Final Results

LSL Property Services 27 February 2008 For Immediate Release 27 February 2008 LSL Property Services plc ('LSL' or 'the Group') PRELIMINARY RESULTS 'Record full year results' LSL Property Services plc, a leading provider of residential property services, incorporating both estate agency and surveying businesses, announces preliminary results for the year ended 31 December 2007. Highlights Group •Record Underlying Operating Profit up 13.0% to £36.5m (2006: £32.3m) •Adjusted Proforma Earnings Per Share(1) up 17.0% to 23.3p per share (2006: 19.8p per share) (Basic and Diluted Earnings Per Share 15.8p and 15.7p (2006: 23.1p and 23.1p)). •Excellent cashflow generation - net cashflow from operating activities of £29.4m (2006: £30.3m) •Final dividend of 3.86p per share, giving a total dividend for the year of 6.86p per share. Business Diversification •Surveying business significantly expanded during the year by the major contract gains from C&G and Barclays. •Surveying now represents 72% of Group profits (2006: 65%). Surveying Performance •Turnover increased by 21.4% to £89.8m. •Underlying Operating Profit(2) up 25.2% to £26.3m (2006: £21.0m). •Integration of the C&G and Barclays contracts has gone smoothly and both are performing in line with expectations. •Despite difficult market conditions, with mortgage approvals during the final quarter of 2007 down by 23%, the business has proven to be resilient with e.surv job numbers down by only 10% in the final quarter of 2007. Estate Agency Performance •Despite difficult market conditions experienced during the second half of 2007 Underlying Operating Profit up 2.5% to £13.7m (2006: £13.4m). •Cost saving actions already taken in 2007 are expected to generate significant savings in 2008. Financial Services Performance •Growth in financial services with the value of mortgage applications up 10% to £3.31bn (2006: £3.00bn). •Continued investment in financial services growth has resulted in an Underlying Operating Loss for the year of £0.9m (2006: £0.8m). Commenting on today's announcement, Roger Matthews, Chairman said: 'I am very pleased to be reporting record full year financial results, particularly when set against the background of what was a challenging second half. During 2007, we have strategically expanded and strengthened our surveying division which is a more defensive area of our overall business and now represents 72% of Group profits. Although we remain cautious regarding market conditions during 2008, we are confident that the macroeconomic factors in the residential property market remain positive and the Board is confident in the long term growth prospects for the business.' For further information please contact: Simon Embley, Group Chief Executive Officer Dean Fielding, Group Finance Director LSL Property Services plc 01904 715 324 Richard Darby, Nicola Cronk, Catherine Breen Buchanan Communications 020 7466 5000 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 We are pleased to report that 2007 has been a record year for LSL, with Underlying Operating Profit increasing by 13.0% to £36.5m (2006: £32.3m). Our surveying business expanded significantly during the year through major contract gains from C&G and Barclays and, as a result, surveying represented 72% (2006: 65%) of the Group's profits. The surveying division's performance has proven to be resilient during the final quarter of 2007 due to its flexible operating model and recent contract gains. Underlying Operating Profit for the year increased by 25.2% to £26.3m (2006: £21.0m). Despite challenging market conditions in the second half of 2007, the estate agency division has performed satisfactorily, increasing its Underlying Operating Profit for the year by 2.5% to £13.7m (2006: £13.4m). The Group has continued to invest in and expand its financial services division resulting in an increase in the volume of mortgage applications to £3.31bn (2006: £3.00bn). This investment has resulted in a loss for the year of £0.9m (2006: £0.8m). The business is strongly cash generative, and as a result the board has proposed a final dividend of 3.86p per share giving a total dividend for the year of 6.86p per share (2006: nil). Financial results Group revenue has increased by 10.9% to £219.5m (2006: £198.0m) and the Underlying Operating Profit by 13% to £36.5m (2006: £32.3m), reflecting a continued improvement in Underlying Operating Profit margin from 16.3% to 16.7%. Exceptional costs of £1.4m were incurred across the Group in the second half of 2007. These result from actions taken to reduce our operating cost base in light of the lower activity levels as well as integration costs arising from the Barclays surveying contract. These actions will generate significant savings in 2008. Exceptional costs also include a £0.3m non cash impairment charge in connection with the conveyancing division. These exceptional costs are lower than previously indicated in our pre close trading statement issued on 3 January 2008. Net finance costs for the year were £2.7m (2006: £4.2m) resulting in a profit before tax (before adjustment to goodwill) and amortisation of £32.4m. The amortisation charge for the year of £9.1m includes £3.0m, which is tax deductible, in respect of the C&G contract which is being amortised on a straight line basis over five years in line with the expected economic benefit. The profit after tax was £16.4m (2006: £13.4m) for the year, and the Adjusted Proforma Earnings Per Share was 23.3p (2006: 19.8p per share). The Group is strongly cash generative reporting a net cash inflow from operating activities of £29.4m (2006: £30.3m) and a low level of capital expenditure of £2.4m. The Group benefits from a strong balance sheet with net debt as at 31 December 2007 of £48.7m (2006: £34.2m), after incurring the cash consideration of £30.2m for the C&G contract. LSL has a £95.0m revolving credit facility in place. The Board is proposing a final dividend of 3.86p per share, which gives a total dividend of 6.86p per share (2006: nil). The dividend policy reflects the cash-generative nature of the Group, and their long-term earnings potential whilst maintaining resources to continue the Group's growth, by investment in the existing businesses as well as in selective acquisitions. The final dividend will be paid on 30 April 2008 to those shareholders on the register on 25 March 2008. Market The housing market has been challenging during the second half of 2007, with housing transaction volumes for LSL's two main estate agency brands down by circa one third in the second half. The fall in volume arose following five successive interest rate rises, which have created affordability issues and have impacted on consumer confidence. The introduction of Home Information Packs (HIPs) also created some short term dislocation in supply. Whilst LSL is dependent on the activity levels in the UK housing market, the operating model demonstrates some resilience to the housing market cycle with LSL's profitability being biased towards surveying. Surveying demonstrates more resilience during a housing market downturn principally due to the flexibility of the Group's surveying panel management model under which an increasing proportion of jobs are performed within e.surv rather than outsourced. Surveying now represents an increased proportion of the Group's Underlying Operating Profit. Developments LSL has continued to invest for the future, particularly in both the surveying and the financial services divisions. The surveying division has made strong progress during the year, by gaining two major contracts with Barclays and C&G. The C&G contract is an exclusive agreement to provide panel management services for five years, for a cash consideration of £30.2m. The contract started on 1 July 2007 and has contributed £11.4m to turnover, with an operating profit and margin of £5.4m and 48.0% respectively. This contract will significantly enhance earnings and profits in 2008 will reflect a full year contribution. On 9 July 2007, we announced a contract with Barclays to provide exclusive panel management services for an initial term of three years. This contract started on 1 August 2007 and has been successfully integrated into the existing e.surv business. Since the well publicised issues in the lending market, some existing client volumes have declined significantly, reinforcing the importance of the above contract gains to the division. The estate agency business has continued to develop its customer offer. In the current difficult market conditions, the focus is on delivering cost efficiencies and expanding counter cyclical activities, such as lettings and our recently launched repossessions business. During 2007, we purchased a majority shareholding in three small agency businesses adding 16 new branches to the Group's estate agency division. LSL's financial services division has increased the value of its mortgage applications by 10% in 2007 to £3.31bn (2006: £3.00bn). This has been achieved through an investment in additional financial services consultants both in Reeds Rains and Linear, which has resulted in a loss for the year of £0.9m (2006: £0.8m). HIPs were introduced in September 2007 for four bed roomed properties and subsequently phased into the rest of the market. We have introduced a number of customer offerings including an integrated HIP and conveyancing proposition providing choice to customers depending on their circumstances. LSL announced its intention to cease trading as a provider of conveyancing services on 20 February 2008. It will continue to provide conveyancing referrals to its panel of law firms. Main Board The Board of LSL was established prior to the flotation in November 2006. There were no changes to the Board during 2007. The Board, in addition to myself, consists of three executives and three non executive directors. Mark Morris was appointed the Senior Independent Director on 24 October 2007. People LSL is a people business and as such we are reliant on the commitment and enthusiasm of our employees on whom we depend to provide the high level of service that we strive to achieve for our customers. In January 2008, LSL launched an HMRC approved Share Incentive Plan (Buy As You Earn) under which employees, including executive directors, can purchase shares on a monthly basis within statutory limits. This together with the Save As Your Earn Scheme launched in January 2007 has enabled the Company to provide its employees with the opportunity to share in the future success of LSL. A number of senior management employees, including the executive directors currently own approximately 34% of LSL. The interests of these senior management employees/directors are therefore closely aligned with the interests of other shareholders. I would like to take this opportunity to welcome new employees to the Group and to thank all employees for their continued dedication and professionalism. Current Trading & Outlook Market conditions during the second half of 2007 were challenging and transaction volumes softened further in the first eight weeks of 2008. The Board expects these challenging market conditions to continue for some time. Market recovery will be dependent upon improvements in consumer confidence and liquidity in the lending markets. Our estate agency business will be affected by the lower activity levels in 2008, whereas the surveying division will be supported by its flexible operating model and the full year contribution from 2007 contract gains as evidenced by recent market share gains by e-surv. Furthermore, we have a strong balance sheet and a track record of business development, both organically and through acquisition and are therefore well placed to take advantage of value creating acquisition opportunities, which are expected to arise as the year progresses. Beyond 2008, the macroeconomic factors in the residential property market remain positive and the Board is confident in the long term growth prospects for the business. Roger Matthews 27 February 2008 BUSINESS REVIEW Introduction LSL provides a broad range of services to its two key customer groups, who are mortgage lenders and private consumers. The Group provides various property services to consumers including estate agency, lettings, valuation, surveying, and advice on mortgages and non-investment insurance products. The Group also provides mortgage lenders with surveys and panel management services, asset management and property management services and also refers mortgage business from its customers to mortgage lenders. Key Strengths LSL has the following key strengths • It is one of the leading residential property services groups in the UK. • The surveying division has again demonstrated its excellent service provision by securing two major contract wins from C&G and Barclays during 2007. • LSL has demonstrated some resilience against the cycles of the housing market largely due to its surveying division which represents 72% of the Group's profits and due to the flexibility of e.surv's panel management model. • The estate agency division has a network of 454 branches, making it the third largest estate agency business in the UK(3). LSL is well placed to exploit consolidation opportunities in this fragmented market. • The Group has low capital expenditure (2007: £2.4m) (2006: £2.1m) and strong cash generation with net cash flow from operating activities at £29.4m (2006: £30.3m). • LSL has made a number of successful acquisitions, including Reeds Rains, Chancellors Associates, Linear and Barnwoods. • The current executive directors have been with the Group since 2001 and have a track record of improving profitability as a result of organic growth and a number of successful acquisitions. Strategy LSL is well positioned for longer term growth both organically and through selective acquisitions. Our surveying division continues to be successful in driving market share largely due to its service reputation which is demonstrated by the major contract wins from Barclays and C&G in 2007. On the acquisition front LSL is well placed to act as a consolidator in a largely fragmented market. The acquisitions made through 2005, 2006 and 2007 have overall been successfully integrated into the Group and are earnings enhancing. LSL has a range of propositions to target companies that we believe are attractive and that leverage both Group relationships and individual brands. However, given current market conditions, LSL is unlikely to make further acquisitions within the estate agency sector until after the early part of 2008. Surveying The surveying businesses have performed well in 2007, growing profitability and turnover. Key Performance Indicators: Surveying 2007 2006 % Change e.surv Turnover £71.8m £68.3m 5.0% Underlying Operating Profit £20.3m £20.3m 0.0% Margin 28.2% 29.7% Total Number of Jobs Performed 443,529 433,810 2.2% Chancellors Associates & Other Business(4) Turnover £6.6m £5.7m 15.8% Underlying Operating Profit £0.6m £0.6m 0.0% Margin 9.1% 10.5% Barnwoods(5) Turnover £11.4m - Underlying Operating Profit £5.4m - Margin 48.0% Total Surveying Business Turnover £89.8m £74.0m 21.4% Underlying Operating Profit £26.3m £21.0m 25.2% Margin 29.3% 28.4% Surveying: Competitive Strengths • The UK's largest distributor of valuations providing greater operational flexibility than competitors - even in a market downturn • Robust customer relationships with the leading lending institutions • Some proven resilience of profits to variable residential property market conditions • Proven systems that drive operational efficiencies • Strong customer ethos with quick turn-around times for valuations • Further opportunities to drive synergies from the new surveying contracts wins Surveying Division LSL operates its surveying division under its brands, e.surv, Chancellors Associates and Barnwoods and its customers are primarily mortgage lenders. As one of the UK's leading panel managers of valuation services, LSL's surveying division is the panel manager for seven of the top ten UK lenders. During 2007, 443,529 (2006: 433,810) valuations were carried out by e.surv's employed surveyors and sub contractors. Contract Wins During 2007 two key contracts were won. C&G's surveying business, with a projected annual turnover in excess of £20.0m, now trading as Barnwoods, and Ekins (the Barclays Bank surveying business), with a projected annual turnover of in excess of £10.0m, which was transferred into e.surv. The surveying contract with C&G is for an initial period of 5 years and includes exclusive panel management rights whilst the agreement with Barclays is for an initial period of 3 years. Lender Relationships e.surv has panel management arrangements with a significant number of lenders. A number of these arrangements are exclusive and involve the servicing and distribution of valuation instructions to these lenders' own teams of employed surveyors. e.surv has strong relationships with these lenders and the relationship is enhanced by the generation of referrals from LSL's financial services operations. Service Quality Service quality is a significant factor in maintaining relationships with lenders and in seeking to win new panel management contracts. It also differentiates e.surv from its competitors. One of the key factors that lenders use in assessing service quality is turnaround time for valuation instructions. e.surv's turnaround time is better than many of its competitors, largely as a result of the flexibility of the panel management model and its use of sophisticated technology. Hometrack Data Systems LSL owns 14.2% of Hometrack, the leading provider of 'Automated Valuation Model' (AVM). This investment was made in 2003 and provides LSL with an insight into the AVM market and a dividend was received in 2007 amounting to £0.4m. Estate Agency Division The estate agency business performed well in a very difficult market. Overall the division has grown its profits during the year by 2.5% to £13.7m (2006: £13.4m). Key Performance Indicators: Estate Agency 2007 2006 % Change Your Move & Reeds Rains Exchange Fees £69.3m £76.0m -8.8% Turnover £94.2m £100.9m -6.5% Underlying Operating Profit £13.7m £14.6m -6.2% Margin 14.5% 14.5% KPIs Exchange Units 31277 35255 -11.3% Average Fee £2214 £2156 2.7% Expenditure(6) £80.5m £86.3m -6.7% ^Other Brands Turnover £12.9m £2.2m 486% Underlying Operating Profit £0.0m -£1.2m - Total Estate Agency Turnover £107.1m £103.1m 3.9% Underlying Operating Profit £13.7m £13.4m 2.5% Margin 12.8% 13.0% ^ Other brands include Homefast, property-careers.com, LSLi subsidiaries (David Frost Estate Agents (acquired in July 2007), JNP Estate Agents (acquired in September 2007) and Intercounty (acquired in February 2007) and First Complete.) Estate Agency - Competitive Strengths & Growth Opportunities •No 3 in the UK by number of branches(7) •Improving financial performance in Your Move in spite of down turn •Technically advanced proprietary browser based IT systems (Preview and Quicklet) •www.your-move.co.uk-the number 1 UK estate agency branded website(8) •Successful franchise model •Increasing level of sales to customers of additional financial and other property related services •Growing lettings business Estate Agency Performance Difficult market conditions in the second half of 2007 resulted in a reduction in exchange units within the main estate agency brands, Your Move and Reeds Rains, of 11%. This was offset by a marginal increase in fees by 2.7% from £2,156 to £2,214 and by a growth of penetration into other income streams. The businesses also took actions to reduce their cost base from £86.3m to £80.5m. Growth in fee levels, other income streams and cost efficiencies will be a key focus in 2008. Estate Agency Revenue The main drivers of estate agency revenue are - • Exchange fee income which is linked to housing transaction prices and commission rates. LSL is focused on increasing commission rates despite market conditions. • Franchising income, which is generated from initial deposits on new openings, a monthly service fee of 8% of turnover, plus charges for IT provision, continues to grow in line with the increase in the franchise footprint. • Lettings income is generated from providing a range of services to landlords and tenants. Lettings has been expanded within Your Move and as at 31 December 2007 lettings services were provided from 340 offices across the LSL network (figure includes franchised branches). Income growth was experienced in 2007 and further growth is expected in 2008. • Additional commission income is generated through the sale of general insurance, conveyancing services, utilities and other products and services to clients of the branch network. HIPs potentially provide a significant future revenue stream. Service Quality LSL's estate agency businesses place strong emphasis on the quality of service they provide to customers and are founder members of the Ombudsman for Estate Agents Scheme. All branch based employees of the estate agency business complete a specially designed training programme and the quality of service is monitored on a monthly basis. Competition LSL's major competitors in the estate agency market vary from national estate agency chains such as Countrywide and Halifax Estate Agencies to local independent estate agents. It is estimated that the top five estate agency chains, including LSL, account for circa 20% of all estate agency branches in the UK, regional chains account for a further 10%, and independents make up the rest. property-careers.com property-careers.com (it changed its registered name from homeinspectors.co.uk to property-careers.com in March 2007 and continues to use homeinspectors.co.uk as a trading name) is now regarded as a leading provider of training services to individuals wishing to become Home Inspectors (trading here as homeinspectors.co.uk) and more latterly Domestic Energy Assessors. In addition, property-careers.com also provides panel management services to HIP suppliers in relation to the supply of Energy Performance Certificates and the management of Domestic Energy Assessors, trading as the energy-portal. First Complete First Complete is a brand that has been developed to supply lettings management services (trading as LSL Corporate Client Department) and an auctions business (trading as Baxtons). Both of these businesses were launched in 2007, and in January 2008 the business launched a repossession services business and is currently developing a tenant, landlord and guarantor referencing service (trading as First Complete Referencing). LSLi This business was launched in early 2007 and is the primary vehicle through which LSL is pursuing its strategy to acquire small to medium independent estate agency businesses. In 2007, it acquired the following estate agency businesses and has a network of 16 branches based in the home counties: • ICIEA Limited, trading as 'Intercounty' (acquired in February 2007 - 9 branches) • David Frosts Estate Agents Limited, trading as 'Frosts' (acquired in July 2007 - 3 branches) • JNP (Estate Agents) Limited, trading as 'The JNP Partnership' (acquired in September 2007 - 4 branches) Financial Services Division Financial Services - Competitive Strengths & Growth Opportunities • Growth of 10% in mortgage applications from £3.00bn to £3.31bn • Strong relationships with a broad panel of lenders. • Further mortgage growth opportunities in Linear as a result of placing financial consultants in independent agencies. Linear Financial Services and Linear Mortgage Network (together Linear) are brands placing mortgage advisors in the offices of Group agencies, franchisees and independent estate agents. The Linear brands will lose money whilst in their growth phase. Overall the business performance is in line with our plans. Key Performance Indicators: 2007 2006 % Change Financial Services Turnover £22.6m £20.8m 8.2% Underlying Operating Loss (£0.9m) (£0.8m) -13.9% Financial Consultant Numbers 328 312 5.1% Mortgages applications value £3.31bn £3.00bn 10.0% Financial Services Performance The Group has continued to invest in additional financial consultants during the year. As at 31 December 2007, LSL had 328 (2006: 312) branch based financial consultants employed by Your Move, Reeds Rains and Linear. The financial services business seeks to enhance the revenue derived from the estate agency operations through the sale of mortgages and related protection products. In return LSL receives a combination of commissions on product sales and procuration fees from lenders. The value of mortgage applications has increased by 10.0% to £3.31bn (2006: £3.00bn), making LSL one of the largest mortgages intermediaries in the UK. Regulation Your Move and First Complete are directly authorised by the FSA in relation to the sale of mortgage, pure protection and general insurance products, while all of the other estate agency businesses and Linear are appointed representatives of Openwork. Reeds Rains is also an appointed representative of Letsure for the sale of rent indemnity insurance. LSL's financial services business places strong emphasis on the quality of service it provides to customers and all advisers complete a specially designed comprehensive training programme which is supplemented by effective supervision, regular monitoring and regular refresher training sessions. As a result of Reeds Rains' and Linear's appointments by Openwork, LSL through those companies has a small indirect shareholding of Openwork. FINANCIAL REVIEW The key drivers of the financial performance of LSL are summarised below. Income statement Revenue Revenue increased by 10.9% in the year ended 31 December 2007 to £219.5m (2006: £198.0m). The increase was supported by a contribution from Barnwoods of £11.4m and market share growth within surveying. Operating Expenses excluding exceptional costs and amortisation Operating expenses increased by 10.3% to £184.1m (2006: £166.9m). Excluding Barnwoods, expenses are up 6.7% reflecting the additional costs from estate agency acquisitions and the survey and administration headcount growth within e.surv as a result of the contract win from Barclays. Underlying Operating Profit Underlying Operating Profit was £36.5m (2006: £32.3m) up by 13.0% on 2006. This results in a continued improvement in the Underlying Operating Profit margin from 16.4% to 16.6%. Exceptional Costs & Amortisation Exceptional costs in the year ended 31 December 2007 amounted to £1.4m (2006: £3.5m). These costs related to redundancy and closure costs incurred in the last quarter of 2007 and included the impairment of assets within our conveyancing business, Homefast. Net Financial Costs Net financial costs amounted to £2.7m (2006: £4.2m). Net financial costs for 2007 included investment income from Hometrack of £0.4m (2006: nil). The 2006 net financial costs figure included a one off dividend payment of £1.3m relating to B shares in issue prior to flotation. Taxation The effective rate of corporation tax including the deferred tax adjustment to goodwill for the year is 29.5% (2006: 30.4%). Adjusted Proforma Earnings Per Share The Adjusted Proforma Earnings Per Share (as defined in the Definitions section) is 23.3p (2006: 19.8p). The directors consider this provides a better and more consistent indicator of the Group's underlying performance as the Group's capital structure changed at flotation in November 2006. Balance Sheet Capital Expenditure Total capital expenditure in the year amounted to £2.4m (2006: £2.1m). The capital expenditure predominantly comprised investment in IT development and branch refurbishment. Financial Structure As at 31 December 2007 the Net Debt of LSL was £48.7m (2006: £34.2m). This reflects a one off payment for the C&G contract of £30.2m, the purchase of treasury shares of £2.4m and the acquisition of other subsidiaries (including deferred consideration, but net of cash acquired) of £6.7m. LSL has a £95.0m revolving credit facility in place providing some flexibility for acquisitions. This gives a Net Debt to Underlying Operating Profit ratio of 1.3 to 1 (2006: 1: 1 to 1). Cash Flow The business is highly cash generative and has low capital expenditure requirements. Net cash inflows from operating activities amounted to £29.4m (2006: £30.3m). Net Assets The net assets as at 31 December 2007 were £42.9m (2006: £26.0m). Treasury & Risk Management LSL has an active debt management policy and has purchased an interest rate cap, which expires in August 2009 and restricts LIBOR to 6% for £30.0m of debt. LSL does not hold or issue derivatives or other financial instruments for trading purposes. International Financial Reporting Standards (IFRS) The Financial Statements have been prepared under IFRS. LSL commenced reporting under IFRS from 1 January 2005. S D Embley Group Chief Executive Officer D A Fielding Group Finance Director LSL Property services plc Group income statement For the year ended 31 December 2007 2007 2006 (reclassified)* Note £'000 £'000 --------- --------- Revenue 2 219,518 197,996 Operating expenses: Employee and subcontractor costs 120,054 110,141 Share-based payments 650 13 --------- --------- Total employee and subcontractor costs 120,704 110,154 Establishment costs 12,364 12,274 Depreciation on property, plant and equipment 2,227 2,706 Other 48,804 41,727 --------- --------- (184,099) (166,861) Rental income 1,125 1,218 --------- --------- Group operating profit before exceptional costs and 36,544 32,353 amortisation Amortisation of intangible assets (9,145) (5,452) Exceptional costs 3 (1,413) (3,514) --------- --------- Group operating profit 25,986 23,387 --------- --------- Dividend income 373 - Finance income 357 660 Finance costs (3,429) (4,824) --------- --------- Net financial costs (2,699) (4,164) Profit before tax before adjustment to 23,287 19,223 goodwill Adjustment to goodwill in respect of subsequent (1,000) - recognition of deferred tax asset --------- --------- Profit before tax 22,287 19,223 Taxation 6 (5,867) (5,847) --------- --------- Profit for the year 16,420 13,376 --------- --------- Attributable to: Equity holders of the parent 16,420 13,058 Minority interests - 318 --------- --------- 16,420 13,376 --------- --------- Dividend proposed (final) (3.86p per share) 5 3,976 - Dividend paid (interim) (3.00p per share) 5 3,124 - Earnings per share expressed in pence per share: Basic 4 15.8 23.1 --------- --------- Diluted 4 15.7 23.1 --------- --------- *The Group has restated 2006 revenue by £545,000 to include other lettings income as these are in the nature of revenue rather than other operating income. The subcontractor costs of £10.2m were classified as part of other operating expenses during the previous year. This has been reclassified and included under employee and subcontractor costs as these relate to outsourced surveying. LSL Property services plc Statement of Group recognised income and expenses For the year ended 31 December 2007 Total recognised income and expense for the year: 2007 2006 Note £'000 £'000 --------- --------- Profit for the year 16,420 13,376 Available-for-sale investments: Valuation gains taken to equity 8 5,500 - --------- --------- Total recognised income and expense 21,920 13,376 --------- --------- - Attributable to equity holders of the parent 21,920 13,058 - Attributable to minority interest - 318 --------- --------- 21,920 13,376 --------- --------- LSL Property services plc Group balance sheet For the year ended 31 December 2007 2007 2006 Note £'000 £'000 --------- --------- Non-current assets Goodwill 69,572 65,463 Other intangible assets 7 41,562 17,669 Property, plant and equipment 4,600 4,321 Financial assets 8 5,650 148 Other receivables 129 229 --------- --------- Total non-current assets 121,513 87,830 --------- --------- Current assets Trade and other receivables 21,458 22,187 Cash and cash equivalents 2,326 578 --------- --------- Total current assets 23,784 22,765 --------- --------- --------- --------- Total assets 145,297 110,595 --------- --------- Current liabilities Financial liabilities 17,350 5,402 Trade and other payables 39,909 36,915 Current tax liabilities 4,957 5,575 Provisions for liabilities and charges 339 130 --------- --------- Total current liabilities 62,555 48,022 --------- --------- Non-current liabilities Financial liabilities 33,640 29,337 Trade and other payables 97 - Deferred tax liability 1,892 3,424 Provisions for liabilities and charges 4,175 3,846 --------- --------- 39,804 36,607 --------- --------- --------- --------- Net assets 42,938 25,966 --------- --------- Equity Share capital 208 208 Share premium account 5,629 5,629 Share-based payment reserve 560 13 Investment in treasury shares (2,669) (298) Unrealised gain reserve 5,500 - Retained earnings 33,710 20,414 --------- --------- 42,938 25,966 Minority interests - - --------- --------- Total equity 42,938 25,966 --------- --------- LSL Property services plc Group cash flow statement For the year ended 31 December 2007 31 Dec 2007 31 Dec 2006 £'000 £'000 £'000 £'000 -------- ------- ---- --------- ------- Cash generated from operating activities Profit before tax 22,287 19,223 Adjustments to reconcile profit before tax to net cash inflows from operating activities Amortisation 9,145 5,452 Dividend income (373) - Finance income (357) (660) Finance costs 3,429 4,824 Adjustment in relation to deferred tax 1,000 - asset -------- --------- 12,844 9,616 ------- ------- Group operating profit before 35,131 28,839 amortisation IPO costs - 3,514 Depreciation 2,227 2,706 Impairment of goodwill 130 - Impairment of property, plant and 207 - equipment (Profit)/loss on sale of property, plant (30) 21 and equipment Share-based payments 650 13 Amounts written off available for sale - 345 financial assets -------- --------- 3,184 6,599 Decrease/(increase) in trade and other 2,050 (4,394) receivables Increase in trade and other payables and 2,139 9,657 provisions -------- --------- 7,373 11,862 ------- ------- Cash generated from operations 42,504 40,701 Interest paid (3,429) (3,272) Dividends paid on 'B' shares prior to - (1,320) listing Tax paid (9,662) (5,852) -------- --------- (13,091) (10,444) ------- ------- Net cash from operating activities 29,413 30,257 Cash flows from investing activities Purchase of subsidiary undertakings, (3,806) (38,449) minority interest and commercial business Purchase of intangible assets (30,192) - Interest received 357 660 Dividends received 373 - Purchase of property, plant and (2,422) (2,073) equipment Proceeds from sale of property, plant and 139 6,134 equipment Purchase of available for sale financial (2) - assets -------- --------- Net cash expended on investing (35,553) (33,728) activities ------- ------- (6,140) (3,471) LSL Property services plc Group cash flow statement For the year ended 31 December 2007 31 Dec 2007 31 Dec 2006 £'000 £'000 £'000 £'000 Net cash from operating activities less (6,140) (3,471) cash expended on investing activities Cash flows from financing activities Repayment of loans (5,402) (42,075) Proceeds from loans 18,785 33,414 Purchase of treasury shares (2,371) (298) IPO costs - (3,514) Dividends paid (3,124) - -------- -------- Net cash generated/(used) in financing 7,888 (12,473) activities ------- ------- Net increase/(decrease) in cash and cash 1,748 (15,944) equivalents Cash and cash equivalents at the beginning 578 16,522 of the period ------- ------- Cash and cash equivalents at the end of the 2,326 578 period ------- ------- LSL Property Services plc Notes to the Preliminary results as at 31 December 2007 1. The financial information in this preliminary announcement does not constitute LSL's statutory financial statements for the year ended 31 December 2007 but has been extracted from the financial statements, and as such, does not contain all information required to be disclosed in the financial statements prepared in accordance with IFRS. Statutory financial statements for this year will be filed following the Annual General Meeting. The auditors have reported on these financial statements. Their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. Basis of preparation The financial statements have been prepared using the accounting policies published in the Group's financial statements for the year-ended 31 December 2006 which are available on LSL's website at www.lslps.co.uk with exception of amendments in presentation and disclosures as required by new accounting standards IFRS 7 Financial Instruments; Disclosures and IAS 1 Amendment - Presentation of Financial Statements. The applied IFRS accounting policies were selected by management considering all applicable International Financial Reporting Standards issued by the International Accounting Standards Boards (IASB) as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 December 2007 as applied in accordance with the provisions of the Companies Act 1985. LSL Property Services plc Notes to the Preliminary results as at 31 December 2007 2. Segment reporting The segment results for the year ended 31st December 2007 are as follows: Year ended 31 December 2007 --------- --------- --------- --------- --------- Estate Surveying and Financial Unallocated Total agency and valuation services related services activities £'000 £'000 £'000 £'000 £'000 --------- --------- --------- --------- --------- Income statement information Segmental revenue 107,110 89,866 22,542 - 219,518 --------- --------- --------- --------- --------- Segmental result: - before exceptional costs and amortisation of intangible assets 13,708 26,312 (870) (2,606) 36,544 --------- --------- --------- --------- --------- - after exceptional costs and amortisation of intangible assets 10,373 20,149 (1,995) (2,541) 25,986 --------- --------- --------- --------- --------- Dividend income 373 Finance income 357 Finance costs (3,429) --------- Profit before tax before adjustment to goodwill 23,287 Adjustment to goodwill in respect of subsequent recognition of deferred tax asset (1,000)* --------- Profit before tax 22,287 Taxation (5,867) --------- Profit for the year 16,420 --------- *this relates to the estate agency and related activities segment. Year ended 31 December 2006 (reclassified) --------- --------- --------- --------- --------- Estate Surveying and Financial Unallocated Total agency and valuation services related services activities £'000 £'000 £'000 £'000 £'000 --------- --------- --------- --------- --------- Income statement information Segmental revenue 103,118 74,041 20,837 - 197,996 --------- --------- --------- --------- --------- Segmental result: - before exceptional costs and amortisation of intangible assets 13,372 21,008 (764) (1,263) 32,353 --------- --------- --------- --------- --------- - after exceptional costs and amortisation of intangible assets 11,669 18,261 (1,766) (4,777) 23,387 --------- --------- --------- --------- --------- Finance income 660 Finance costs (4,824) --------- Profit before tax 19,223 Taxation (5,847) --------- Profit for the year 13,376 --------- LSL Property Services plc Notes to the Preliminary results as at 31 December 2007 3. Exceptional costs 2007 2006 £'000 £'000 --------- --------- IPO costs - 3,514 Establishment costs Onerous leases provision due to branch closures 501 - Employee costs Redundancy costs due to branch closures 575 - Other Impairment of property, plant and equipment 207 - Impairment of goodwill 130 - --------- --------- 1,413 3,514 --------- --------- Homefast Property Lawyers Limited ('Homefast') has continued to incur operating losses during the year and an impairment review was conducted in accordance with the accounting policy. As a result of this impairment review the entire net book value of property, plant and equipment of £207,000 and carrying value of goodwill relating to Homefast of £130,000 were impaired. There is no further value associated to any non-current assets in this business. 4. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year 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. Profit after Weighted 2007 Profit after Weighted 2006 tax average Per share tax average number Per Share number amount £'000 of shares Amount £'000 of shares Pence Pence Basic 16,420 103,647,347 15.8 13,058 56,622,461 23.1 EPS Effect of dilutive share - 609,076 - - 14,303 - options ------- --------- ------- ------- -------- ------- Diluted 16,420 104,256,423 15.7 13,058 56,636,764 23.1 EPS ------- --------- ------- ------- -------- ------- There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. LSL Property Services plc Notes to the Preliminary results as at 31 December 2007 The Directors consider that the adjusted earnings shown below give a better and more consistent indication of the Group's underlying performance: -------- ---------- 2007 2006 £'000 £'000 -------- ---------- Profit after tax 16,420 13,058 Adjusted after tax for: Exceptional costs 989 2,460 Amortisation 6,401 3,816 Dividend on 'B' ordinary shares - 1,320 Share-based payment 455 9 -------- ---------- Adjusted profit after tax 24,265 20,663 -------- ---------- 5. Dividends paid and proposed 2007 2006 £'000 £'000 --------- --------- Declared and paid during the year: Equity dividends on ordinary shares: Interim dividend for 2007: 3 pence (2006: nil) 3,124 - --------- --------- Proposed for approval at AGM (not recognised as a liability as at 31 December): Equity dividends on ordinary shares: Final dividend for 2007: 3.86 pence per share (2006: nil) 3,976 - --------- --------- 6. Taxation Tax charged in the income statement comprises: 2007 2006 £'000 £'000 --------- --------- UK corporation tax - current year 9,494 8,918 - tax overprovided in prior year (285) (142) - utilisation of tax losses (1,000) - --------- --------- 8,209 8,776 --- Deferred tax: --------------- Origination and reversal of temporary differences (2,342) (2,929) --------- --------- Total deferred tax (2,342) (2,929) --------- --------- Total tax charge in the income statement 5,867 5,847 --------- --------- The utilisation of tax losses relate to tax losses which have been realised during the year. However, a deferred tax asset related to these tax losses was not recognised at the time of accounting for the business combination in accordance with IFRS 3 Business Combinations and consequently on realisation in 2007 goodwill has been adjusted in accordance with IFRS 3.. LSL Property Services plc Notes to the Preliminary results as at 31 December 2007 7. Intangible assets The net book value of intangible assets as at 31 December 2007 include £27.2m customer contracts which are in respect of the acquisition of the surveying contract from C&G. 8. Financial assets In 2003, the Group acquired 84 'A' ordinary share of £0.01 each in Hometrack Data Systems Limited for a consideration of £1. This amounted to a 14.19% shareholding in that company. The investment is classified as available-for-sale financial assets in 2006 and 2007. In 2006, the financial asset was carried at cost as the fair value could not be reliably measured. In 2007, the fair value of the unlisted equity shares in Hometrack Data Systems Limited has been estimated at £5,500,000 on the basis of the present value of the expected future dividend to perpetuity and assumed earnings growth of 3% per annum and a discount rate of 12%. The Directors consider this is the best proxy of current value. 9. Net debt summary 2007 2006 £'000 £'000 --------- --------- Interest bearing loans and borrowings 50,990 34,739 Less: cash and short term deposit (2,326) (578) --------- --------- Net debt 48,664 34,161 --------- --------- LSL Property Services plc Notes to the Preliminary results as at 31 December 2007 10. Post balance sheet event In December 2007, the Group announced the details of a Buy As You Earn share scheme available to all group employees, commencing in January 2008. The scheme allows employees to purchase shares in the Group on a monthly basis. On 20th Feb 2008 the Group announces its intention to cease trading as a provider of conveyancing services. The results for 2007 and 2006 are shown below: 2007 2006 £'000 £'000 --------- --------- Revenue 2,719 3,132 --------- --------- Operating loss (877) (648) --------- --------- Net current liabilities (1,390) (1,031) --------- --------- Impairment on property, plant and equipment and goodwill (337) - --------- --------- -------------------------- (1) Reflects the after tax effects of Underlying Operating Profit (as set out in note 4 of the notes to the preliminary results) divided by the number of shares in issue as at the year end. (2) Underlying Operating Profit/Loss is before exceptional costs and amortisation. (3) Estate Agency News January 2008 (4) Estate Agency News, January 2008 (5) Hitwise, February 2008 (6) Expenditure is excluding exceptional costs and amortisation of intangible assets. (7) Estate Agency News, January 2008 (8) Hitwise, February 2008 This information is provided by RNS The company news service from the London Stock Exchange

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