Interim Results

RNS Number : 4829Q

LSL Property Services

04 August 2010

 

For immediate release

4 August 2010

 

 

LSL Property Services plc ("LSL")

 

Interim Results

 

LSL Property Services plc, a leading provider of residential property services incorporating both estate agency and surveying businesses, announces interim results for the six months ended 30 June 2010.

 

Highlights

 

Group 

§ Group revenue increased by 36% to £101.1m (2009: £74.1m)

§ Like-for-like(1) Group Revenue increased by 22% to £90.2m (2009: £74.1m)

 

§ Group Underlying Operating Profit (2) increased by 24% to £13.4m (2009: £10.9m)

§ Like-for-like(1) Group Underlying Operating Profit increased 56% to £17.0m (2009: £10.9m)

§ Growth in profit was driven by strong market share growth in both estate agency and surveying

 

§ Overall operating margin was 13.3% (2009: 14.6%). Like-for-like operating profit margin increased from 14.6% to 18.8%

 

§ Net exceptional profit of £11.1m (2009: cost £0.2m) arising from an exceptional profit on acquisition of HEAL, £15.8m and other exceptional costs of £4.7m.

 

§ Profit before tax increased to £19.7m (2009: £4.3m)

 

§ Basic earnings per share 19.4p (2009: 2.6p). Adjusted basic earnings per share increased by 31% to 8.8p (2009: 6.7p)

 

§ Half Year dividend declared of 2.5p per share (2009 half year: nil, 2009 full year: 5.4p)

 

§ Significant cash generation during the period. Net debt reduced to £14.3m at 30 June 2010 (30 June 2009: £43.1m)

 

§ New £75m bank facility arranged on competitive terms to March 2014

 

Surveying Performance 

§ Underlying Operating Profit increased by 20% to £15.2m (2009: £12.7m)

 

§ Continued growth in revenue and profit through the cycle, despite an overall contraction in the mortgage market

 

Estate Agency 

§ Like-for-like Underlying Operating Profit increased to £2.9m (2009: loss of £0.8m)

 

§ Revenue growth supported by improved contribution from asset management up 18% to £4.8m and lettings up 4% to £9.8m

 

§ HEAL integration completed with trading loss for the half year in line with expectations. HEAL well placed to be profitable in H2

 

(1) Excluding the Halifax Estate Agencies Ltd ("HEAL") branches acquired in January 2010

(2) Underlying Operating Profit is before exceptional costs, amortisation of intangible assets and share based payments

 

 

 

 

Commenting on today's announcement, Roger Matthews, Chairman, said:

 

"We are delighted with our progress during the first half year which underpins the Board's confidence in the expected full year outturn. Underlying Group operating profit on a like-for-like basis has increased by 56% to £17.0m in a challenging market where mortgage approvals for house purchase are at half historic norms.

"The outlook for the market continues to be uncertain and we remain cautious in view of well documented broader economic challenges. However against this backdrop we have continued to strengthen our counter-cyclical income businesses, in particular, asset management, and as a result the Group is becoming increasingly robust through the cycle.

 

"We are well placed to grow the business both organically and through selective acquisitions and deliver significant increases in shareholder value when the market recovers."

 

 

For further information, please contact:

Simon Embley, Group Chief Executive Officer

Steve Cooke, Group Finance Director

LSL Property Services plc 01904 715 324

 

Richard Darby, Nicola Cronk, Catherine Breen

Buchanan Communications 0207 466 5000

 

An analysts' briefing will be held today at 10.00am at the offices of Buchanan Communications, 45 Moorfields London, EC2Y 9AE.

 

Notes to Editors:

LSL Property Services plc is one of the leading residential property services companies in the UK and provides a broad range of services to its clients who are principally mortgage lenders, as well as buyers and sellers of residential properties. For further information, please visit our website: www.lslps.co.uk.

 

Chairman's Statement

 

 

I am delighted to report a 36% increase in Group Revenue to £101.1m (2009: £74.1m) and a 24% increase in Group Underlying Operating Profit to £13.4m (2009: £10.9m) for the six months ended 30 June 2010. Both the Estate Agency and Surveying divisions have made strong progress and the integration of the acquisition of Halifax Estate Agencies Limited ("HEAL") has been successfully completed.

 

On a like-for-like basis, excluding the HEAL estate agency branches acquired in January 2010, Group Revenue increased by 22% to £90.2m (2009: £74.1m), and the Group Underlying Operating Profit increased by 56% to £17.0m (2009: £10.9m). The growth in profit was driven by strong market share growth in both our estate agency (including asset management) and surveying divisions.

 

Our Surveying division has continued to grow revenue and profit through the cycle, despite an overall contraction in the market where mortgage approvals are down by 5% from historically low levels. Revenue increased by 17% to £42.3m (2009: £36.0m) and the underlying operating profit increased by 20% to £15.2m (2009: £12.7m). This excellent result was underpinned by the strength of LSL's client base, the significant contract extension with Santander signed in December 2009, together with the continued material contribution from the panel management arrangements with Cheltenham and Gloucester.

 

The results from our Estate Agency division continue to demonstrate growing resilience with a particularly strong contribution from our asset management business. On a like-for-like basis, excluding the acquisition of HEAL, revenue increased by 26% and the underlying operating profit increased to £2.9m (2009: a loss of £0.8m). The growth in revenue was supported by improved contribution from counter-cyclical income streams with like-for-like growth in asset management of 18% to £4.8m and in core lettings of 4% to £9.8m.

 

The integration of HEAL has been completed and results to the half year are in line with our expectations. The acquisition completed on 15 January 2010, adding 206 branches to the estate agency network and establishing LSL as the second largest estate agency business in the United Kingdom. The division recorded a loss of £3.6m in H1 but is well placed to be profitable in H2 2010 with instruction volumes increasing month on month, pipelines up by 29% during the period, increasing counter-cyclical income streams from lettings and asset management and the cost base right sized to an annual run rate of circa £28m.

 

Cash generation in the period was particularly strong with net debt reduced from £43.1m at 30 June 2009 to £14.3m at 30 June 2010. The Group signed a new bank agreement in June 2010 securing a £75m facility on competitive terms through to March 2014.

 

Group

 

·; Group revenue increased by 36% to £101.1m (2009: £74.1m). On a like-for-like basis excluding HEAL, Group revenue increased by 22% to £90.2m (2009: £74.1m)

·; Underlying Group Operating Profit increased by 24% to £13.4m (2009: £10.9m). (On a like-for-like basis, Underlying Group Operating Profit was up 56% to £17.0m (2009: £10.9m).

·; Overall margin was 13.3% (2009: 14.6%) Like-for-like operating margin increased from 14.6% to 18.8%.

·; Net interest payable was £1.1m (2009: £1.1m) and the Group profit before tax, amortisation and exceptional profit was £12.6m (2009: £9.5m).

·; A net exceptional profit of £11.1m (2009: cost £0.2m) for the period, reflects an exceptional profit on the acquisition of HEAL of £29.1m, offset by restructuring costs relating to HEAL of £13.3m, an increase in the professional indemnity (PI) provision of £2.0m and redundancy and exceptional finance costs of £2.2m.

·; Profit before tax was £19.7m (2009: £4.3m)

·; The effective rate of tax was -1.4%. The underlying effective tax rate, excluding exceptional and prior year tax adjustments, was 29%.

·; Earnings per share was 19.4p(2009: 2.6p); adjusted basic earnings per share was 8.8p (2009: 6.7p)

·; Half Year dividend of 2.5p per share (2009 half year: nil, 2009 full year 5.4p)

 

 

Divisions

 

·; Estate Agency turnover on a like-for-like basis increased by 26% to £47.9m (2009: £38.1m) and generated underlying operating profit of £2.9m (2009: loss of £0.8m)

·; HEAL impacted the trading result with a loss of £3.6m (turnover £10.8m)

·; Surveying turnover increased by 17% to £42.3m (2009: £36.0m), and the Underlying Operating Profit increased by 20% to £15.2m (2009: £12.7m). The overall surveying margin was maintained at 36%

 

 

Balance Sheet

 

Net assets at 30 June 2010 were £60.9m (2009: £37.1m). Net debt at 30 June 2010 was £14.3m representing a reduction of £28.8m from June 2009. The Group has a new bank facility in place of £75m until March 2014.

 

Cashflow and Capital Expenditure

 

The Group has delivered strong cash generation in H1 2010 with cash inflow from operations pre exceptionals of £14.5m (2009:£8.6m). Cash received in the acquisition of HEAL was £26.0m and cash expenditure relating to the acquisition was £13.7m as expected. £1.9m was invested in capital expenditure on refurbishment of the estate agency branch network compared to £0.2m in the first half of 2009.

 

Exceptional costs and profit

 

A net exceptional profit of £11.1m was recorded in H1, reflecting an exceptional profit of £15.8m as a result of the acquisition of the assets of HEAL for £1. The assets included cash of £26m and freehold property valued at £8.9m. The exceptional profit was offset by exceptional costs of £18.0m, of which £13.3m related to HEAL, £2.0m to increasing the PI provision and £2.2m to finance costs.

 

Interim Dividend

 

As a result of the strong operating performance and continued reduction in net debt in the first half of the year, the Board has declared an interim dividend payable of 2.5 pence per share. No dividend was paid at the half year in 2009, but this represents a 39% increase on the pro-rated dividend paid for the full year in 2009 of 5.4 pence per share. The dividend payment is in line with our previously stated policy of applying a dividend pay out ratio of between 30% to 40% of Underlying Group Profit after Tax. The dividend will be paid on 13 September 2010 to shareholders on the register at 13 August 2010.

 

Developments

 

Our Surveying division further strengthened its market position as a result of delivering continued service excellence. The Santander contract which commenced on 1 December 2009 has contributed significantly to the increase in turnover and has provided the opportunity to drive further operating efficiencies across the Surveying division. The surveying market however remains difficult: the volume of mortgage approvals at 604,000 in H1 2010 is at its lowest point in the cycle, reflecting the continued slowdown of remortgage and further advances. Professional Indemnity claims have remained at a high level across the industry reflecting the higher repossession rates over the past two years or so. These claims are monitored extremely carefully and accordingly we have increased our specific provision by £2m in the period with the total provision at the half year being £9m (2009: £7.5m).

 

Our Estate Agency division has continued to make significant progress. The acquisition of HEAL and the re-branding of 206 branches to Your Move, Reeds Rains and Intercounty has dramatically increased our market profile and contributed to an increase in our market share from 3.1% to 4.4%. The acquisition has delivered a loss of £3.6m in H1 which was in line with our expectations, but more importantly the cost base has been right sized - instructions continue to increase month on month, and the pipeline has increased by 29% in the period.

 

There continues to be strong focus on growing counter-cyclical income streams across the estate agency network. Lettings is now a core income stream for the Group which has now been rolled out to the majority of the ex HEAL branches and growth in this income stream will be a major contributor to HEAL operating profit in the future. Asset Management is an increasingly important income and profit driver within the Estate Agency division and we are now in a market leading position with combined H1 revenue across LSL CCD and St Trinity, (acquired as part of HEAL), of £7.1m (2009; £4.0m).

 

Furthermore, the division has achieved growth in market share on a like-for-like basis to 3.3% from 3.1% as a result of its investment in additional headcount, branch refurbishment and a targeted marketing campaign. The Group plans to continue its investment in the division in order to drive market share gains and secure increased long term profitability within the Estate Agency division.

 

Selective acquisitions continue to be important for the Group. Within the Estate Agency division there were a number of small acquisitions during H1 2010 which have increased our branch footprint in the South East and further expanded our counter-cyclical business. The Group acquired the assets of Goodfellows, a small seven branch agency chain within London for £1.0m and of Templeton LPA Limited, a receiver of property, for £0.4m.

 

In addition, as announced on 7 May 2010, the business and assets of Home of Choice, now re-branded to First Complete, was acquired for a total consideration of £0.4m to provide a step change to our financial services offer. The acquisition of Home of Choice together with LSL's existing financial services assets creates the fourth largest mortgage network in the UK. We believe that this further strengthens LSL's proposition to the mortgage lender market and in turn further cements our relationships with our key clients.

 

Board

 

As previously announced Steve Cooke has joined the Board as Group Finance Director and Dean Fielding has left the Board. Paul Latham, previously Group Deputy CEO, is now a non executive director and Alison Traversoni and David Newnes have joined the Board as Executive Director for Surveying and Executive Director for Estate Agency respectively. The Group intends to further strengthen the Board with the appointment of an additional non executive director during H2 2010.

 

Outlook

 

We are delighted with our progress during the first half year which underpins the Board's confidence in the expected full year outturn. Underlying Group operating profit on a like-for-like basis has increased by 56% to £17.0m (2009: £10.8m) in a challenging market where mortgage approvals for house purchase are at half historic norms.

The outlook for the market continues to be uncertain and we remain cautious in view of well documented broader economic challenges. The continued shortage of available mortgage finance, the fiscal tightening on consumer spending and the cuts in government spending leading to further pressures on employment, are likely to impact market conditions in the short term.

 

However against this backdrop we have continued to strengthen our counter-cyclical income businesses, in particular, asset management, and as a result the Group is becoming increasingly robust through the cycle. We are committed to further investing in the Group to continue growing our market share which will deliver earnings growth even if volumes remain at low levels. Our financial position remains strong, with low levels of gearing and new bank facilities in place to March 2014. We are well placed to grow the business both organically and through selective acquisitions and deliver significant increases in shareholder value when the market recovers.

 

 

Roger Matthews

4 August 2010

 

 

Principal risks and uncertainties

There are a number of risks and uncertainties facing the business in the second half of the financial year. With the exception of the heightened regulatory risk arising from the expansion of the Group's regulated financial services activity, the Board considers these risks and uncertainties to be the same as described on page 11 of the 2009 Report & Accounts, dated 3 March 2010, a copy of which is available on the Group's website at www.lslps.co.uk.

 

 

Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

 

·; The condensed set of financial statements has been prepared in accordance with IAS 34

Interim Financial Reporting as adopted by the EU;

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

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the 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

 

Interim Group Income Statement

for the six months ended 30 June 2010

 

		Unaudited		Audited
		Six Months Ended		Year Ended
		30 June	30 June	31 Dec
		2010	2009	2009
	Note	£'000	£'000	£'000
Revenue	3	101,084	74,118	157,703
Operating expenses:
Employee and subcontractor costs		54,382	39,542	80,100
Establishment costs		7,564	4,955	10,991
Depreciation on property, plant and equipment		706	757	1,407
Other		25,834	18,269	37,374
		(88,486)	(63,523)	(129,872)
Rental income		825	264	488
Group operating profit before exceptional profit / (costs), amortisation and share-based payments		13,423	10,859	28,319
Share-based payments		(208)	(332)	(532)
Amortisation of intangible assets		(4,038)	(4,960)	(8,635)
Exceptional profit	5	13,275	(234)	(400)
Group operating profit		22,452	5,333	18,752
Dividend income		516	-	24
Finance income		2	-	54
Finance costs		(1,114)	(1,069)	(2,221)
Exceptional finance costs	5	(2,186)	-	-
Net financial costs		(2,782)	(1,069)	(2,143)
Profit before tax	3	19,670	4,264	16,609
Taxation
- related to exceptional costs		3,841	75	112
- others		(3,574)	(1,615)	(4,974)
	7	267	(1,540)	(4,862)
Profit for the period/year		19,937	2,724	11,747
Earnings per share expressed in pence per share:
Basic	4	19.4	2.6	11.4
Diluted	4	19.3	2.6	11.4
Basic (adjusted)	4	8.8	6.7	18.1
Diluted (adjusted)	4	8.8	6.7	18.1

 

 

Interim Group Statement of Comprehensive Income

for the six months ended 30 June 2010

 

	Unaudited		Audited
	Six Months Ended		Year Ended
	30 June	30 June	31 Dec
	2010	2009	2009
	£'000	£'000	£'000
Profit for the period	19,937	2,724	11,747
Net profit/(loss) on cash flow hedge	-	431	(87)
Recycling of cash flow hedge	87	-	-
Income tax	(24)	(121)	24
Other comprehensive income/(loss) for the period, net of tax	63	310	(63)
Total comprehensive income for the period, net of tax^	20,000	3,034	11,684

 

 ^ all attributable to equity shareholders of the parent

 

  

Interim Group Balance Sheet

as at 30 June 2010

 

	Unaudited			Audited
		At 30 June 2010	At 30 June 2009	At 31 Dec 2009
		£'000	£'000	£'000
Non-current assets
Goodwill	9	72,416	66,316	66,472
Other intangible assets		21,355	26,569	22,895
Property, plant and equipment		11,708	2,277	2,077
Financial assets		4,798	4,479	4,052
Other receivables		150	-	-
Deferred tax asset	8	-	389	621
Total non-current assets		110,427	100,030	96,117
Current assets
Trade and other receivables		27,891	19,312	20,052
Current tax assets		433	-	-
Cash and cash equivalents		1,783	840	858
Total current assets		30,107	20,152	20,910
Total assets		140,534	120,182	117,027
Current liabilities
Financial liabilities	8	556	1,191	993
Trade and other payables		50,401	29,285	33,209
Current tax liabilities		-	1,199	2,183
Deferred tax liabilities		1,011	-	-
Provisions for liabilities and charges		665	1,068	748
Total current liabilities		52,633	32,743	37,133
Non-current liabilities
Financial liabilities	8	15,537	42,737	25,573
Trade and other payables		1,128	72	27
Provisions for liabilities and charges		10,379	7,569	8,437
Total non-current liabilities		27,044	50,378	34,037
Net assets		60,857	37,061	45,857
Equity
Share capital		208	208	208
Share premium account		5,629	5,629	5,629
Share-based payment reserve		1,090	2,242	2,259
Treasury shares		(2,272)	(2,934)	(2,805)
Unrealised gain reserve		3,900	3,900	3,900
Hedging reserve		-	310	(63)
Retained earnings		52,302	27,706	36,729
Total equity		60,857	37,061	45,857

 

 

 

Interim Group Cash Flow Statement for the six months ended 30 June 2010
		Unaudited					Audited
		Six months ended					Year ended
		30 June 2010		30 June 2009			31 December 2009
	Note	£'000	£'000		£'000	£'000		£'000	£'000
Cash generated from operating activities
Profit before tax			19,670			4,264			16,609
Adjustments to reconcile profit before tax to net cash inflows from operating activities
Negative goodwill		(29,145)			-			-
Amortisation of intangible assets		4,038			4,960			8,635
Dividend income		(516)			-			(24)
Exceptional costs		18,056			-			-
Finance income		(2)			-			(54)
Finance costs		1,114			1,069			2,221
Share-based payments		208			332			574
			(6,247)			6,361			11,352
Group operating (loss)/profit before amortisation and share-based payments			13,423			10,625			27,961
Depreciation		706			757			1,407
Impairment of goodwill		-			126			126
Gain on sale of property, plant and equipment		-			-			6
		706			883			1,539
(Increase)/decrease in trade and other receivables		(1,862)			(5,388)			(6,128)
Decrease/(increase) in trade and other payables and provisions		2,213			2,485			7,233
			1,057			(2,020)			2,644
Cash generated from operations pre exceptional costs			14,480			8,605			30,605
Exceptional costs paid			(13,726)			-			-
Cash generated from operations			754			8,605			30,605
Interest paid		(1,145)			(1,209)			(2,397)
Tax paid		(3,638)			(1,153)			(3,578)
			(4,783)			(2,362)			(5,975)
Net cash (expended on)/generated from operating activities			(4,029)			6,243			24,630
Cash flows from investing activities
Cash acquired on purchase of subsidiary undertakings and commercial business		25,972			-			-
Purchase of subsidiary undertakings, minority interest and commercial business		(1,993)			(135)			(150)
Dividends received		516			-			54
Interest received		2			-			24
Purchase of property, plant and equipment		(1,935)			(193)			(662)
Proceeds from sale of property, plant and equipment		719			-			13
Proceeds from treasury shares		394						-
Proceeds from sale of subsidiary undertakings, minority interest and commercial business		-			4			-
Net cash generated from/(expended on) investing activities			23,675			(324)			(721)

 

Interim Group Cash Flow Statement (Continued) for the six months ended 30 June 2010
		Unaudited					Audited
		Six months ended					Year ended
		30 June 2010		30 June 2009			31 December 2009
	Note	£'000	£'000		£'000	£'000	£'000	£'000

 

Cash flows from financing activities
Repayment of loans	8	(13,154)		(5,726)		(23,698)
Dividends paid		(5,567)		-		-
Net cash (used)/generated in financing activities			(18,721)		(5,726)		(23,698)
Net increase in cash and cash equivalents			925		193		211
Cash and cash equivalents at the beginning of the period			858		647		647
Cash and cash equivalents at the end of the period	8		1,783		840		858

 

 

 

 

 

Interim Group Statement of changes in equity

for the six months ended 30 June 2010

 

Unaudited six months ended 30 June 2010

 

	Share capital	Share premium account	Share- based payment reserve	Investment in treasury shares	Unrealised gains reserve	Hedging reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2010	208	5,629	2,259	(2,805)	3,900	(63)	36,729	45,857
Profit for the period	-	-	-	-	-	-	19,937	19,937
Other comprehensive income	-	-	-	-	-	63	-	63
Total comprehensive income	-	-	-	-	-	63	19,937	20,000
Reissuance of treasury shares	-	-	(1,377)	533	-	-	1,203	359
Share-based payments	-	-	208	-	-	-	-	208
Dividends paid	-	-	-	-	-	-	(5,567)	(5,567)
At 30 June 2010	208	5,629	1,090	(2,272)	3,900	-	52,302	60,857

 

Unaudited six months ended 30 June 2009

 

 

	Share capital	Share premium account	Share- based payment reserve	Investment in treasury shares	Unrealised gains reserve	Hedging reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2009	208	5,629	531	(2,934)	3,900	-	26,395	33,729
Change in accounting policy	-	-	1,413	-	-	-	(1,413)	-
Restated balance	208	5,629	1,944	(2,934)	3,900	-	24,982	33,729
Profit for the period	-	-	-	-	-	-	2,724	2,724
Other comprehensive income	-	-	-	-	-	310	-	310
Total comprehensive income	-	-	-	-	-	310	2,724	3,034
Share-based payments	-	-	298	-	-	-	-	298
At 30 June 2009	208	5,629	2,242	(2,934)	3,900	310	27,706	37,061

 

 

 

 

 

 

Year ended 31 December 2009

 

 

	Share capital	Share premium account	Share- based payment reserve	Investment in treasury shares	Unrealised gains reserve	Hedging reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000		£'000	£'000
At 1 January 2009	208	5,629	531	(2,934)	3,900	-	26,395	33,729
Change in accounting policy	-	-	1,413	-	-	-	(1,413)	-
Restated balance	208	5,629	1,944	(2,934)	3,900	-	24,982	33,729
Profit for the year	-	-	-	-	-	-	11,747	11,747
Other comprehensive loss	-	-	-	-	-	(63)	-	(63)
Total comprehensive income	-	-	-	-	-	(63)	11,747	11,684
Reissuance of treasury shares	-	-	(109)	129	-	-	-	20
Share-based payments	-	-	424	-	-	-	-	424
At 31 December 2009	208	5,629	2,259	(2,805)	3,900	(63)	36,729	45,857

 

 

 

 

Notes to the interim condensed group financial statements

 

 

The interim condensed group financial statements for the six months ended 30 June 2010 was approved by the board of directors on 3 August 2010. The Group's published financial statements for the year ended 31 December 2009 have been reported on by the Group's auditors and filed with the Registrar of Companies. The auditor's report on those accounts, which have been filed with the Registrar of Companies, was unqualified and did not contain an emphasis of matter paragraph, and did not make a statement under section 498 of the Companies Act 2006. The financial information for the half year ended 30 June 2010 and the equivalent period in 2009 has not been audited.

 

The figures for the year ended 31 December 2009 do not constitute the Company's statutory accounts for that period but have been extracted from the statutory accounts.

 

 

1 Basis of preparation

The interim condensed group financial statements for the six months ended 30 June 2010 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and IAS 34 Interim Financial Reporting (as adopted by the EU). The interim condensed group financial statements have been prepared on a going concern basis.

 

The interim condensed group financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2009.

 

Significant accounting policies

 

The accounting policies adopted in the preparation of the interim condensed group financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2009, except for the adoption of new Standards and Interpretations as of 1 January 2010 which are applicable to the group, as noted below:

 

Revised IFRS 3 Business Combinations

The amendment to IFRS 3 changes the treatment of acquisition-related costs and contingent consideration relating to acquisitions after 1 January 2010. The standard also changes the treatment of non-controlling interests (formerly minority interests) with an option to recognise these at full fair value as at the acquisition date and a requirement for previously held non-controlling interests to be fair valued as at the date control is obtained, with gains and losses recognised in the income statement.

 

Some of the key features of the revised IFRS3 include:

- Acquisition-related costs to be expensed and not included in the purchase price;

- Contingent consideration to be recognised at fair value on the acquisition date (with subsequent changes recognised in the income statement and not as a change to goodwill); and

- Changes to the accounting treatment of step acquisitions.

 

Revised IFRS 3 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

 

The group treated the acquisition-related costs in respect of acquisitions made in the six months ended 30 June 2010 as exceptional costs and these were expensed to the income statement. The adoption of this amendment had the effect of decreasing the profit by £1,988,000 for the period ended 30 June 2010.

 

IAS 27R Consolidated and Separate Financial Statements

The revision to this Standard requires the group to attribute losses to non-controlling interests even if this results in the non-controlling interest having a deficit balance. This change is applicable prospectively and the controlling shareholder will not be able to recover any past losses absorbed under the old rules.

 

The revision of the Standard had no material effect on the results for the six months ended 30 June 2010.

 

 

 

1. Basis of preparation (continued)

 

Significant accounting policies (continued)

 

Judgements and estimates

 

The preparation of financial information in conformity with IFRS as adopted by European Union requires management to make judgements, estimates and assumptions that affect the application of policies and reporting amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing 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 largely the same as those at 31 December 2009. These assumptions are discussed in detail on page 50 and in notes 14, 16, 20 and 21 of the Group's annual financial statements for the year ended 31 December 2009. The assumptions discussed are as follows:

 

- Impairment of intangible assets

- Fair value of unquoted equity instruments, and

- Other areas (contingent consideration, provisioning for professional indemnity claims and onerous leases)

 

For the period to 30 June 2010, management now consider the determination of acquisition fair values to be a further key assumption to be considered.

 

Improvements to IFRSs

 

The amendments to the following standards below did not have any impact on the accounting policies, financial position or performance of the Group:

 

·; IFRIC 17 Distributions of non-cash assets to owners

·; IFRIC 18 Transfers of assets from customers

·; Additional exemptions for first-time adopters (Amendments to IFRS 1)

·; Improvements to International Financial Reporting Standards 2009

 

The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not effective for the financial year beginning 1 January 2010 and have not been early adopted:

 

·; IFRS 9

·; IAS 24

·; IAS 32

·; IFRIC 14, and

·; IFRIC 19

 

 

Hedge accounting

 

For those derivatives designated as hedges and for which hedge accounting is desired, the hedging relationship is documented at its inception. This documentation identifies the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be measured throughout its duration. Such hedges are expected at inception to be highly effective.

 

 

 

 

 

 

1. Basis of preparation (continued)

 

Significant accounting policies (continued)

 

Hedge accounting (continued)

 

For the purpose of hedge accounting, hedge is classified as cash flow hedge when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction.

 

For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred to the profit and loss account when the hedged transaction affects profit or loss.

If a forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs and are transferred to the profit and loss account. If the related transaction is not expected to occur, the amount is taken to profit or loss.

 

Exceptional items

The Group presents as exceptional items on the face of the income statement, those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.

 

Going concern 

The Group has in place borrowing facilities to March 2014 to a maximum of £75m. These facilities are subject to financial performance covenants. The Board has prepared a working capital forecast based upon assumptions as to trading and has concluded that the Group has adequate working capital, will meet the financial performance covenants and that therefore it is appropriate to use the going concern basis of preparation for this financial information.

2. Seasonality of operations

 

Due to the seasonal nature of the property market turnover is normally higher in the second half of the year.

 

3. Segment analysis of revenue and operating profit

 

For management purposes, the group is organised into business units based on their products and services and has two reportable operating segments as follows:

 

·; The estate agency and related activities provides services related to the sale and letting of housing via a network of high street branches. In addition, it provides repossession asset management services to a range of lenders. It also sells mortgages for a number of lenders and sells life assurance and critical illness policies, etc for a number of insurance companies via the estate agency branch and First Complete network.

 

·; The surveying and valuation segment provides a professional survey service of domestic properties to various lending corporations.

 

No operating segments have been aggregated to form the above reported operating segments.

 

 

 

 

 

 

 

3. Segment analysis of revenue and operating profit (continued)

 

Management 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 consolidated financial statements. Head office costs, group financing (including finance costs and finance incomes) and income taxes are managed on a group basis and are not allocated to operating segments.

 

All of the Group's assets are situated in the United Kingdom.

 

Operating segments

The following table present revenue and profit/(loss) information regarding the group's operating segments for the six months ended 30 June 2010 and 2009, and financial year ended 31 December 2009 respectively.

 

Six months ended 30 June 2010

	Estate agency and related  activities £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Income statement information
Segmental revenue	58,761	42,323	-	101,084
Segmental result:
- before exceptional costs, amortisation
and share-based payments	(606)	15,217	(1,188)	13,423
- after exceptional costs, amortisation
and share based payments	11,514	9,940	(1,188)	20,266
Dividend income				516
Finance income				2
Finance costs				(1,114)
Profit before tax				19,670
Taxation				267
Profit for the period				19,937

 

In the period ended 30 June 2010, there is no revenue from one customer that accounts for 10% or more of the Group's total revenue (2009: none).

 

3. Segment analysis of revenue and operating profit (continued)

 

Operating segments (continued)

 

Six months ended 30 June 2010	Estate agency and related  activities £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Balance sheet information
Segment assets	99,539	34,746	6,249	140,534
Segment liabilities	(40,967)	(21,347)	(17,363)	(79,677)
Net assets/(liabilities)	58,572	13,399	(11,114)	60,857

 

Unallocated net liabilities comprise certain property, plant and equipment (£46,000), financial assets (£3,900,000), corporation tax assets (£433,000), trade and other receivables (£87,000), cash and bank balances (£1,783,000), financial liabilities (£13,912,000), trade and other payables (£2,440,000) and deferred tax liabilities (£1,011,000).

 

Six months ended 30 June 2009	Estate agency and related  activities £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Income statement information
Segmental revenue	38,095	36,023	-	74,118
Segmental result:
- before exceptional costs, amortisation
and share-based payments	(844)	12,725	(1,022)	10,859
- after exceptional costs, amortisation
and share based payments	(1,841)	8,196	(1,022)	5,333
Finance income				-
Finance costs				(1,069)
Profit before tax				4,264
Taxation				(1,540)
Profit for the period				2,724

 

 

3. Segment analysis of revenue and operating profit (continued)

 

 

Operating segments (continued)

 

Year ended 31 December 2009	Estate agency and related  activities   £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Income statement information
Segmental revenue	87,655	70,048	-	157,703
Segmental result:
- before exceptional costs, amortisation
and share-based payments	6,705	23,554	(1,940)	28,319
- after exceptional costs, amortisation
and share-based payments	4,910	15,782	(1,940)	18,752
Dividend income				24
Finance income				54
Finance costs				(2,221)
Profit before tax				16,609
Taxation				(4,862)
Profit for the year				11,747

 

 

Year ended 31 December 2009	Estate agency and related  activities £'000	Surveying and valuation services £'000	Unallocated     £'000	Total     £'000
Balance sheet information
Segment assets	76,246	33,698	7,083	117,027
Segment liabilities	(25,466)	(17,410)	(28,294)	(71,170)
Net assets/(liabilities)	50,780	16,288	(21,211)	45,857

 

Unallocated net liabilities comprise certain property, plant and equipment (£56,000), financial assets (£3,900,000), deferred tax assets (£621,000), trade and other receivables (£1,648,000), cash and bank balances (£858,000), financial liabilities (£25,171,000), trade and other payables (£940,000) and taxation (£2,183,000).

 

 

 

4. Earnings per share

 

Basic earnings/(loss) per share amounts are calculated by dividing net profit/(loss) for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings/(loss) per share amounts are calculated by dividing the net profit/(loss) 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.

Six months ended 30 June	Profit after tax1 £'000	Weighted average number of shares	2010 Per share amount Pence	Profit after tax £'000	Weighted average number of shares	2009 Per share amount Pence
Basic EPS	19,937	102,970,688	19.4	2,724	102,811,731	2.6
Effect of dilutive share options	-	556,589	-	-	195,615	-
Diluted EPS	19,937	103,527,278	19.3	2,724	103,007,346	2.6

 

The Directors consider that the adjusted earnings shown below give a better and more consistent indication of the Group's underlying performance:

 

	Six months ended
	30 June 2010 £'000	30 June 2009 £'000
Group operating profit before exceptional costs, share-based payments and amortisation	13,423	10,859
Net finance costs	(596)	(1,069)
Normalised taxation	(3, 756)	(2,898)
Adjusted Profit after tax1 before exceptional costs, share-based payments and amortisation	9, 071	6,892

 

 

Adjusted basic and diluted EPS

 

 

Six months ended 30 June	Adjusted Profit after tax1 £'000	Weighted average number of shares	2010 Per share amount Pence	Adjusted Profit after tax £'000	Weighted average number of shares	2009 Per share amount restated Pence
Adjusted Basic EPS	9, 071	102,970,688	8.8	6,892	102,811,731	6.7
Effect of dilutive share options	-	556,589	-	-	195,615	-
Adjusted Diluted EPS	9, 071	103,527,277	8.8	6,892	103,007,346	6.7

 

1 This represents adjusted profit after tax attributable to equity holders of the parent. Tax has been adjusted to exclude the prior year tax adjustments, and the tax impact of exceptional items, amortisation and share-based payments. The effective tax rate used is 29% (2009: 30%).

 

 

 

 

  

 

5. Exceptional profit and other exceptional costs

 

	Six months Ended		Year Ended
	30 June 2010 £'000	30 June 2009 £'000	31 Dec 2009 £'000
Exceptional profit arising through acquisition of HEAL:
Negative goodwill arising on acquisition	(29,145)	-	-
Employee costs
Redundancy costs due to branch closures and business reorganisation of the acquisition	7,242	-	-
Other
Acquisition and re-branding costs	6,125	-	-
	(15,778)	-	-
Other exceptional costs:
Employee costs
Redundancy costs due to branch closures and business reorganisation	358	66	232
Accelerated share-based payments	27	-	42
Other
Impairment of goodwill	-	126	126
Others	-	42	-
Acquisition related costs	88	-	-
Provision for professional indemnity claims	2,030	-	-
Total operating exceptional costs	2,503	234	400
Finance costs
Banking fees incurred for extension of facility	886	-	-
Interest rate swap (note 8)	1,300	-	-
	2,186	-	-
	(11,089)	234	400

 

6. Dividends paid and proposed

	Six months Ended		Year Ended
	30 June 2010 £'000	30 June 2009 £'000	31 Dec 2009 £'000
	£'000	£'000	£'000
Declared and paid during the period:
Equity dividends on ordinary shares:
Final dividend for full year 2009: 5.40 pence (2008: nil pence)	5,567	-	-
Dividends on ordinary shares proposed (not recognised as a liability as at 30 June):
Interim dividend for 2010: 2.50 pence per share (full year 2009: 5.40 pence)	2,577	-	5,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7. Taxation

 

The major components of income tax (credit)/charge in the interim group income statements are:

 

	Six months Ended		Year Ended
	30 June 2010	30 June 2009	31 Dec 2009
	£'000	£'000	£'000
UK corporation tax - current year	940	2,417	5,615
- tax underprovided/(overprovided) in prior year	-	190	401
- utilisation of tax losses	-	-	-
	940	2,607	6,016
Deferred tax:
Origination and reversal of temporary differences	(2,214)	(1,067)	(603)
Adjustment in respect of prior year	1,007	-	(551)
Total deferred tax	(1,207)	(1,067)	(1,154)
Total tax (credit)/charge in the income statement	(267)	1,540	4,862

 

The Group's current taxation credit comprises corporation tax calculated at estimated effective tax rates for the period.

 

Income tax charged directly to equity is £24,000 (2009: £121,000) which relates to deferred tax on the net loss on the cash flow hedge.

 

8. Analysis of net debt

 

	Six months Ended		Year Ended
	30 June 2010	30 June 2009	31 Dec 2009
	£'000	£'000	£'000
Interest bearing loans and borrowings	16,087	43,928	26,566
Less: cash and short-term deposits	(1,783)	(840)	(858)
Net debt at the end of the period	14,304	43,088	25,708

 

During the six months ended 30 June 2010, the Group has repaid £13.1m of the revolving credit facility. The utilisation of this revolving credit facility may vary each month as long as this does not exceed the maximum £75m facility. The banking facility was renegotiated in advance of expiry in July 2010. The new banking facility expires in March 2014.

 

During April and May 2009, the group entered into three fixed interest rate swap arrangements with their banker for a total principal amount of £25m to hedge against potential increase in future LIBOR payable on the revolving credit facility. This hedge was initially treated as cash flow hedge and accounted for under hedge accounting.

 

The terms of the interest rate swap agreements are now notexpected to match the terms of the commitments. The cash flow hedge of the expected future interest payment was assessed to be ineffective and as at 30 June 2010 an unrealised loss of £ 1,300,000 with a deferred tax charge of £ 364,000 relating to the hedging instrument that arose in the period is included in the income statement as exceptional finance costs.

 

 

 

 

 

9. Acquisitions during the year

 

Period ended 30 June 2010

 

On 15 January 2010, the Group acquired the Group acquired the entire share capital of Halifax Estate Agencies Limited for the consideration of £1. The details of the acquisition had the following effect on the Group's assets and liabilities:

 

	Book value		Fair value adjustments	Provisional fair value*
	£'000		£'000	£'000
Property, plant and equipment	13,941		(5,013)	8,928
Other intangible assets - contracts	-		2,500	2,500
Financial assets	4,413		(3,663)	750
Trade and other receivables	8, 591		(3, 320)	5,271
Cash and cash equivalents	25,946		-	25,946
Trade and other payables	(711)		(10,527)	(11,238)
Deferred tax liabilities	-		(2,839)	(2,839)
Provisions for liabilities and charges	-		(173)	(173)
	52,180		(23,035)	29,145
Negative goodwill arising on acquisition				(29,145)
				0
Discharged by:
Cash				0

 

* The fair values at acquisition are provisional due to the timing of the transaction and will be finalised within 12 months of the acquisition date.

 

The negative goodwill of £29,145,000 comprises the value of cash and other assets acquired.

 

The income statement of the acquisition for the period ended 30 June 2010 was as follows:

 

	Pre acquisition		Post acquisition	Total
	£'000		£'000	£'000
Revenue	879		10,849	11,728
Operating loss before exceptional costs	(1,101)		(3,538)	(4,639)
Exceptional costs	-		(13,417)	(13,417)
Amortisation	-		(476)	(476)
Operating loss	(1,101)		(17,431)	(18,532)
Dividend income	-		500	500
Loss before tax	(1,101)		(16,931)	(18,032)
Current tax charge	-		5,249	5,249
	(1,101)		(11,682)	(12,783)

 

The increase in goodwill of £6.1m in the period reflects a number of acquisitions including £4.1m regarding the acquisition of the Home of Choice business.

Independent Review Report to LSL Property Services plc

 

 

 

Introduction

 

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 2010 which comprises interim group income statement, interim group statement of comprehensive income, interim group balance sheet, interim group cash flow statement, Interim Group Statement of Changes in Equity and the related notes 1 to 9.  We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our Responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

 

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

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

 

 

 

 

 

Ernst & Young LLP

Leeds

4 August 2010