow through in the second half. The actions we have taken give us confidence that the Group will deliver full year results(2) in line with the Board's expectations."

HIGHLIGHTS

OUTLOOK

UNDERLYING AND STATUTORY FINANCIAL PERFORMANCE

2019 represents the first reporting period following the adoption of IFRS16, the new leasing standard, with no restatement of 2018 comparatives required.

Enquiries:

Analysts and investors

Himanshu Raja, Chief Financial Officer [email protected]

Media

Natalie Gunson [email protected] Tel: +44 (0)7721 439043

Michael Sandler/Dan de Belder, Hudson Sandler Tel: +44 (0)207 796 4133

Conference call and Notes to Editors:

The Company will be hosting an analyst presentation at Hudson Sandler, 25 Charterhouse Square, London EC1M 6AE and a teleconference at 9:00am (BST) this morning to discuss the results with slides available by registering at https://webcast.merchantcantoscdn.com/webcaster/dyn/4000/7464/7467/114972/Lobby/default.htm. This will be available to listen into by dialling +44 (0)20 3003 2666 or 0808 109 0700. A recording of the webcast will be available for seven days by dialling +44 (0)20 8196 1998 – pin code: 6708099#. For further information on Countrywide plc, please visit our corporate website at www.countrywide.co.uk.

This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, the Company undertakes no obligation to update or revise these forward-looking statements. Nothing in this document should be construed as a profit forecast. The Company and its directors accept no liability to third parties in respect of this document save as would arise under English law.

SEGMENTAL RESULTS

Management has determined the operating segments based on the operating reports reviewed by the Board that are used to assess both performance and strategic decisions. Management has identified that the Board is the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'. The Board considers the business to be split into three main types of business generating revenue: Sales and Lettings, Financial Services and Business to Business (B2B); and 'all other segments' comprising central head office functions.

During H1 2019 we realigned both our new homes (Countrywide Residential Development Solutions) and our Auctions operations with the Sales and Lettings business. As a result, H1 2018 has been restated to transfer £6.4 million of revenue, £1.2 million adjusted EBITDA loss and 1,396 house exchanges from B2B to Sales and Lettings.

SEGMENTAL RESULTS

 (1) Earnings before interest, tax, depreciation, amortisation, exceptional items, employment-linked contingent consideration, share-based payments and share of profits from joint venture, referred to hereafter as adjusted EBITDA (see note 8 for reconciliation)

(2) Restated from prior year following the amendment of the Group's opening IFRS 15 transition adjustment and H1 2018 results as described in the Countrywide plc consolidated financial statements for year ended 31 December 2018 (see note 4) and transfer of new homes and auctions operations from B2B into Sales and Lettings

SEGMENTAL VOLUMES

OPERATING REVIEW BASED ON SEGMENTAL RESULTS

SALES AND LETTINGS

Summary

·; Income down 4% compared with a 7% decline in H1 2018;

·; Adjusted EBITDA profit of £8.4 million; adjusted EBITDA pre-IFRS16 loss of £4.5 million, down 22% year on year

·; Properties under management 86,064, down 2%, Lettings income down 2% due in part to the effect of the Tenant Fee Ban

·; 21,624 homes exchanged, down 2%

·; Average FTE down 1% to 5,605

The Group entered 2019 having built back industry expertise and staffing levels in sales and lettings at regional and branch management level against the backdrop of an uncertain market but with an expectation that the market for the whole of 2019 would be broadly even following a decision around Brexit in March 2019. With the continued delay in Brexit, the first six months of 2019 have been challenging for the UK housing market with new listings overall for H1 2019 having declined by 7% according to Rightmove data and the overall market for sales completed reduced by 9.9% in the first quarter based on Land Registry data.

Against this backdrop Countrywide improved its share of listings through H1 2019, with our register of properties in line with the prior year. Countrywide has re-established itself as a clear leader in listings by market share with an 8.4% share of the UK market and remains the No. 1 Lettings agent with over 7% of listings market share based on Rightmove data. We finished the half year with our pipeline in line with 2018 and £13.5 million higher than at the beginning of the year.

The lettings market has contracted with the number of listings reducing by 10.8% and available stock in the market at 30 June was 12% lower than in 2018 based on Rightmove data. Changes to taxation have prompted a number of landlords to exit the market. The Tenant Fee Ban came into effect on 1 June 2019.

In light of market uncertainty, during the first half of 2019, the Group took a series of actions to close a number of loss making branches that the Group considered non-viable in this market, reduced staffing levels in each of our local markets based on activity levels, reduced the levels of marketing spend where there was not the appropriate level of return in each local market, and took further actions to accelerate and reset our cost structure across the business and to reduce discretionary costs and overheads. This has underpinned the delivery of the first half performance, with significant adjusted EBITDA benefit flowing through into the second half and gives the Board confidence in the outlook for the full year.

Sales

Total income for H1 2019 declined £4.5 million, down 6% year on year. Adjusting for the effect of closed branches, estate agency was 3% down year on year. There was a good performance in our UK estate agency business which was down 2% year on year compared with the 23% decline in H1 2018. UK exchanges levels were in line with the prior year. The London market remains very challenging and that was reflected in a 12% decline in estate agency income in our London business with the more prime central London areas seeing a steeper decline partially offset by the Home Counties offices who fared more positively.

Lettings

Our lettings business continues to be highly resilient. Lettings income decreased by £1.4 million, 2% year on year with the number of properties under management down 2% at 86,064 (30 June 2018: 87,837). Our landlord retention rates continue to improve despite a number of landlords exiting the market. The first half of the year also saw the introduction of new regulation for Tenant Fees from 1 June and our plans are broadly on track to mitigate some of the effects of this. Overall the lettings business has performed well against the backdrop of 4% fewer properties overall in this sector and the impact of tenant fee ban.

Income from complementary services 

Income from complementary services, comprising financial services and conveyancing recognised in our Sales and Lettings business, has increased from 43p pence in 2018 to 49p in the £. This is the additional income driven from this activity expressed as an amount compared to each £ of income from sales exchanged income. Our income from conveyancing grew 27% year on year. The branch network also supported our Financial Services business with a 4.5% increase in first appointments.

FINANCIAL SERVICES

Summary

Between January and May 2019 the UK mortgage market grew by approximately 0.5% year on year, with overall gross lending of £112 billion. In comparison, Countrywide mortgages completed grew 3% from £9.5 billion in 2018 to £9.8 billion in 2019.

Financial Services income at £40 million was in line with last year (2018: £40 million). As we built back staffing levels in our branch network in support of estate agency, we also invested in the number of mortgage and protection consultants in the branch network and in our Buy to Let Business. There is a natural lag between the investment in these fee earning consultants and the contribution to profitability, and the effect of this was a 12% reduction in adjusted EBITDA pre-IFRS16 to £6.4 million (2018: £7.3m). We expect to see the benefits of the investments made coming through in the second half.

B2B

Summary

B2B delivered another resilient performance in the six months to 30 June 2019, with total income of £92.5 million being 5% below H1 2018 (£97.4 million). Adjusted EBITDA pre-IFRS16 of £7.6 million was 39% below H1 2018 (£12.6 million), with the year on year decline all attributable to Lambert Smith Hampton, reflecting an extremely challenging UK commercial transactional market.

Surveying

The Surveying business has had a resilient first half with revenue down only 1% year on year and the adjusted EBITDA pre-IFRS16 was flat year on year. The business is well placed for H2 2019 and beyond, having recently maintained a material allocation from three of the Group's largest clients' contracts. Service to our corporate clients remains a key focus and investments in capacity continue to drive improvements in this area, with a further trainee programme planned for H2 2019. We are also delighted to have secured the contract to provide a new survey product "Homefact" to Santander first-time buyers. Homefact enables new purchasers to be better informed about the condition of the home they are buying.

Conveyancing

The Conveyancing business invested heavily in H1 to grow capacity in order to capitalise on an enhanced focus on complementary income from the branch network. The pipeline of live cases with the Conveyancing business now stands 18% higher than this time last year. Customer engagement remains crucial with the effort and focus in the business being reflected in consistently excellent net promoter scores from the buyers and sellers of property that use our services. Net promoter scores have been consistently above 60 in H1 2019 and driven a current Feefo rating of 4.3. Full roll out of our customer portal has delivered operational benefits and an enhanced, more secure, customer journey.

Lambert Smith Hampton

With the UK economy experiencing heightened political uncertainty and Brexit postponed until 31 October 2019, the UK investment market has seen a sharp slowing down in the first half of the year. Consequently Lambert Smith Hampton saw a first half year on year decrease of 20% in transactional revenue, leading to an overall decrease of 9% in total revenue, and £5 million decline in adjusted EBITDA pre-IFRS16.

Overall, the outlook across our portfolio of B2B businesses remains robust, despite clear challenges in the commercial market.

Financial summary

During the six months ended 30 June 2019, the Group adopted IFRS16, using the modified transition method which means that comparatives are not required to restated (see note 4). The impact on H1 2019 has been split out in the results tables to allow comparability with H1 2018.

Whilst Group revenue and cash are unaffected by adoption of IFRS16, the following areas are impacted by the change in standard:

Adjusted EBITDA

The Group's adjusted EBITDA margin in H1 2019 was 7.0% (H1 2018: 3.3%). Statutory results were impacted by impairment charges and strategic restructuring costs, resulting in a loss for the period of £37.7 million (2018: loss of £206.4 million).

A reconciliation of total adjusted EBITDA and adjusted EBITDA pre-IFRS16 before exceptional items to statutory loss for the period is provided as follows:

(1) Restated from prior year following the amendment of the Group's opening IFRS 15 transition adjustment and H1 2018 results as described in the Countrywide plc consolidated financial statements for year ended 31 December 2018 (see note 4)

The Group continues to make good operational progress in the execution of its turnaround plan and entered the year anticipating that the UK property market for the whole of 2019 would be broadly in line following a decision around Brexit in March 2019. With the continued delay in Brexit, the first six months of 2019 have been challenging for the UK housing market with new listings overall for H1 2019 having declined by 7% according to Rightmove data and the overall market for sales completed reduced by 9.9% in the first quarter based on Land Registry data. Accordingly, the Group has revised its cashflow projections looking forward and this has resulted in further impairment charges since those taken at the full year. Cash flows underpinning the current impairment review align to the latest three-year strategy and turnaround plan that has been endorsed by the Board.

Exceptional costs incurred in the period amounting to £41.1 million (2018: £230.0 million) comprise items that have or will result in cash charges of £3.4 million and £37.7 million of non-cash charges as follows:

Amortisation of acquired intangibles has increased to £2.8 million (H1 2018: £2.0 million) as we adopted finite lives of up to fifteen years in respect of all of our brand names from 1 July 2018.

Contingent consideration is a net credit of £0.2 million (H1 2018: charge of £4.6 million) to the income statement in respect of revisions to assessments of post-combination employment expenses, principally in relation to our Financial Services businesses as a result of revisions to performance expectations of specific agreements with remaining periods extending into 2022.

Net finance costs (before inclusion of exceptional charges in 2018 of £3.8 million) have increased only £0.1 million during the period to £5.1 million. Interest payable on the revolving credit facility reduced significantly after the £125 million repayment in August 2018. This benefit has been offset in the current period by the inclusion of £3.3 million of interest charges on lease liabilities following the adoption of IFRS16.

Cashflow

In the statutory cashflow, cash generated from operations increased by £26.3 million to an inflow of £9.1 million for the period (2018: outflow of £17.2 million), driven by both the impact of lease charges of £16.3 million being reclassified to capital repayments and interest charges after the adoption of IFRS16, but also continued improvements in working capital management.  During the period the Group have concluded the triennial review of the pensions scheme's assets and liabilities and the pension contributions have been agreed with the trustees at £2.0 million for the next three years and £1.3 million in 2023. 

The non-GAAP cashflow is presented below. Focus has continued on working capital management, delivering further reductions in the debtor days within our Commercial business unit, Lambert Smith Hampton. IT transformation incorporates: capital expenditure which has been focused primarily on computer hardware as part of the three year transformation programme of our IT estate which commenced in 2018; and exceptional consultancy costs.

Net debt, maturity and changes to committed bank facilities

The Group's debt reflects the adoption of IFRS16, which recognised an additional £121 million of lease liabilities resulting in net debt at 30 June of £194.3 million.

The Group's covenants are calculated on a "frozen GAAP" basis (before the adoption of IFRS16), and result in a net debt of £90.0m (31 December 2018: £70.7 million). The net debt to adjusted EBITDA ratio (pre-IFRS16) is 3.4 times (31 December 2018: 2.2 times).

We continue to invest in cost and growth initiatives to build a sustainable and profitable business for the long term and remain committed to reducing our leverage. With this in mind, the Board is not recommending the payment of an interim dividend (2018: nil).

Our firm placing and placing and open offer announced on 2 August 2018 raised net proceeds of £125 million which was used to reduce the Group's debt. The Group reduced its borrowing facility to a £125 million revolving credit facility repayable in September 2022, and at the same time agreed a package for leverage and interest cover and various information covenants. In July 2019, in view of the continuing and challenging market for residential and commercial property transactions in the UK, the Group's lenders agreed to a new covenant package including an expansion of the leverage covenants and various changes to its information covenants.

The new net debt/adjusted EBITDA leverage covenants are:

The Group's lenders remain supportive of the business and the amended covenant package provides the Group with the financial flexibility to continue to execute the turnaround plan. The Board has previously acknowledged its commitment to reduce the leverage ratio down to the Group's medium term target of below 1x and in agreeing the amended covenant package, the Board has agreed, as part of the new covenant package, to share its plans with the Group's lenders through the turnaround period as they continue to be developed and executed.

Going concern

The Group finances its operations through a £125 million committed revolving credit facility syndicated across a Group of six lenders, expiring in September 2022. There are two principal financial covenants relating to the Group's debt. The covenants are measured before the effects of IFRS16 and test the ratio of net debt relative to Group adjusted EBITDA and interest cover. In addition, the Group's information covenants keep the lender Group appraised of the Group's performance, including forecasts for income statement, balance sheet and cash flow liquidity.

As part of the Board's assessment of going concern and ongoing liquidity, forecasts were prepared for the three years to December 2021. These forecasts included sensitivities on a variety of downside scenarios including future property transaction volumes, which recognise the uncertain UK political and Brexit environment, and options to mitigate the effects of these downside scenarios. These sensitivities have been used in assessing the Group's forecast compliance with its leverage and interest covenants over the three years and to assess liquidity.

In light of market uncertainty, during the first half of 2019, the Group took a series of actions to close a number of loss making branches that the Group considered non-viable in this market, reduced staffing levels in each of our local markets based on activity levels, reduced the levels of marketing spend where there was not the appropriate level of return in each local market, and took actions across the business to reduce discretionary costs and overheads. This has underpinned the delivery of the first half performance and gives the Board confidence in the outlook for the full year. The Board fully expects the Group to be in compliance with its leverage and interest covenants in 2019. For 2020 and 2021, the forecasts scenarios assumed a continuing impact from the uncertain political and Brexit environment and in these scenarios the headroom on the leverage covenants reduced in 2020. In response to this, the Group developed a series of further cost action plans to mitigate the downside risks.

At the same time, the Group agreed new leverage covenant levels in July 2019 which gives the Group the financial flexibility to execute its turnaround. The interest covenant level was deemed to be appropriate relative to current and anticipated levels of headroom throughout the plan period.

The scenarios also assessed the Group's liquidity in light of the cyclical nature of the Group's cash flow, and the importance of funding the Group's IT transformation. The Group has significantly improved its working capital management over the past 24 months and continues to see further opportunities for improvement. These include: improved collections in the Group's estate agency and in its B2B businesses; improved supplier management; and further focus on discretionary capital expenditure. Having assessed the Group's liquidity outlook on the basis of the above projections and sensitivities, ongoing enhanced liquidity monitoring and the mitigating actions available to the Group, the Board concluded that the Group has sufficient headroom compared to its available borrowing facility.

The Board have confirmed that, after due consideration, they have a reasonable expectation that the Company and the Group will be able to meet their liabilities when they fall due. For this reason, they continue to adopt the going concern basis in preparing the interim financial statements.

PRINCIPAL RISKS AND UNCERTAINTIES

There are a number of risks and uncertainties facing the business. As a consequence of the continued subdued external environment, the Board has continued to review the principal risks and uncertainties, and in particular the risk around political and Brexit related uncertainty. These risks and uncertainties and mitigating factors are described in more detail on pages 38 to 42 of the Countrywide plc Annual Report for the year ended 31 December 2018 (a copy of which is available on the Group's website). There has been no significant change to the assessment of these risks, since disclosure in the annual report, which are summarised below.

Whilst it is not possible to predict the outcome of Brexit, the directors have considered specific threats to the business and methods to mitigate those risks, as outlined in the 'Exposure to UK housing market trends' risk set out in the Group's 2018 Annual Report. The Directors have set out below their continued monitoring of this risk and the actions taken during the first half to mitigate that risk:

Political and Brexit uncertainty

The UK is due to leave the European Union ('EU') in October 2019, ('Brexit'). Brexit has created inherent uncertainty across the UK which is affecting both our sector and consumer confidence as a whole. The directors recognise that the outcome of Brexit presents an unavoidable risk. Since the referendum in June 2016 there has been a material impact to the results of the Group as a result of the reduction in residential and commercial property transactional volumes in the market. Whilst it is not possible to quantify the full impact of the continuing uncertainty surrounding the UK's exit from the EU - and in particular whether there is a "hard" (no agreement) or "soft" (agreed transition) Brexit - the Board continues to carefully monitor the potential impact on UK residential and commercial transaction markets and to consider and take action to mitigate the effect on the Group.

As set out under the going concern considerations above, during the first half, the Group took a series of actions to mitigate the effects of Brexit, which delivered savings in the Group's direct and indirect costs that under-pinned the first half performance and provides the Board with confidence in the outlook for the full year.

As Brexit could also impact future cash flows and forecasts, the directors performed sensitivity analysis on the carrying value of assets and liabilities, and in particular goodwill and the outcome of these reviews are reflected in the financial statements for the six months to 30 June 2019. These assessments are based on the same assumptions and forecasts used in our going concern assessment. As the Group operates within the UK, has a limited number of EU employees and is primarily service based, the Board considers it is protected from other significant Brexit risks.

FORWARD LOOKING STATEMENTS

This report may contain certain 'forward-looking statements' with respect to some of the Group's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements that are not historical facts, including but not limited to statements about our beliefs and expectations, may be forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. By their nature, all forward-looking statements involve risk and uncertainty. A number of important factors could cause the Group's actual future financial condition or performance or other indicated results to differ materially from those indicated in any forward-looking statement. We refer you to the Group's financial statements which can be downloaded from the Group's website: www.countrywide.co.uk/investor-relations. These documents contain and identify important factors that could cause the Group's actual results, performance or achievements to differ materially from those indicated in any forward-looking statement. The important factors in the Group's financial statements are not exhaustive and there may be other risks, including risks of which the Group is unaware, that could adversely affect the Group's results or the accuracy of the forward-looking statements in the report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors confirm that this condensed consolidated interim financial report has been prepared in accordance with International Accounting Standard 34 'Interim financial reporting', as adopted by the European Union and that the interim report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

The directors are responsible for the maintenance and integrity of the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Changes in directors during the period

During the period, Cathy Turner stepped down from the Board as an independent non-executive director on 30 April 2019 and Jane Lighting stepped down on 26 June 2019. Lisa Charles-Jones joined the Board as an independent non-executive director on 26 June 2019.

A list of the current directors is maintained on the Countrywide plc investor relations website:

www.countrywide.co.uk/investor-relations/board-of-directors.

On behalf of the Board

Condensed consolidated interim income statement

For the six months ended 30 June 2019

(1) Restated from prior year following the amendment of the Group's opening IFRS 15 transition adjustment and H1 2018 results as described in the Countrywide plc consolidated financial statements for year ended 31 December 2018 (see note 4)

* Adjusted EBITDA is a non-GAAP measure of earnings before interest, tax, depreciation, amortisation, exceptional items, contingent consideration, share-based payments and share of profits/(losses) from joint venture

The notes are an integral part of this condensed consolidated interim financial report.

Condensed consolidated interim statement of other comprehensive income

For the six months ended 30 June 2019

(1) Restated from prior year following the amendment of the Group's opening IFRS 15 transition adjustment and H1 2018 results as described in the Countrywide plc consolidated financial statements for year ended 31 December 2018 (see note 4)

The notes are an integral part of this condensed consolidated interim financial report.

Condensed consolidated interim statement of changes in equity

For the six months ended 30 June 2019

(1) Restated from prior year following the amendment of the Group's opening IFRS 15 transition adjustment and H1 2018 results as described in the Countrywide plc consolidated financial statements for year ended 31 December 2018 (see note 4)

(2) Restated from prior year following the adoption of IFRS16 (see note 4)

The notes are an integral part of this condensed consolidated interim financial report.

Condensed consolidated interim balance sheet

As at 30 June 2019

The notes are an integral part of this condensed consolidated interim financial report.

Condensed consolidated interim cash flow statement

For the six months ended 30 June 2019

(1) Restated from prior year following the amendment of the Group's opening IFRS 15 transition adjustment and H1 2018 results as described in the Countrywide plc consolidated financial statements for year ended 31 December 2018 (see note 4)

(2) Included within net cash generated from operating activities is £3.4 million of net cash expended on exceptional strategic and restructuring costs (excluding property closure costs which have been provided but not yet incurred) as discussed in note 9 in relation to 2019 (2018: £5.5 million).

The notes are an integral part of this condensed consolidated interim financial report.

Notes to the condensed consolidated interim financial report

1. General information,

Countrywide plc (the "Company") and its subsidiaries (together, the "Group") is the leading integrated, full service residential estate agency and property services group in the UK, measured by both revenue and transaction volumes in 2018. It offers estate agency and lettings services, together with a range of complementary services, and has a significant presence in key areas and property types which are promoted through locally respected brands. The Company is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in the UK (registered number: 08340090). The address of its registered office is Greenwood House, 1st Floor, 91-99 New London Road, Chelmsford, Essex, CM2 0PP.

This condensed consolidated interim financial report was approved for issue on 31 July 2019.

This condensed consolidated interim financial report does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Consolidated financial statements for Countrywide plc for the year ended 31 December 2018 were approved by the Board of directors on 7 March 2019 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

 This condensed consolidated interim financial report has been reviewed, not audited.

2. Basis of preparation

This condensed consolidated interim financial report for the six months ended 30 June 2019 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 'Interim financial reporting', as adopted by the European Union. The condensed consolidated interim financial report should be read in conjunction with the annual financial statements of Countrywide plc for the year ended 31 December 2018, which have been prepared in accordance with IFRSs as adopted by the European Union.

3. Going concern

The Group finances its operations through a £125 million committed revolving credit facility syndicated across a Group of six lenders, expiring in September 2022. There are two principal financial covenants relating to the Group's debt. The covenants are measured before the effects of IFRS16 and test the ratio of net debt relative to Group adjusted EBITDA and interest cover. In addition, the Group's information covenants keep the lender Group appraised of the Group's performance, including forecasts for income statement, balance sheet and cash flow liquidity.

As part of the Board's assessment of going concern and ongoing liquidity, forecasts were prepared for the three years to December 2021. These forecasts included sensitivities on a variety of downside scenarios including future property transaction volumes, which recognise the uncertain UK political and Brexit environment, and options to mitigate the effects of these downside scenarios. These sensitivities have been used in assessing the Group's forecast compliance with its leverage and interest covenants over the three years and to assess liquidity.

In light of market uncertainty, during the first half of 2019, the Group took a series of actions to close a number of loss making branches that the Group considered non-viable in this market, reduced staffing levels in each of our local markets based on activity levels, reduced the levels of marketing spend where there was not the appropriate level of return in each local market, and took actions across the business to reduce discretionary costs and overheads. This has underpinned the delivery of the first half performance and gives the Board confidence in the outlook for the full year. The Board fully expects the Group to be in compliance with its leverage and interest covenants in 2019. For 2020 and 2021, the forecasts scenarios assumed a continuing impact from the uncertain political and Brexit environment and in these scenarios the headroom on the leverage covenants reduced in 2020. In response to this, the Group developed a series of further cost action plans to mitigate the downside risks.

At the same time, the Group agreed new leverage covenant levels in July 2019 which gives the Group the financial flexibility to execute its turnaround. The interest covenant level was deemed to be appropriate relative to current and anticipated levels of headroom throughout the plan period.

The scenarios also assessed the Group's liquidity in light of the cyclical nature of the Group's cash flow, and the importance of funding the Group's IT transformation. The Group has significantly improved its working capital management over the past 24 months and continues to see further opportunities for improvement. These include: improved collections in the Group's estate agency and in its B2B businesses; improved supplier management; and further focus on discretionary capital expenditure. Having assessed the Group's liquidity outlook on the basis of the above projections and sensitivities, ongoing enhanced liquidity monitoring and the mitigating actions available to the Group, the Board concluded that the Group has sufficient headroom compared to its available borrowing facility.

The Board have confirmed that, after due consideration, they have a reasonable expectation that the Company and the Group will be able to meet their liabilities when they fall due. For this reason, they continue to adopt the going concern basis in preparing the interim financial statements.

 4. Accounting policies

The accounting policies adopted in the preparation of this condensed consolidated interim financial report are consistent with those of the previous financial year and corresponding interim reporting period, except for the adoption of new or amended standards which became applicable for the current reporting period (see 4.1) and for items as stated below:

The change to the Group's segmental presentation in H1 2019 is aligned with management's current internal financial reporting framework (including monthly management information reports reviewed by the Directors, and the Board as the chief operating decision maker) and the basis on which decisions for allocation of resources and assessing performance of segments in undertaken.

Standards, amendments and interpretations effective and adopted by the Group

The following new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January 2019 have had the following impact on the Group:

4.1 IFRS 16 'Leases'

This note explains the impact of the adoption of IFRS 16 'Leases' on the Group's condensed consolidated interim report and discloses the new accounting policies that have been applied from 1 January 2019. The Group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019.

4.1A Adjustments recognised on adoption of IFRS 16

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 'Leases'. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 5.89%.

For leases previously classified as finance leases, the Group recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of initial application. The measurement principles of IFRS 16 are only applied after that date and there were no remeasurements to the lease liabilities recognised as adjustments to the related right-of-use assets after the date of initial application.

The associated right-of-use assets for all leases were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid (or accrued) lease payments related to that lease recognised in the balance sheet as at 31 December 2018. In addition, there were onerous lease provisions and closed property provisions recognised in the balance sheet as at 31 December 2018 which have been reclassified as impairments against the right-of-use assets at the date of initial application. Furthermore, given the impairments in the UK Sales & Lettings cash generating unit as at 31 December 2018, all related right of use assets recognised at transition have been impaired in full on application of IFRS 16 amounting to £70.8 million. In addition, impairments in the Commercial cash generating unit as at 31 December 2018 have resulted in the need to recognise impairments amounting to £13.5 million against goodwill and then prorated across all other assets, including right of use assets recognised.

The recognised right-of use assets relate to the following types of assets:

The change in accounting policy affected the following items in the balance sheet on 1 January 2019:

The impact on retained earnings on 1 January 2019 was £70.6 million in respect of the impairments in both the UK and Commercial cash generating units as at 31 December 2018 at transition (detailed in the notes above), net of the impact of taxation.

Basic loss per share decreased by 0.53 pence per share for the six months to 30 June 2019 as a result of the adoption of IFRS 16.

Practical expedients applied

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition the date the Group relied on its assessment made applying IAS17 and IFRIC 4 'Determining whether an arrangement contains a lease'.

4.1B The Group's leasing activities and how these are accounted for

The Group has over 5,000 leases in respect of various properties, motor vehicles and IT equipment. Rental contracts are typically made for average periods of five years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Until the 2018 financial year, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and the finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

Right-of-use assets are measured at cost comprising the following:

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low value items are those less than £3,000.

Critical judgements in determining the lease term

Extension and termination options are included in a number of property and vehicle leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. Approximately 13% of the total lease payments made in 2019 were optional.

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonable certain to be extended (or not terminated). Potential future cash outflows of £10.6 million have been included in the lease liability because it is reasonable certain that the leases will be extended.

The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that it is within the control of the Group.

4.2 Prior year restatement in respect of IFRS 15 'Revenue from contracts with customers'

IFRS 15 'Revenue from contracts with customers' establishes principles for determining when and how revenue arising from contracts with customers should be recognised. An entity should recognise revenue when it transfers goods or services to a customer based on the amount of consideration to which the entity expects to be entitled from a customer in exchange for fulfilling its performance obligations.

The Group adopted IFRS 15 on 1 January 2018 and elected to restate comparative information from prior periods. The adoption of IFRS 15 impacted the B2B and Sales and Lettings business units. The Group applied the practical expedients under which contracts that began or ended in 2017, or contracts that were completed prior to 1 January 2017, were not restated.

The Countrywide plc consolidated financial statements for the year ended 31 December 2018 noted that, subsequent to the Group's 2018 Interim Results for the period ended 30 June 2018, further information identified that a proportion of revenue earned from Tenant Introduction (or Tenant Renewal) was recognised over the life of the tenancy agreement. Such revenue is now recognised when the underlying tenancy agreement commences (or is renewed) in accordance with the satisfaction of the performance obligations, together with a liability for future refunds. This resulted in the amendment of the Group's opening transition adjustment within the consolidated financial statements for the year ended 31 December 2018. The impact on the balance sheet as at 30 June 2018 and the income statement for the six month period ended 30 June 2018 is set out in the tables below.

Basic loss per share for 2018 was not materially impacted as a result of the restatement of IFRS 15.

New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been early adopted by the Group. None of these new standards or interpretations is expected to have a material impact on the consolidated financial statements of the Group.

Other standards, amendments and interpretations not yet effective and not discussed above are not relevant or considered significant to the Group.

5. Critical accounting judgements and estimates

The preparation of the condensed consolidated interim financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing this condensed consolidated interim financial report, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2018 with the exception of the update in relation to the going concern judgement (detailed in note 3) and adoption of IFRS 16 (detail of judgements in note 4.1B).

6. Financial risk management and financial instruments

Financial risk factors

The Group's activities expose it to a variety of financial risks: cash flow and fair value interest rate risk; liquidity risk; counterparty credit risk; and price risk.

The condensed consolidated interim financial report does not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2018.

There have been no changes in the operation of risk management or in any risk management policies since the year end.

Liquidity risk

Compared to the year end, there has been a material change in the contractual financial liabilities (see note 18) following the adoption of IFRS16 and the additional draw down against the revolving credit facility. There has been a change in the covenants levels applicable in respect of the revolving credit facility since the year end, as disclosed the financial summary and note 18.

Fair value estimation

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined, in accordance with IFRS 13 'Fair value measurement', as follows:

The following table presents the Group's assets and liabilities that are measured at fair value at 30 June 2019:

The following table presents the Group's assets and liabilities that are measured at fair value at 31 December 2018:

There was no change in valuation technique from that applied at 31 December 2018.

Fair value measurements using significant unobservable inputs (Level 3) and valuation processes

Contingent consideration relates to amounts payable in the future on acquisitions undertaken in prior years. The amounts payable are based on the amounts agreed in the contracts and based on the future profitability of each business acquired. In valuing each provision, estimates have been made as to the future profitability of each business at this date.

The Group's finance department performs the valuations of financial assets required for financial reporting purposes, including Level 3 fair values where appropriate. This team reports directly to the Chief Financial Officer and the Group Audit & Risk Committee. Discussions of valuation processes and results are held between the Chief Financial Officer, Group Audit and Risk Committee and the valuation team in line with the Group's half-yearly reporting dates.

The fair value of all other financial assets and liabilities approximate to their carrying amount.

7. Seasonality of operations

The UK housing market is seasonal, with peaks in the summer months. Typically, more income is recognised in the second half of the year. In 2018 income was split 48% in the first half and 52% in the second half. The Group's operating profits are typically higher in the second half than in the first half of the year because, while fixed costs (such as wages, salaries and finance costs, which are not seasonal) tend to be consistent throughout the year, volumes of transactions in the second half are typically higher and therefore there is a higher marginal contribution over such fixed costs.

8. Operating segment information

Management has determined the operating segments based on the operating reports reviewed by the Board that are used to assess both performance and strategic decisions. Management has identified that the Board is the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'.

The Group's segmental presentation in H1 2019 has changed to align with management's current internal financial reporting framework (including monthly management information reports reviewed by the Directors, and the Board as the chief operating decision maker) and the basis on which decisions for allocation of resources and assessing performance of segments is undertaken. During H1 2019 we realigned both our new homes (Countrywide Residential Development Solutions) and our Auctions operations with the Sales and Lettings business. As a result, H1 2018 has been restated to transfer £6.4 million of revenue, £1.2 million adjusted EBITDA loss and 1,396 house exchanges from B2B to Sales and Lettings.

The Board considers the business to be split into three main types of business generating revenue: Sales and Lettings, Financial Services and Business to Business (B2B); and 'all other segments' comprising central head office functions.

The Sales and Lettings network combines estate agency and lettings operations. Estate agency generates commission earned on sales of residential property and Lettings earns fees from the letting and management of residential properties and fees for the management of leasehold properties. The Financial Services division receives commission from the sale of insurance policies, mortgages and related products under contracts with financial service providers. Business to Business (B2B) services comprise all lines of business which are delivered to corporate clients, including Surveying Services, Conveyancing Services and revenue from Lambert Smith Hampton. Surveying Services generates surveying and valuation fees which are received primarily under contracts with financial institutions with some survey fees being earned from home buyers. Conveyancing Services generates revenue from conveyancing work undertaken from customers buying or selling houses through our network. Lambert Smith Hampton's revenue is earned from commercial property consultancy and advisory services, property management and valuation services. Other income generated by head office functions relates primarily to sub-let rental income or other sundry fees.

The Board assesses the performance of the operating segments based on a measure of adjusted EBITDA. This measurement basis excludes the effects of exceptional items, share-based payments charges, employment-linked contingent consideration and income from joint ventures. Finance income and costs are not allocated to segments as this type of activity is driven by the central treasury function which manages the cash and debt position of the Group.

The revenue from external parties reported to the Board is measured in a manner consistent with that in the income statement.

The following table presents revenue and profit information regarding the Group's operating segments for the six months ended 30 June 2019 and 2018 respectively.

Total income

(1) Restated from prior year following the amendment of the Group's opening IFRS 15 transition adjustment and H1 2018 results as described in the Countrywide plc consolidated financial statements for year ended 31 December 2018 (see note 4) and reallocation of CRDS and Auctions business units from B2B into Sales and Lettings

Disaggregation of segment revenue

(1) Restated from prior year following the amendment of the Group's opening IFRS 15 transition adjustment and H1 2018 results as described in the Countrywide plc consolidated financial statements for year ended 31 December 2018 (see note 4) and reallocation of CRDS and Auctions business units from B2B into Sales and Lettings

Adjusted EBITDA before exceptional items

 (1) Restated from prior year following the amendment of the Group's opening IFRS 15 transition adjustment and H1 2018 results as described in the Countrywide plc consolidated financial statements for year ended 31 December 2018 (see note 4.2) and reallocation of CRDS and Auctions business units from B2B into Sales and Lettings

Reconciliation of adjusted EBITDA to statutory operating loss and loss before income tax

A reconciliation of total adjusted EBITDA before exceptional items to statutory operating loss and loss before income tax is provided as follows:

(1) Restated from prior year following amendment of the Group's opening IFRS 15 transition adjustment and H1 2018 results as described in the Countrywide plc consolidated financial statements for year ended 31 December 2018 (see note 4.2)

There has been a material change in segment total assets or liabilities from the amount disclosed in the last annual financial statements principally due to the adoption of IFRS 16 (see note 4.1) and impairments arising in Financial Services (see note 9).

(1) See note 4.1 for details about the impact from the change in accounting policy, from the adoption of IFRS 16, in the current period segment disclosures

Adjusted items

As permitted by IAS 1 'Presentation and disclosure' certain items are presented separately in the income statement as exceptional where, in the judgement of the directors, they need to be disclosed separately by virtue of their nature, size or incidence in order to obtain a clear and consistent presentation of the Group's underlying business performance. Examples of material and non-recurring items which may give rise to disclosure as exceptional items include costs of restructuring existing businesses, integration of newly acquired businesses, asset impairments, costs associated with acquiring new businesses and profit on sale of financial assets.

The columnar presentation of our income statement separates exceptional items as well as adjusting items, specifically amortisation of intangibles arising on business acquisitions, contingent consideration and share-based payments, to illustrate consistently the Group's underlying business performance.

The Board believes that excluding each of the adjusted items, considered to be exceptional or non-operational in nature, in arriving at adjusted EBITDA is necessary to provide a more consistent indication of the trading performance of the Group. This alternative performance measure provides additional useful information to shareholders on the underlying trends and comparable performance of the Group over time. We seek to present a consistent measure of trading performance which is not impacted by the volatility in profile of:

·; exceptional items (costs or income): these are specific items which are material by their nature, size or incidence and are highlighted, with further descriptions, in note 9 to the condensed consolidated interim financial report;

·; amortisation of intangibles arising on acquisitions (excluding software): charges can vary significantly dependent on the level and size of acquisitions undertaken in each period, and the related brand names, customer relationships and contracts recognised. In addition, we do not believe the amortisation charge provides insight into the costs of running our business as these assets are supported and maintained by marketing costs which are reflected within our operating costs. The directors note that the intangibles acquired in business combinations are used in the business to generate revenue, but that there is no equivalent adjustment made to eliminate this revenue;

·; contingent consideration: charges can vary significantly dependent on the level and size of acquisitions undertaken and the associated performance criteria linked to the ongoing service requirement. We reassess the fair value of the resulting liabilities across these arrangements at each reporting period end, reflecting our best estimates of future performance. However, these estimates are inherently judgemental as we are required to look beyond our normal three year budgeting and planning cycle for the five year agreements in place. Remeasurement could cause material volatility in our reported results over the earn out periods which would not be reflective of the business' performance in the period; and

·; share-based payments: as the Group is now in a turnaround situation, it is anticipated that the incentivisation of performance will be driven by award of future LTIPs which, provided Group performance meets these LTIP targets, will see the share-based payment charge continue to increase and re-introduce material volatility into the income statement.

The use of an adjusted EBITDA profit measure, as a consistent measure of underlying performance, is also aligned with management's internal financial reporting (including monthly management information reports reviewed by the Board as the chief operating decision maker) and executive director remuneration (being a factor of both the LTIP scheme and annual bonus disclosed in the Remuneration Committee report) and senior management incentive targets.

9. Exceptional items

The following items have been included in arriving at loss before taxation:

2019

Exceptional costs

Exceptional costs comprise items that have or will result in cash charges of £3.4 million and £37.7 million of non-cash charges as follows:

Strategic and restructuring costs

During the first half of 2019 the Group progressed a strategic transformation agenda for the fundamental turnaround of the business, which is expected to take place over a period of around three years, resulting in a number of exceptional costs in relation to the project and related restructuring costs. The principal elements are:

·; £1,333,000 relating to redundancy costs, principally arising from the branch rationalisation programme that occurred during the period to progress the achievement of an appropriate organisational structure;

·; £2,135,000 in respect of restructuring costs, comprising third party consultancy costs in the main arising from our IT transformation projects (commenced in 2018 and running over a three year period, with costs being capitalised where applicable in note 13) and related strategic initiatives which are being project managed centrally and routinely reporting progress to the Group Executive Committee; and

·; £1,222,000 of property closure costs in respect of property dilapidations provision costs in respect of properties that have been identified for closure.

Impairment charges

Progress has been made with the turnaround plan during the period. However, the continued subdued external environment and the deterioration in trading, which became apparent after conclusion of the 2019 business planning process that underpinned the 2018 impairment review, has resulted in further impairment charges since those taken at the full year. Cash flows underpinning the current impairment review align to the latest three-year strategy and turnaround plan that has been scrutinised and endorsed by the Board.

The Group incurred the following impairment charges, deemed to be exceptional given their size, arising from the impairment review of goodwill and indefinite-life intangible assets undertaken outside of the annual cycle as a result of continuing triggers for impairment (including the market capitalisation level of the Group), and the associated review of other intangible and tangible fixed assets impacted by the impairment review:

·; £30,365,000 in respect of goodwill associated with the Countrywide Residential Development Solutions cash generating unit (£867,000) and the Financial Services cash generating unit (£29,498,000) following an assessment of the recoverable amount against the carrying value (see note 12); and

·; £6,078,000 in respect of other non-current assets: £958,000 intangible fixed assets (computer software) and £992,000 tangible fixed assets (related computer hardware and other assets) associated with the UK cash generating unit and £1,075,000 intangible fixed assets (computer software), £177,000 right-of-use assets (IT assets) and £2,876,000 tangible fixed assets (related computer hardware and other assets) associated with the Head Office assets following an assessment of the recoverable amount against the carrying value. The Head Office write-down arose as a result of the intangible and tangible asset carrying values exceeding the recoverable amount within the UK cash generating unit triggering an impairment of the assets within Head Office supporting the UK cash generating unit (see notes 12, 13 and 14).

2018

Exceptional income

Professional indemnity

A claim was settled in the Group's favour resulting in the recognition of £2,083,000 of exceptional income.

Estimating the liability for professional indemnity claims is highly judgemental and we updated our financial models to reflect the latest inputs and trends and took advice from our panel of lawyers in respect of open claims. Despite the judgemental nature of the provision, the progress made during the period on individually significant claims, aligned with the low level of claims made, resulted in the assessment of a £1,103,000 release in the provision.

Exceptional costs

Exceptional costs comprise items that have or will result in cash charges of £17.7 million and £212.3 million of non-cash charges as follows:

Strategic and restructuring costs

During the first half of 2018 the Group progressed a strategic transformation agenda for the fundamental turnaround of the business, which is expected to take place over a period of around three years, resulting in a number of exceptional costs in relation to the project and related restructuring costs. The principal elements are:

·; £3,737,000 relating to redundancy costs, principally arising from the restructuring of head office functions undertaken following our announcement on 8 March 2018, and changes to the leadership structure that occurred during the year to progress the achievement of the appropriate organisational structure;

·; £3,396,000 in respect of restructuring costs, including the write-down of assets related to curtailed projects, and third party consultancy costs arising from a number of different projects undertaken to tackle cost optimisation targets and related strategic initiatives which are being project managed centrally and routinely reporting progress to the Group Executive Committee; and

·; £828,000 of property closure costs, comprising closed property provisions (£628,000) and property dilapidations provision (£200,000) costs in respect of a London office that has been identified for closure and communicated to impacted individuals prior to the period end. The closed property provision covers the onerous commitment for the period from the intended vacation date until the end of the lease term.

Impairment charges

Significant progress has been made with the strategy and turnaround plan during the prior period. However, the continued subdued external environment and the deterioration in trading, which became apparent after conclusion of the 2018 business planning process that underpinned the 2017 impairment review, has resulted in further impairment charges since those taken at the full year. Cash flows driving the current impairment review align to the latest three-year strategy and turnaround plan that has been scrutinised and endorsed by the Board.

The Group incurred the following impairment charges, deemed to be exceptional given their size, arising from the impairment review of goodwill and indefinite-life intangible assets undertaken outside of the annual cycle as a result of continuing triggers for impairment (including the market capitalisation level of the Group), and the associated review of other intangible and tangible fixed assets impacted by the impairment review:

·; £44,815,000 in respect of goodwill associated with: the UK cash generating unit of £14,044,000 and the London cash generating unit of £30,771,000 following an assessment of the recoverable amount against the carrying value (see note 12);

·; £126,192,000 in respect of brand names associated with: the UK cash generating unit of £58,271,000 (reflecting full impairments of all brand names held) and the London cash generating unit of £67,921,000 (reflecting partial impairments of all brand names held) following an assessment of the recoverable amount against the carrying value (see note 12);

·; £9,605,000 in respect of customer contracts associated with: the UK cash generating unit of £6,377,000 and the London cash generating unit of £3,228,000 following an assessment of the recoverable amount against the carrying value (see note 12); and

·; £30,098,000 in respect of other non-current assets: £2,379,000 intangible fixed assets (computer software) and £17,779,000 tangible fixed assets (related computer hardware and other assets) associated with the UK cash generating unit and £2,482,000 intangible fixed assets (computer software) and £6,741,000 tangible fixed assets (related computer hardware and other assets) associated with the HO assets following an assessment of the recoverable amount against the carrying value. The HO write-down arising as a result of impairments identified exceeds the intangible asset carrying values within the UK cash generating unit triggering an impairment of the assets within HO supporting the UK cash generating unit. Tangible fixed assets of £717,000 associated with the office in London that has been identified for closure (noted above) were impaired during the period (see notes 12 and 13).

Onerous lease provision

In addition an analysis was undertaken in the prior period of loss making branches (at the direct branch contribution level) and onerous lease provisions with a present value of £7,544,000 recognised in relation to these economic outflows arising from these onerous contracts, unwinding over periods up to 2026. The economic outflows in relation to these loss making branches will continue to be monitored to ensure that provisions are unwound as a credit to exceptional items in line with the losses being reported within operating results, or released in full when a branch reaches profitability on turnaround, or ceases to become an onerous contract due to other circumstances, for example if a branch is sublet or a lease is renegotiated so that cash flows become positive.

Financing costs

Following the revolving credit facility amendment undertaken on 2 February 2018, previously capitalised financing fees (net of amortisation to date) of £1,573,000 were written off. Fees relating to the amendment were simultaneously capitalised.

Subsequently, costs of £2,205,000 have been incurred in relation to professional fees provided in relation to work undertaken to potentially restructure the Group's borrowing. These do not relate to the projects currently in progress in relation to the refinancing of the business and have therefore been expensed as abortive fees.

Both of these financing costs have been treated as exceptional due to the size of the fees, but also in relation to the non-recurrent costs which have been incurred in relation to refinancing the business to facilitate the financial flexibility to undertake the turnaround transformation.

10. Income taxes

Income tax expense is recognised based on management's estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 31 December 2019 is 5.7% (six months ended 30 June 2018: 15.2%). The low tax rate in H1 2019 is principally as a result of impairment of non-qualifying goodwill and tangible assets in H1 2019 of £29.5 million.

On adoption of IFRS 16 the business has recognised an impairment of right of use assets, goodwill and other assets as detailed in note 4.1. A deferred tax asset of £12.3 million and a reduction in the deferred tax liability of £1.4 million arises as a result of this impairment.

11. Earnings per share

Basic earnings per share is calculated by dividing the net profit or loss attributable to equity holders of the Company by the weighted average number of ordinary shares of Countrywide plc.