INTERIM RESULTS

RNS Number : 4078K

LSL Property Services

30 July 2013

 



For immediate release

30 July 2013

LSL Property Services plc ('LSL')

Interim Results For the six months ended 30 june 2013

LSL Property Services plc ('LSL') a leading provider of residential property services incorporating estate agency and surveying businesses (the 'Group'), announces its interim results for the six months ended 30 June 2013.

	2013	2012	Change
Group revenue	£118.8m	£120.8m	-2%
Group Underlying Operating Profit(1)	£11.5m	£14.5m	-21%
Overall operating margin	9.7%	12.0%	-2.3%
Profit/(loss) before tax	£8.4m	(£7.9m)	+206%
Basic earnings/(loss) per share	6.3p	(6.0p)	+204%
Adjusted basic earnings per share	7.6p	9.6p	-21%
Net bank debt(2) at 30 June	£31.7m	£36.8m	-14%
Half year dividend	3.3p	3.1p	+6%
Like-for-like(3) Group revenue	£118.8m	£115.3m	+3%
Like-for-like Group Underlying Operating Profit	£11.5m	£12.0m	-4%
Like-for-like operating profit margin	9.7%	10.4%	-0.7%

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

(2)      See Note 13 for calculation

(3)      Like-for-like excludes the impact of the insourcing of a contract by a major Surveying client in June 2012 as announced in the Interim Results in July 2012

§ Excellent and improving performance from Agency division

§ Surveying impacted, as previously reported, by a major contract insourced in June 2012

§ Ongoing investment in lettings, building market share and increased capacity ahead of market improvement

§ Excellent cash generation and strong balance sheet

§ Market conditions and Group performance have improved significantly since Easter

§ Interim dividend up 6%

Estate Agency Performance

§ Underlying Operating Profit increased by 28% to £8.4m (2012: £6.5m). Agency operating margin increased to 9.3% (2012: 7.5%)

§ Residential sales income up 2% including average fee growth of 7% with improved mix on lower volumes

§ Lettings revenue up 9% to £24.7m and financial services revenue up 9% to £15.7m year on year

§ Strong performance from Marsh & Parsons with revenue up 5% year on year

§ Excluding Marsh & Parsons, profit per branch up to £26k on rolling 12 month basis (2012: £10k)

§ Pipeline at 30 June 2013 was 7% higher year on year in volume and 10% higher year on year in value

Surveying Performance 

§ Underlying Operating Profit was £5.4m (2012: £9.7m). Like-for-like underlying operating profit was £5.4m (2012: £7.2m)

§ Surveying operating margin 19.0% (2012: 28.2%). Like-for-like operating margin was 19.0% (2012: 24.8%)

§ Further growth in provision of surveying services to private buyers with revenue of £2.7m (2012: £1.8m)

§ Professional Indemnity costs were broadly in line with expectations during the period

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

"Market conditions and Group performance have improved significantly since Easter. Current indications from lenders are that these early signs of recovery will be maintained. It is expected that the benefits from improved market transaction volumes will be seen in the second half and we are increasing the rate of investment to build capacity across both Agency and Surveying divisions to capitalise on greater activity.

The Group is highly cash generative with relatively low levels of financial gearing and a new £100m banking facility. The scope for further value-accretive acquisitions combined with the benefits from organic growth initiatives and exposure to anticipated market improvements in 2014 position the Group extremely well to deliver increased shareholder value."

For further information, please contact:

Simon Embley, Group Chief Executive Officer                  

Steve Cooke, Group Finance Director

LSL Property Services plc                                                                                                              0207 382 0360

Richard Darby, Sophie McNulty, Helen Greenwood

Buchanan                                                                                                                                        0207 466 5000

www.buchanan.uk.com

 

Notes to Editors:

LSL is a leading provider of residential property services to its key customer groups.  Services to consumers include: residential sales, lettings, surveying, and advice on mortgages and non-investment insurance products. Services to mortgage lenders include: valuations and panel management services, asset management and property management services. For further information, and for a copy of the half yearly report for the period to 30 June 2013, please visit LSL's website: www.lslps.co.uk

Chairman's Statement

Introduction

Reported Underlying Operating Profit⁽¹⁾ was £11.5m (2012: £14.5m) but only slightly lower on a like-for-like⁽²⁾ basis. The first half was impacted by difficult market conditions in the first quarter and as expected by the insourcing of a major surveying contract in June 2012.

Market conditions and Group performance have improved significantly since Easter. Like-for-like revenue growth for the two months of May and June 2013 in Agency and Surveying were 10% and 5% respectively and agency pipelines were 10% higher year on year at 30 June 2013. 

The Estate Agency division delivered an excellent result in the period while making significant investment in our lettings capacity. The business has made good progress across all income streams with particularly strong growth in average fees, lettings and financial services which increased by 7%, 9% and 9% respectively, and the pipeline has increased significantly at the end of the half year.  

The Surveying division was impacted as expected by the insourcing of a major contract in June 2012 and by challenging market conditions in the first quarter. However, the division is well placed to benefit from the improving transaction levels and is investing in additional surveying capacity.

The business remains strongly cash generative and net bank debt declined by £5.1m to £31.7m at 30 June 2013 (30 June 2012: £36.8m). The established pattern of cashflow generation being phased towards the second half of the year has been further intensified by the continued growth in contribution from the Agency division.  As previously announced, the Group entered into a new £100m banking facility agreement in June 2013 for a period of just over four years.

The business is extremely well placed to capitalise on the improvement in market conditions and I am pleased to report an increase in our interim dividend of 6% to 3.3 pence per share.

Financial Results

Group revenue decreased by 2% to £118.8m (2012: £120.8m). Like-for-like⁽²⁾ revenue increased by 3% to £118.8m (2012: £115.3m). Group Underlying Operating Profit was £11.5m (2012: £14.5m) and Group Underlying Operating Margin decreased from 12.0% to 9.7%. Like-for-like Group Underlying Operating Profit was £11.5m (2012: £12.0m) and like-for-like Group Underlying Operating Margin decreased from 10.4% to 9.7%.

The Estate Agency Division increased turnover by 5% to £90.3m (2012: £86.3m) and Underlying Operating Profit by 28% to £8.4m (2012: £6.5m) in a market where house purchase approvals increased by 9% in the six months to 30 June 2013 compared to 2012⁽³⁾.

Surveying Division turnover was £28.5m (2012: £34.4m) due to the impact of the contract insourcing, as previously noted. If the insourced contract is excluded from the comparative, turnover reduced by 2% year on year compared to no change year on year in total mortgage approvals for the six months to 30 June 2013⁽³⁾.

Net interest payable was £1.3m⁽⁴⁾ (2012: £1.4m) and Group profit before tax, amortisation and exceptional costs was £10.2m⁽⁴⁾ (2012: £13.2m). Group profit before tax was £8.4m (2012: loss of £7.9m). The underlying rate of tax was 23% and the underlying effective rate of tax, excluding exceptional and prior year tax adjustments, was 23%. Group profit after tax was £6.5m (2012: loss of £6.2m, following the exceptional Professional Indemnity ('PI') charge).

Earnings per share was 6.3p (2012: loss of 6.0p) and adjusted earnings per share was 7.6p (2012: 9.6p). The half year dividend was increased by 6% to 3.3p per share (2012: 3.1p).

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

(2)      Excluding the impact of the insourcing of a major contract in June 2012

(3)      Source: Bank of England for "House Purchase Approvals" and "Total Mortgage Approvals"

(4)      Note 5 of the financial statements

Cash flow and Balance Sheet

The Group continued to deliver strong operating cash generation in the periodwith cash inflow from operations before exceptional costs and PI of £12.9m (2012: £17.4m). PI cash payments increased by £4.5m to £8.5m (2012: £4.0m) as expected.  The increase in payments was driven partly as a result of the increased level of PI claims since early 2012 and also by accelerated negotiated settlement on a number of previously disputed cases.  Payments for other exceptional costs were £0.5m (2012:  £0.2m) resulting in cash inflow from operations after PI and exceptional cost payments of £3.9m (2012: £13.2m).

Total capital expenditure during the first half of 2013 increased to £3.3m (2012: £2.4m) mainly due to investment in new Marsh & Parsons branches and expenditure on a new integrated front and back office system for our intermediary mortgage networks.

Net assets at 30 June 2013 were £77.3m (June 2012: £60.7m). Net bank debt at 30 June 2013 was £31.7m compared to £36.8m at 30 June 2012. Compared to 31 December 2012, net bank debt has increased by £5.0m due to the normal seasonality of Estate Agency division cash flows, higher PI cash outflows as expected and payment of dividend and bonuses.

Interim Dividend

The Board has declared an interim dividend payable of 3.3 pence per share, an increase of 6% on last year (2012: 3.1p). The dividend payment reflects our confidence in future prospects based on current trading and the strength of our cash generation and balance sheet. The dividend will be paid on 9 September 2013 to shareholders on the register as at 9 August 2013.

Estate Agency Division

The Estate Agency Division delivered an excellent result in the first half with strong contributions across all income streams and good performances from recent acquisitions. It has achieved this while investing to grow lettings and build market share in residential sales and will continue to invest into the second half in order to capitalise on the market improvement that has been evident since early April.

The business has continued to drive impressive levels of growth in lettings with lettings revenue increasing by 9% to £24.7m (2012: £22.6m). Residential sales income increased by 2% to £34.9m (2012: £34.1m) which compares favourably to the level of market mortgage approvals in the period over late 2012 to early 2013 which drove exchange income. The recent improvement in market transaction levels have resulted in a 10% year on year increase in pipeline at 30 June 2013. 

The residential sales result included fee growth of 7%, partly the result of the mix effect of fewer repossessions in our branch network. Repossessions achieve a lower fee than second hand homes because of a lower average selling price.  We were also pleased with the progress made in conveyancing where revenue increased by 19%.

Financial services revenue increased by 9% to £15.7m (2012: £14.4m). In total the Group arranged mortgage lending of £4.0bn during the first half (2012: £3.6bn).

The strong levels of revenue growth in Estate Agency have driven further improvement in branch profitability. Excluding Marsh & Parsons, profit per branch on a rolling 12 month basis has increased from £10k per branch at June 2012 to £26k per branch at June 2013.

Marsh & Parsons has performed well with revenue increasing by 5% to £13.5m (2012: £12.8m) including residential sales growth of 12% and lettings growth of 3%, reflecting Marsh & Parsons established lettings portfolio. Operating profit was £2.6m (2012: £2.9m) after investment in new branches, additional headcount to drive market share and infrastructure to support the significant levels of growth targeted over the medium term. The business has opened three new branches in the period in South Kensington, Bishops Park and Marylebone.  All of the new openings are currently trading in line with expectations.

Asset management revenue declined by 12% in the period to £7.1m (2012: £8.1m) against an estimated 17% decline in the repossession market from 18,100 in 2012 to 15,000 in 2013. Asset management is also making good progress in winning new property management contracts, the benefits of which will be felt over the medium term.

Surveying Division

The Surveying division has traded well in the first half, having absorbed the impact of a difficult period from January to April when market volumes fell by 5% year on year followed by the challenge of increasing our capacity as market volumes improved by 12% year on year during May and June. Throughout the period we have as usual focused on delivery of excellent service to lender clients and are pleased that the business is now set to return to growth following a period of significant contract changes.

While surveying turnover fell by 17% to £28.5m (2012: £34.4m), most of the reduction was due to the insourcing of a major contract in 2012. If the impact of this is excluded, surveying revenue reduced slightly, in line with the market. Operating margin was 19.0% (2012: 28.2%) and is expected to increase in the second half as transaction levels improve. The business is now investing to build surveying capacity in order to drive profitable growth during the period of expected market improvement.

We have continued to make good progress in growing revenues from the provision of surveying services to private buyers. Revenue for the six months to 30 June 2013 increased by 49% to £2.7m (£1.8m) and the annual run rate revenue in the second quarter was £6.1m. However, as market conditions have improved we have started to prioritise provision of valuation services to lender clients and as a result the annual run rate revenue for provision of services to private buyers reduced from £6.5m in May to £5.3m in June.

Since making the additional PI provision of £17.3m at the 2012 half year, PI costs have tracked broadly in line with expectations for the period since 1 July 2012. The 'Incurred But Not Reported' (IBNR) element of the total provision was established to cover anticipated costs of claims in respect of valuations undertaken during the 2004 to 2008 high risk lending period. The IBNR provision required is highly sensitive to small changes in assumptions relating to run rates of new claims and costs per claim, and the assumption, first made in July 2012, remains that the run rate of new claims will reduce from 1 July 2013 following April 2013 changes in rules governing civil litigation, and the expiry of the primary limitation for the high risk period.

Outlook

Market conditions and Group performance have improved significantly since Easter. Current indications from lenders are that these early signs of recovery will be maintained into the second half of the year.

The plan for 2013 in a flat market was to drive organic growth by investing in lettings and residential market share and to increase the rate of opening new Marsh & Parsons branches. It is now expected that the early benefits from improved market transaction volumes will be seen in the second half and we are increasing the rate of investment to build capacity across both Agency and Surveying divisions to capitalise on greater activity.  Overall, the Board is confident of delivering progress in line with our expectations for 2013.

The Group is highly cash generative with relatively low levels of financial gearing and a new £100m banking facility.

The Board is optimistic that there will be a further improvement in market volumes in 2014, helped by the expected impact of the Help to Buy Mortgage Guarantee Scheme. The scope for further value-accretive acquisitions combined with the benefits from organic growth initiatives and exposure to market improvements position the Group extremely well to deliver increased shareholder value.

Roger Matthews

30 July 2013

Principal risks and uncertainties 

There are a number of risks and uncertainties facing the business in the second half of the financial year.

 The Board has reconsidered the risks and uncertainties listed below: 

·     Impact on lender behaviour caused by volatility and economic uncertainty both in the Euro zone and within the UK

·     Loss of key surveying or corporate services clients or contracts

·     Liability for inaccurate professional services advice

·     Failure to effectively deliver and manage the market share initiatives for Estate Agency

·     Change in legislation, regulation or government policy

These risks and uncertainties and mitigating factors are described in more detail on pages 22 and 23 of the 2012 Report & Accounts, dated 28 February 2013 (a copy of which is available on the Group's website at www.lslps.co.uk).  Having reconsidered these risks and uncertainties the Board consider these to be still appropriate.

Forward-Looking Statements

This statement may contain forward-looking statements with respect to certain plans, goals and expectations relating to the future financial condition, business performance and results of LSL. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of LSL, and they may cause the actual results or performance of LSL to be materially different from the results or performance implied by such statements. Any forward-looking statements will be by reference to the date of this statement only and must not be regarded as guarantees of future performance. Further, nothing in this statement should be construed as a profit forecast. Some of the factors which may affect LSL's actual future financial conditions, business performance and results are contained within the Business Review in the 'principal risks and uncertainties section' on pages 22 and 23 of LSL's Annual Report and Accounts 2012 and on page 6 of this statement, together with information on the management of the principal risks and uncertainties faced by LSL.

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

Steve Cooke

Director

Interim Group Income Statement

for the six months ended 30 June 2013

		Unaudited Six Months Ended		Audited Year Ended
		30 June 2013	30 June 2012	31 December 2012
	Note	£'000	£'000	£'000
Revenue	3,4	118,767	120,786	243,845
Operating expenses:
Employee and subcontractor costs		(72,400)	(70,255)	(142,224)
Establishment costs		(9,264)	(9,603)	(18,459)
Depreciation on property, plant  and equipment		(1,904)	(1,634)	(3,499)
Other		(25,164)	(25,867)	(46,926)
		(108,732)	(107,359)	(211,108)
Other operating income	3	771	722	1,120
Gain on sale of property, plant and equipment		32	-	-
Group's share in post tax profits of joint ventures		694	362	1,283
Group operating profit before contingent consideration, exceptional costs, amortisation and share-based payments	4	11,532	14,511	35,140
Share-based payments		(328)	(568)	(647)
Amortisation of intangible assets		(119)	(3,001)	(3,472)
Contingent consideration	6	(832)	(539)	(4,152)
Exceptional costs	6	(664)	(16,771)	(17,684)
Group operating profit/(loss)	4	9,589	(6,368)	9,185
Finance income	3	10	3	10
Finance costs		(1,538)	(1,658)	(2,891)
Exceptional finance credit	6	308	146	429
Net financial costs		(1,220)	(1,509)	(2,452)
Profit/(loss) before tax	4	8,369	(7,877)	6,733
Taxation (charge)/credit
- related to exceptional costs		83	4,118	5,288
- others		(1,985)	(2,415)	(5,004)
	8	(1,902)	1,703	284
Profit/(loss) for the period/year		6,467	(6,174)	7,017
Attributable to:
- Owners of the parent		6,471	(6,183)	7,001
- Non-controlling interest		(4)	9	16
Earnings/(loss) per share expressed in pence per share:
Basic	5	6.3	(6.0)	6.8
Diluted	5	6.3	(6.0)	6.8
Adjusted - Basic	5	7.6	9.6	23.8
Adjusted - Diluted	5	7.6	9.6	23.8

Interim Group Statement of Comprehensive Income

for the six months ended 30 June 2013

		Unaudited Six Months Ended		Audited Year Ended
		30 June 2013	30 June 2012	31 December 2012
	Note	£'000	£'000	£'000
Profit/(loss) for the period		6,467	(6,174)	7,017
Items to be reclassified to profit and loss in subsequent periods:
Revaluation of financial assets		1,175	-	10,677
Income tax effect		(201)	-	(2,456)
Net other comprehensive income to be reclassified to profit and loss in subsequent periods:		974	-	8,221
Total other comprehensive income, net of tax		974	-	8,221
Total comprehensive income, net of tax		7,441	(6,174)	15,238
Attributable to     - Owners of the parent     - Non-controlling interest		7,445 (4)	(6,183) 9	15,222 16

Interim Group Balance Sheet

as at 30 June 2013

		Unaudited Six Months Ended		Audited Year Ended
		30 June 2013	30 June 2012	31 December 2012
	Note	£'000	£'000	£'000
Non-current assets
Goodwill		121,732	118,781	120,361
Other intangible assets		18,716	18,041	18,509
Property, plant and equipment		14,221	13,683	13,501
Financial assets	9	13,096	1,244	11,921
Investments in joint ventures		2,204	1,382	2,313
Total non-current assets		169,969	153,131	166,605
Current assets
Trade and other receivables		35,566	33,401	29,432
Current tax receivables		-	3,341	2,242
Cash and cash equivalents		218	337	225
Total current assets		35,784	37,079	31,899
Non-current assets held for sale	10	654	2,576	1,097
Total assets		206,407	192,786	199,601
Current liabilities
Financial liabilities	11	(1,969)	(1,496)	(2,396)
Trade and other payables		(49,738)	(52,590)	(48,297)
Current tax liabilities		(1,184)	-	-
Provisions for liabilities	12	(3,010)	(5,839)	(2,305)
Total current liabilities		(55,901)	(59,925)	(52,998)
Non-current liabilities
Financial liabilities	11	(49,030)	(48,003)	(42,165)
Deferred tax liability		(5,566)	(5,460)	(5,464)
Provisions for liabilities	12	(18,615)	(18,692)	(22,895)
Total non-current liabilities		(73,211)	(72,155)	(70,524)
Total Liabilities		(129,112)	(132,080)	(123,522)
Net assets		77,295	60,706	76,079
Equity
Share capital		208	208	208
Share premium account		5,629	5,629	5,629
Share-based payment reserve		1,626	1,447	1,526
Treasury shares		(2,689)	(2,691)	(2,691)
Fair value reserve		9,195	-	8,221
Retained earnings		63,261	56,051	63,117
Equity attributable to owners of parent		77,230	60,644	76,010
Non-controlling interests		65	62	69
Total equity		77,295	60,706	76,079

Interim Group Cash Flow Statement

for the 6 months ended 30 June 2013

			Unaudited 30 June 2013					Unaudited 30 June 2012				Audited 31 December 2012
			£'000		£'000			£'000	£'000			£'000	£'000
	Cash generated from operating activities
	Profit/(loss) before tax				8,369				(7,877)				6,733
	Adjustments to reconcile profit before tax to net cash from operating activities
	Exceptional operating costs and contingent consideration (non-cash)		1,539					17,310				23,262
	Amortisation of intangible assets		119					3,001				3,472
	Finance income		(10)					(3)				(10)
	Finance costs		1,538					1,658				2,891
	Exceptional finance credit		(308)					(146)				(429)
	Share-based payments		328					568				647
					3,206				22,388				29,833
	Group operating profit before amortisation and share-based payments				11,575				14,511				36,566
	Depreciation		1,904					1,634				3,499
	Dividend income		(489)					-				-
	Share of results of joint ventures		(694)					(362)				(1,283)
	(Gain)/loss on sale of property, plant and equipment		(75)					88				(1,426)
					646				1,360				790
	(Increase)/decrease in trade and other receivables		(5,006)					(4,582)				12
	Increase/(decrease) in trade and other payables		572					4,682				(2,078)
	Increase/(decrease)  in provisions		(3,917)					(2,800)				(2,699)
					(8,351)				(2,700)				(4,765)
	Cash generated from operations				3,870				13,171				32,591
	Interest paid		(830)					(1,225)				(2,084)
	Loan refinance costs paid		(1,128)					-				-
	Tax refund/(paid)		1,425					(4,322)				(7,252)
					(533)				(5,547)				(9,336)
	Net cash generated from operating activities				3,337				7,624				23,255

	Unaudited 30 June 2013		Unaudited 30 June 2012		Audited 31 December 2012
	£'000	£'000	£'000	£'000	£'000	£'000
Cash flows from investing activities
Cash acquired on purchase of subsidiary undertaking	-		239		223
Acquisition of subsidiaries and other businesses	(1,030)		(1,776)		(3,926)
Investment in joint venture	-		-		(10)
Investment in financial assets	-		(897)		(897)
Dividends received	1,292		748		748
Interest received	10		3		10
Purchase of property, plant and equipment and intangible assets	(3,381)		(2,420)		(5,680)
Proceeds from sale of property,  plant and equipment	973		2,752		6,290
Net cash expended on investing activities		(2,136)		(1,351)		(3,242)
Cash flows from financing activities
Proceeds/ (repayment) of loans	5,345		(300)		(10,962)
Purchase of treasury shares	(626)		-		-
Proceeds from exercise of share options	657		-		-
Dividends paid	(6,584)		(6,071)		(9,261)
Net cash used in financing activities		(1,208)		(6,371)		(20,223)
Net decrease in cash and cash  equivalents		(7)		(98)		(210)
Cash and cash equivalents at the beginning of the year		225		435		435
Cash and cash equivalents at the end of the year		218		337		225

Interim Group Statement of changes in equity

for the 6 months ended 30 June 2013

Unaudited six months ended 30 June 2013

	Share capital	Share premium account	Share- based payment reserve	Treasury shares	Fair value Reserve	Retained earnings	Total equity	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2013	208	5,629	1,526	(2,691)	8,221	63,117	76,010	69	76,079
Profit for the period	-	-	-	-	-	6,471	6,471	(4)	6,467
Other comprehensive income	-	-	-	-	974	-	974	-	974
Total comprehensive income for the period	-	-	-	-	974	6,471	7,445	(4)	7,441
Investment in treasury shares	-	-	-	(626)	-	-	(626)	-	(626)
Exercise of options	-	-	(228)	628	-	257	657	-	657
Share-based payments	-	-	328	-	-	-	328	-	328
Dividend payment	-	-	-	-	-	(6,584)	(6,584)	-	(6,584)
At 30 June 2013	208	5,629	1,626	(2,689)	9,195	63,261	77,230	65	77,295

During the six month period ended 30 June 2013, the Group's Employee Benefit Trust ('EBT') acquired 185,000 shares in the Group for £625,000.  In addition, during the period 271,156 share options were exercised relating to the 2010 CSOP and JSOP schemes resulting in the shares being sold by the EBT.  The Group received £657,000 on exercise of these options.

Unaudited six months ended 30 June 2012

	Share capital	Share premium account	Share- based payment reserve	Treasury shares	Fair value Reserve	Retained earnings	Total equity	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2012	208	5,629	912	(2,747)	-	68,328	72,330	53	72,383
Loss for the period	-	-	-	-	-	(6,183)	(6,183)	9	(6,174)
Other comprehensive income	-	-	-	-	-	-	-	-	-
Total comprehensive income for the period	-	-	-	-	-	(6,183)	(6,183)	9	(6,174)
Reissuance of treasury shares	-	-	(33)	56	-	(23)	-	-	-
Share-based payments	-	-	568	-	-	-	568	-	568
Dividend payment	-	-	-	-	-	(6,071)	(6,071)	-	(6,071)
At 30 June 2012	208	5,629	1,447	(2,691)	-	56,051	60,644	62	60,706

Audited year ended 31 December 2012

	Share capital	Share premium account	Share- based payment reserve	Treasury shares	Fair value Reserve	Retained earnings	Total equity	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2012	208	5,629	912	(2,747)	-	68,328	72,330	53	72,383
Profit for the year	-	-	-	-	-	7,001	7,001	16	7,017
Other comprehensive income	-	-	-	-	8,221	-	8,221	-	8,221
Total comprehensive income for the year	-	-	-	-	8,221	7,001	15,222	16	15,238
Put option over non-controlling interests	-	-	-	-	-	(2,928)	(2,928)	-	(2,928)
Reissuance of treasury shares	-	-	(33)	56	-	(23)	-	-	-
Share-based payments	-	-	647	-	-	-	647	-	647
Dividend payment	-	-	-	-	-	(9,261)	(9,261)	-	(9,261)
At 31 December 2012	208	5,629	1,526	(2,691)	8,221	63,117	76,010	69	76,079

Notes to the Interim Condensed Group Financial Statements

The interim condensed group financial statements for the period ended 30 June 2013 was approved by the board of directors on 29 July 2013. The interim financial statements are not the statutory accounts. The financial information for the year ended 31 December 2012 is extracted from the statutory accounts for the year ended 31 December 2012, 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 (2) or (3) of the Companies Act 2006.

1              Basis of preparation

The interim condensed group financial statements for the period ended 30 June 2013 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 2012.

There have been no significant related party transactions in the period to 30 June 2013.

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 2012.

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 as at 31 December 2012. These assumptions are discussed in detail on pages 64 and 65 and in notes 7, 14, 16, 21 and 22 of the Group's annual financial statements for the year ended 31 December 2012. The assumptions discussed are as follows:

·    Valuation in acquisitions

·    Impairment of intangible assets

·    Assessment of the useful life of an intangible asset

·    Professional indemnity claims

·    Contingent consideration

·    Valuation of financial assets

1.      Basis of preparation (continued)

Significant accounting policies (continued)

New standards and interpretations

The nature and the impact of each new standard/amendment is described below:

IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1

The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time (e.g., net gain on hedge of net investment, exchange differences on translation of foreign operations, net movement on cash flow hedges and net loss or gain on available-for-sale financial assets) now have to be presented separately from items that will never be reclassified (e.g., actuarial gains and losses on defined benefit plans and revaluation of land and buildings). The amendment affected presentation only and had no impact on the Group's financial position or performance.

IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application of IFRS 13 has not materially impacted the fair value measurements carried out by the Group.

IFRS 13 also requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 Financial Instruments: Disclosures. Some of these disclosures are specifically required for financial instruments by IAS 34.16A(j), thereby affecting the interim condensed consolidated financial statements period. The Group provides these disclosures in Note 15. The amendments to the following standards below did not have any impact on the accounting policies, financial position or performance of the Group:

·    IAS 19 (Revised) - Employee Benefits

·    Amendment to IAS 1 - Clarification of the requirement for comparative information

·    Amendment to IAS 32 - Tax effects of distributions to holders of equity instruments

·    Amendment to IAS 34 - Interim financial reporting and segment information for total assets and liabilities

·    Amendments to IFRS 7 - Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities

Going concern 

In June 2014, the Group refinanced its borrowing facilities and now has a £100m banking facility to August 2017.  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.      Revenue

	Six months ended		Year Ended
	30 June 2013 £'000	30 June 2012 £'000	31 December 2012 £'000
Revenue from services	118,767	120,786	243,845
Operating Revenue	118,767	120,786	243,845
Rental Income	282	722	1,120
Dividend Income	489	-	-
Other Operating Income	771	722	1,120
Finance Income	10	3	10
Total Revenue	119,548	121,511	244,975

4.      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 Services segment provides services related to the sale and letting of housing.  It operates a network of high street branches. As part of this process, the Estate Agency Division also provides marketing and arranges conveyancing services.  In addition, it provides repossession asset management services to a range of lenders. It also arranges mortgages for a number of lenders and arranges pure protection policies such as life assurance and critical illness cover from a panel of insurance providers via the Estate Agency branch, First Complete, Pink and Linear networks.  It also operates a Financial Services segment as a separate mortgage and insurance distribution business providing products and services to financial intermediaries. The results of this Financial Services segment, which does not meet the quantitative criteria for separate reporting under IFRS have been aggregated with those of Estate Agency and Related Services.

·      The Surveying and Valuation Services segment provides a professional valuations and associated panel management service of housing to various lending corporations and surveying services to individual customers.

Each segment has various products and services and the revenue from these products and services are disclosed in the Annual Report & Accounts 2012 under the Business Review. 

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

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

Operating segments

The following tables presents revenue and profit information regarding the Group's operating segments for the six months ended 30 June 2013.

Six months ended 30 June 2013

Income statement  information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Segmental revenue	90,297	28,470	-	118,767
Segmental result:
- before exceptional costs, contingent     consideration, amortisation and     share-based payments	8,374	5,425	(2,267)	11,532
- after exceptional costs, contingent
consideration, amortisation and     share-based payments	7,862	4,823	(3,096)	9,589
Finance income				10
Finance costs				(1,538)
Exceptional finance credit				308
Profit before tax				8,369
Taxation				(1,902)
Profit for the period				6,467

In the period ended 30 June 2013, there is no revenue from one customer that accounts for 10% or more of the Group's total revenue (2012 - none).

Balance sheet information
Segment assets - intangible	129,668	10,780	-	140,448
Segment assets - other	56,306	8,131	1,522	65,959
Total Segment assets	185,974	18,911	1,522	206,407
Total Segment liabilities	(57,309)	(31,635)	(40,168)	(129,112)
Net assets/(liabilities)	128,665	(12,724)	(38,646)	77,295

Unallocated net liabilities comprise certain property, plant and equipment (£30,000), cash and bank balances (£218,000), other assets (£1,274,000), other taxes and liabilities (£219,000), accruals (£1,288,000), financial liabilities (£31,382,000), deferred and current tax liabilities (£6,750,000), interest rate swap (£528,000).

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

Operating segments

Six months ended 30 June 2012

Income statement  information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Segmental revenue	86,348	34,438	-	120,786
Segmental result:
- before exceptional costs, contingent     consideration, amortisation and     share-based payments	6,543	9,698	(1,730)	14,511
- after exceptional costs, contingent
consideration, amortisation and     share-based payments	5,564	(10,065)	(1,867)	(6,368)
Finance income				3
Finance costs				(1,658)
Exceptional finance credit				146
Loss before tax				(7,877)
Taxation				1,703
Loss for the period				(6,174)

Balance sheet information
Segment assets - intangible	127,054	9,767	-	136,821
Segment assets - other	40,355	9,237	6,373	55,965
Total Segment assets	167,409	19,004	6,373	192,786
Total Segment liabilities	(50,478)	(37,252)	(44,350)	(132,080)
Net assets/(liabilities)	116,931	(18,248)	(37,977)	60,706

Unallocated net liabilities comprise certain property, plant and equipment (£51,000), financial assets (£1,244,000), investments in joint ventures (£1,382,000), trade and other receivables (£18,000), current tax asset (£3,341,000), cash and bank balances (£337,000), other taxes and liabilities (£393,000), other creditors (£43,000), accruals (£1,510,000) financial liabilities (£35,825,000), deferred tax liabilities (£5,460,000), interest rate swap (£1,119,000).

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

Operating segments

Year ended 31 December 2012

Income statement  information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Segmental revenue	181,627	62,218	-	243,845
Segmental result:
- before exceptional costs, contingent     consideration, amortisation and     share-based payments	24,430	13,910	(3,200)	35,140
- after exceptional costs, contingent
consideration, amortisation and     share-based payments	20,168	(6,070)	(4,913)	9,185
Finance income				10
Finance costs				(2,891)
Exceptional finance credit				429
Profit before tax				6,733
Taxation				284
Profit for the year				7,017

	Estate agency and related  activities £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Balance sheet information
Segment assets - intangible	129,1020	9,768	-	138,870
Segment assets - other	36,964	7,018	16,749	60,731
Total Segment assets	166,066	16,786	16,749	199,601
Total Segment liabilities	(56,805)	(32,797)	(33,920)	(123,522)
Net assets/(liabilities)	109,261	(16,011)	(17,171)	76,079

Unallocated net liabilities comprise certain property, plant and equipment (£39,000), financial assets (£11,921,000), investments in joint ventures (£2,313,000), cash and bank balances (£225,000), other assets (£9,000), other taxes and liabilities (£219,000), other creditors (£45,000), accruals (£1,320,000) financial liabilities (£26,037,000), deferred and current tax liabilities (£3,222,000), interest rate swap (£836,000).

5.      Earnings Per Share (EPS)

Basic Earnings Per Share amounts are calculated by dividing net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted 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 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 tax £'000		Weighted average number of shares	2013 Per share amount Pence		Loss after tax £'000		Weighted average number of shares	2012 Per share amount  Pence
Basic EPS		6,471		103,016,142	6.3		(6,183)		102,912,662	(6.0)
Effect of dilutive share options		-		426,217	-		-		-	-
Diluted EPS		6,471		103,442,359	6.3		(6,183)		102,912,662	(6.0)

Year ended 31 December 2012				Profit after tax £'000	Weighted average number of shares	2012 Per share amount Pence
Basic EPS				7,001	102,912,662	6.8
Effect of dilutive share options				-	-	-
Diluted EPS				7,001	102,912,662	6.8

Adjusted basic and diluted EPS

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

	Six months ended		Year Ended
	30 June 2013 £'000	30 June 2012 £'000	31 December 2012 £'000
Group operating profit before contingent consideration in acquisitions linked to employment, exceptional costs, share-based payments and amortisation (excluding non-controlling interest)	11,536	14,502	35,124
Net finance costs (excluding exceptional costs and unwinding of discount on contingent consideration)	(1,324)	(1,350)	(2,623)
Normalised taxation	(2,374)	(3,222)	(7,963)
Adjusted profit after tax(1) before exceptional costs, share-based payments and amortisation	7,838	9,930	24,538

5.      Earnings per share (continued)

Six months ended 30 June

	Adjusted Profit after tax1 £'000	Weighted average number of shares	2013 Per share amount Pence	Adjusted Profit after tax £'000	Weighted average number of shares	2012 Per share amount Pence
Adjusted Basic EPS	7,838	103,016,142	7.6	9,930	102,912,662	9.6
Effect of dilutive share options	-	426,217	-	-	-	-
Adjusted Diluted EPS	7,838	103,442,359	7.6	9,930	102,912,662	9.6

Year ended 31 December 2012

				Adjusted Profit after tax £'000	Weighted average number of shares	2012 Per share amount Pence
Adjusted Basic EPS				24,538	102,912,662	23.8
Effect of dilutive share options				-	-	-
Adjusted Diluted EPS				24,538	102,912,662	23.8

(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 23.25% (30 June 2012- 24.5%; 31 December 2012 - 24.5%).

6.      Exceptional items

	Six Months Ended		Year Ended
	30 June 2013	30 June 2012	31 December 2012
Exceptional costs:	£'000	£'000	£'000
Provision for professional indemnity claims/notifications	-	17,273	17,333
Branch closure costs including redundancy costs	672	188	1,200
Gain on disposal of freehold properties	(43)	(782)	(1,426)
Onerous leases	-	92	675
Acquisition related costs	35	-	(98)
Total operating exceptional costs	664	16,771	17,684
Contingent consideration on acquisitions linked to  employment	832	539	4,152
	832	539	4,152
Finance costs
Movement in fair value of interest rate swap	(308)	(146)	(429)
	(308)	(146)	(429)
Net exceptional cost	1,188	17,164	21,407

Provision for professional indemnity(PI) claims/notifications

During the prior year, the Group saw a deterioration in claims experience relating to the 2004 to 2008 period, which was a period of relatively high risk lending characterised by higher house prices, high loan-to-value ratios and considerable levels of buy-to-let and sub-prime lending.  As a result the provision for PI costs was increased by £17.3m at June 2012.

The PI provision is made up of a Specific Provision and 'Incurred But Not Reported' (IBNR).  The Specific Provision is a provision based on the Group's review of any notifications or claims which had been made against the Group as at 30 June 2013.  The main factors considered in quantifying the specific provision were the likelihood that a claim would be successful, an assessment of the likely cost for each claim, including any associated legal costs, and whether any reduction in the claim is considered likely due to contributory negligence of the lender.

The IBNR provision, is based on management's estimates on the number of claims which will be received in the future with regard to work completed before 30 June 2013.  The Directors have then applied an average cost per case, based on historical averages, to estimate the IBNR provision.

The increase in the PI provision recorded at 30 June 2012 was partly driven by lenders, most of whom are no longer active in the market, pursuing notifications and claims previously considered dormant.  It was also necessary to make additional provisions for existing claims which are being aggressively pursued by lenders who often use solicitors engaged on a no win, no fee basis. 

Both these factors have had a significant impact on the IBNR provision required for notifications and claims estimated to be received in the future for the 2004 to 2008 period.  It should be noted this is the Directors' best estimate of future claims and the conclusions on the appropriate level of IBNR provision are sensitive to small changes in assumptions and are therefore highly subjective.  The additional charge relating to the 2004 to 2008 risk years was included as an exceptional item in 2012.

The Group has continued to build a provision for estimated PI costs relating to valuations completed since 2009, and an Income Statement charge has been made in these results and the charge has been considered as an operating expense rather than as an exceptional cost. 

Since making the additional PI provision of £17.3m at the 2012 half year, PI costs have tracked broadly in line with expectations for the period since 1 July 2012. The IBNR provision required is highly sensitive to small changes in assumptions relating to run rates of new claims and costs per claim, and the assumption, first made in July 2012, remains that the run rate of new claims will reduce from 1 July 2013 following the April 2013 change in legislation governing civil litigation.  No additional exceptional increase in the PI provision was considered necessary by the Directors at 30 June 2013.

6.    Exceptional items (continued)

Branch closures

In 2013, E-surv closed one of their administration offices.  In the prior year, a number of branches closed relating to the Your Move and Reeds Rain brands.  This resulted in redundancy costs, creation of onerous leases on the closed premises and other associated costs which have been treated as exceptional. 

Freehold properties

During the period, freehold properties relating to the Halifax acquisition with a book value totalling £846,000 (Dec 2012: £4,663,000 and June 2012: £1,907,000) were sold for net proceeds of £889,000 (Dec 2012: £6,178,000 and June 2012: £2,689,000) resulting in a gain on disposal of £43,000 (Dec 2012: £1,515,000 and June 2012: £782,000).  Other assets relating to closure of branches totalling £nil (Dec 2012: £201,000 and June 2012: £nil) were sold for net proceeds of £nil (Dec 2012: £122,000 and June 2012: £nil) resulting in a loss on disposal of nil (Dec 2012: £89,000 and June 2012: £nil)

Contingent consideration

The acquisition of Marsh & Parsons in November 2011 has resulted in an exceptional contingent consideration expense of £610,000 (Dec 2012: £1,802,000 and June 2012: £59,000) in the current year.  Assuming the level of profits and new branch openings remain on forecast, this charge is expected to continue at this level until 31 December 2015. The acquisitions of Davis Tate and Lauristons in the prior year resulted in an exceptional expense of £222,000 (Dec 2012: £2,250,000 and June 2012: £480,000), but the impact of these acquisitions on future years will be far smaller unless there are significant changes in the forecast profitability of these acquisitions.  See Notes 11 and 14 for more details.

7.      Dividends paid and proposed

	Six Months Ended		Year Ended
	30 June 2013 £'000	30 June 2012 £'000	31 December 2012 £'000
Declared and paid during the period
Equity dividends on ordinary shares:
Final dividend for full year 2012:6.4 pence	6,584	6,071	9,261
Dividends on ordinary shares proposed (not recognised as a liability as at 30 June):
Interim dividend for 2013: 3.3 pence per share (2012 - 3.1 pence)	3,400	3,090	6,666

8.      Taxation

The major components of income tax charge in the interim Group income statements are:

	Six Months Ended		Year Ended
	30 June 2013	30 June 2012	31 December 2012
	£'000	£'000	£'000
UK corporation tax:
- current year	2,058	(1,705)	2,997
- adjustment in respect of prior years	(56)	(686)	(1,407)
	2,002	2,391	1,590
Deferred tax:
Origination and reversal of temporary differences	(93)	524	(1,718)
Adjustment in respect of prior year	(7)	164	(156)
	(100)	688	(1,874)
Total tax charge/(benefit) in the income statement	1,902	(1,703)	(284)

Income tax charged directly to other comprehensive income is £201,000 (30 June 2012: £nil and 31 December 2012: £2,456,000) and relates to the revaluation of financial assets. 

In March 2013, the UK government announced additional proposals to reduce the main rate of corporation tax to 20% from 1 April 2015.  As of 30 June 2013 only the reductions to 23% had been enacted.  Accordingly this is the rate at which deferred tax has been provided.  If the subsequent reductions in the tax rate to 20% had been substantively enacted at 30 June 2013 the deferred tax liability would have reduced by £687,000.

9.      Financial assets

	Six Months Ended		Year Ended
Available-for-sale financial assets	30 June 2013	30 June 2012	31 December 2012
	£'000	£'000	£'000
Unquoted shares carried at cost less impairment of £nil (June and December 2012: £345,000)	-	1,244	148
Unquoted shares at fair value	13,096	-	11,773
	13,096	1,244	11,921
Opening balance	11,921	347	347
Acquisitions	-	897	897
Fair value adjustment recorded through reserves	1,175	-	10,677
Closing balance	13,096	1,244	11,921

Unquoted shares carried at cost

The financial assets are in unlisted equity instruments and are carried at fair value.  Fair value is judgemental given the assumptions required and have been valued using level 3 valuation techniques (see Note 15)

In April 2012, the Group acquired a further 1.38% of Zoopla Group Limited (Zoopla) for £897,000. In August 2012, Zoopla merged with Digital Property Group (DPG), owner of Findaproperty.com and Primelocation.com.  As part of the merger, any warrants held in Zoopla were exercised so that the Group now owns 4.81% of the post-merger entity.  The price paid per share in April 2012 was £6.03 which was the last time the shares were traded.   This values the combined Zoopla Group at £245m, with LSL Group's share of this being £11.8m.  The profitability of Zoopla over the last 12 months as well as an appropriate valuation multiple has been reviewed at 30 June 2013 and the Directors believe that as at 30 June 2013 a valuation of £11.8m is appropriate.

The Group originally owned 15% of Vibrant Energy Matters Limited (VEM) which was acquired for £1 in November 2011.   The Group increased its interest in VEM to 15.7% in the period by making a £25,000 investment.  The price paid for the shares has been deemed by the Directors to be a good approximation of fair value at 30 June 2013 and the Group's entire stake has been revalued upwards to £0.6m and has been recorded through reserves.

The Group originally owned 15.2% of GPEA Limited (GPEA) which was acquired for £448,000 and subsequently impaired by £345,000.   During the period, the GPEA proposed a share buy back which would increase the Group's stake in GPEA to 16.9% and value our interest in the business at approximately £0.8m.  The price proposed for the share buy back is considered to be a good approximation of fair value at 30 June 2013 and the Group's entire stake has been revalued upwards to £0.8m and has been recorded through reserves.

10.    Assets held for sale

During the period the Group classified £654,000 (Dec 2012: £1,097,000 and June 2012: £2,576,000) as assets held for sale.  This relates to six freehold properties acquired as part of the Halifax Estate Agency acquisition in 2010 which are now being actively marketed.  These assets are part of the Estate agency and related services segment.  During the period, freehold properties relating to the Halifax acquisition with a book value totalling £846,000 (Dec 2012: £4,663,000 and June 2012: £1,907,000) were sold for net proceeds of £889,000 (Dec 2012: £6,178,000 and June 2012: £2,689,000) resulting in a gain on disposal of £43,000 (Dec 2012: £1,515,000 and June 2012: £782,000) which has been recorded in exceptional items (Note 6).

11.    Financial liabilities

	Six Months Ended		Year Ended
	30 June 2013	30 June 2012	31 December 2012
	£'000	£'000	£'000
Current
2% unsecured loan notes	-	1,496	-
Overdraft	882	-	1,537
Contingent consideration	559	-	369
Deferred consideration	-	-	490
Derivatives carried at fair value	528	-	-
	1,969	1,496	2,396
Non-current
Bank loans - Revolving Credit Facility(RCF)	30,500	36,005	24,500
12% unsecured loan notes	8,660	8,660	8,660
Deferred consideration	401	774	450
Contingent consideration	9,469	1,445	7,719
Derivatives carried at fair value	-	1,119	836
	49,030	48,003	42,165

2% unsecured loan notes (2% LN)

The 2% LN were issued as part satisfaction of the consideration for acquisition of Marsh & Parsons Limited in November 2011.  These loan notes carried an interest rate of 2% and were redeemable at par value at any time after 24 November 2012 at the option of either the Group or the loan note holder. They were redeemed on this date.

Bank loans - revolving credit facility and overdraft

A new £100m loan facility which expires in August 2017 was arranged in June 2013 and this replaces the previous £75m facility which was due to expire in March 2014.  Loan refinance costs of £1,128,000 were incurred in June 2013 which have been capitalised and will be amortised over the life of the loan facility.

The bank loan totalling £30.5m (Dec 2012: £24.5m and June 2012: £36.0m) and overdraft totalling £0.9m (Dec 2012: £1.5m and June 2012: £nil) are secured via a cross guarantee issued from all of the Group's subsidiaries excluding the following subsidiaries, Lending Solutions, Homefast Property Services, Linear Mortgage Network, Linear Financial Services, Templeton LPA, property-careers.com, Chancellors Associates and LSLi and its subsidiaries.

The utilisation of the revolving credit facility may vary each month as long as this does not exceed the maximum
£100m facility (Dec and June 2012: £75m).  The Group's overdraft is also secured on the same facility but can not exceed £5m and the combined overdraft and revolving credit facility can not exceed £100m (Dec and June 2012: £75m).  In June 2013, the banking facility was renewed and is repayable when funds permit or by August 2017.  Interest and fees payable on the revolving credit facility amounted to £0.8m (Dec 2012: £1.8m and June 2012: £1.2m). The interest rate applicable to the facility is LIBOR plus a margin rate of 1.50% (Dec and June 2012: LIBOR plus 1.75%). The margin rate is linked to the leverage ratio of the Group and the margin rate is reviewed at six monthly intervals. An additional utilisation fee is now charged from June 2013 which is related to the percentage of the facility drawn.

12% unsecured loan notes (12% LN)

The 12% LN with a face value of £6,146,000 (fair value of £8,660,000) were issued as part satisfaction of the consideration for acquisition of Marsh & Parsons Limited in November 2011.  These loan notes carry a coupon of 12% which is compounded every year on 1st January and rolled up to redemption.  These loan notes are redeemable at par value plus rolled up interest at any time after 31 March 2016 at the option of the loan note holder.  However, if that option is not exercised by the loan note holder they are redeemable on 31 March 2020.  These amounts do not include accrued interest of £512,000 (Dec 12: £350,000 and June 2012: £284,000) which is included in accruals.

11.    Financial liabilities (continued)

Deferred consideration

During the period the Group paid £438,000 with regard to deferred consideration.  Deferred consideration totalling £401,000 is payable at any time between 31 March 2016 and 31 March 2020 at the option of the management shareholders. 

Contingent consideration

	Six Months Ended		Year Ended
	30 June 2013	30 June 2012	31 December 2012
	£'000	£'000	£'000
M&P growth shares	2,478	55	1,868
LSLi contingent consideration	6,575	1,390	6,220
Walker Fraser Steel	975	-	-
	10,028	1,445	8,088
Opening balance	8,088	1,215	1,215
Cash paid	(12)	-	-
Acquisition	987	-	-
Fair value adjustment recorded through reserves	-	-	2,928
Fair value adjustment recorded against goodwill	(71)	(45)	(156)
Fair value adjustments recorded though Income Statement	1,036	275	4,101
Closing balance	10,028	1,445	8,088

In respect of the closing balance of contingent consideration of £10,028,000, £4,754,000 relates to arrangements being accounted for as remuneration, £3,524,000 relates to put options over non controlling interests and £1,750,000 relates to arrangements accounted for under IFRS 3.

In respect of the amount recorded in the income statement of £1,036,000, £636,000 relates to arrangement being accounted for as remuneration, £375,000 relates to put options over non controlling interests and £25,000 relates to arrangements accounted for under IFRS 3.

£6,575,000 (Dec 2012: £6,220,000 and June 2012: £1,390,000) of contingent consideration relates to payments to third parties in relation to the acquisition of certain subsidiaries in 2007 & 2012. This is payable between three and five years after the acquisition dates depending on the profitability of those subsidiaries in the relevant years. In 2012, the contingent consideration has been recalculated based on the latest management's expectation using a discount rate of 6.5% (Dec 2012 and June 2012: 7%).

£2,478,000 (Dec 2012: £1,868,000 and June 2012: £55,000) of contingent consideration relates to the 'Growth Shares' issued to the management of Marsh & Parsons subsequent to acquisition as an incentive to grow the Marsh & Parsons business.  Holders of Growth Shares will have the option to require LSL to buy their Growth Shares at any time between 31 March 2016 and 1 April 2020, at their discretion, at a price determined by a multiple of EBITDA in the previous financial year. The payment of the consideration is contingent on the holder of the Growth Shares being continuously employed by the relevant company and consequently the expected value of the Growth Shares is charged to the income statement over the earn-out period.

£975,000 is payable on the Walker Steele acquisition and will be paid over the next six years.  The contingent consideration is valued based on estimates of the payments due under the contract.

Derivatives carried at fair value -interest rate swap

In 2009 the Group entered into three interest rate swaps to hedge its interest rate risks which are carried at fair value.

12.    Provisions for liabilities

Six months ended 30 June:

	2013			2012
	Professional indemnity claim provision	Onerous leases	Total	Professional indemnity claim provision	Onerous leases	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January	24,163	1,037	25,200	9,641	417	10,058
Amount utilised	(4,990)	(236)	(5,226)	(3,775)	(37)	(3,812)
Unwinding of discount	342	-	342	122	-	122
Provided in the period (including exceptional costs)	1,309	-	1,309	18,071	92	18,163
Balance at 30 June	20,824	801	21,625	24,059	472	24,531
Current	2,528	482	3,010	5,645	194	5,839
Non-current	18,296	319	18,615	18,414	278	18,692
	20,824	801	21,625	24,059	472	24,531

Year ended 31 December 2012

	Professional indemnity claim provision	Onerous leases	Total
	£'000	£'000	£'000
Balance at 1 January	9,641	417	10,058
Amount utilised	(6,682)	(255)	(6,937)
Unwinding of discount	508	-	508
Provided in the period (including exceptional costs)	20,696	875	21,571
Balance at 31 December	24,163	1,037	25,200
Current	1,770	535	2,305
Non-current	22,393	502	22,895
	24,163	1,037	25,200

The PI claim provision relates to ongoing and expected future legal claims relating to valuation services and is the Directors' best estimate of the likely outcome of such claims, taking account of the incidence of claims and the size of the loss that may be borne by the claimant after taking account of actions that can be taken to mitigate losses. The provision will be utilised as individual claims are settled and the settlement amount may vary from the amount provided depending on the outcome of each claim.  It is not possible to estimate the timing of payment of all claims and therefore most of the provision has been classified as non-current.  Also see explanation in note 6.

The provision for lease obligations relates to obligations under leases on vacant properties. The provision is expected to be fully utilised by June 2020. The final outcome depends upon the ability of the Group to sublet or assign the lease over the related properties.

13.    Analysis of net bank debt

	Six Months Ended		Year Ended
	30 June 2013	30 June 2012	31 December 2012
	£'000	£'000	£'000
Interest bearing loans and borrowings
-       Current	1,969	1,496	2,396
-       Non-current	49,030	48,003	42,165
	50,999	49,499	44,561
Less: 2% unsecured loan notes	-	(1,496)	-
Less: 12% unsecured loan notes	(8,660)	(8,660)	(8,660)
Add: cash and short-term deposits	(218)	(337)	(225)
Less: deferred and contingent consideration	(10,429)	(2,219)	(9,028)
Net bank debt at the end of the year	31,692	36,787	26,648

The utilisation of the revolving credit facility may vary each month as long as this does not exceed the maximum £100m facility (Dec and June 2012: £75m).  In June 2013, the banking facility was renewed and is repayable when funds permit or by August 2017. 

14.    Financial instruments - risk management

The financial risks the Group faces and the methods used to manage these risks have not changed since 31 December 2012.  Further details of the risk management policies of the Group are disclosed in note 29 of the Group's annual financial statements for the year ended 31 December 2012.

In 2009 the Group entered into interest rate swap agreements to fix interest rates on £25m of the Group's bank borrowings. The interest rate swap agreements fix LIBOR to approximately 2.9% until April / May 2014.  At 30 June 2013, after taking into account the effect of interest rate swaps, approximately 80% of the Group's revolving credit facility is at a fixed rate of interest (31 Dec 2012: 96% and 30 June 2012 69%).

The Group has a current ratio of net bank debt (excluding loan notes) to operating profit of 0.87 (December 2012: 0.67 and June 2012: 0.88:1). The business is cash generative with a low capital expenditure requirement.  The Group remains committed to its stated dividend policy of 30% to 40% of Underlying Operating Profit after interest and tax. In addition, the Group's other main priority is to generate cash to support its operations and to fund any strategic acquisitions.

15.    Fair values of financial assets and financial liabilities

Set out below is a comparison by category of carrying amounts and fair values of all of the Group's financial instruments that are carried in the Financial Statements:

	June 2013		June 2012		Dec 2012
	Book Value	Fair Value	Book Value	Fair Value	Book Value	Fair Value
	£'000	£'000	£'000	£'000	£'000	£'000
Financial assets
Cash and cash equivalents	218	218	337	337	225	225
Available-for-sale financial assets	13,096	13,096	1,244	n/a*	11,921	11,921
Financial liabilities
Interest-bearing loans and borrowings:
Floating rate borrowings	(31,382)	(31,382)	(36,005)	(36,005)	(26,037)	(26,037)
Fixed rate borrowings	-	-	-	-	-	-
Derivative financial liabilities - interest rate swaps	(528)	(528)	(1,119)	(1,119)	(836)	(836)
Contingent consideration	(10,028)	(10,028)	(1,445)	(1,445)	(8,088)	(8,088)
Deferred consideration	(401)	(401)	(774)	(774)	(940)	(940)
2% unsecured loan notes	-	-	(1,496)	(1,483)	-	-
12% unsecured loan notes	(8,660)	(8,660)	(8,660)	(8,660)	(8,660)	(8,660)

The fair values for the majority of the financial instruments have been calculated by discounting the expected future cash flows at interest rates prevailing for a comparable maturity period for each instrument. The fair values of the interest rate swaps are determined by reference to market values for similar instruments.

* It was not possible to reliably determine the fair value of unquoted investments in available-for-sale financial assets at June 2012.  An estimate has been made as to the fair value of these estimates as disclosed in note 9.

Fair value hierarchy

As at 30 June 2013, the Group held the following financial instruments measured at fair value. The Group uses the following hierarchy for determining and disclosing the fair value of the financial instruments by valuation technique:

·    Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

·    Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

·    Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

·	June 2013	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
Assets measured at fair value
Financial assets	13,096	-	-	13,096
Liabilities measured at fair value
Interest rate swap	528	-	528	-
Contingent consideration	10,028	-	-	10,028

The Directors reviewed the fair value of the financial assets at 30 June 2013.  The methods used to determine the fair value are disclosed in more detail in Note 9.  The underlying value of the business will be driven by the profitability of these businesses.  If this was to drop by 10%, the implied valuation is likely to also drop by around 10%, £1.3 million.

The contingent consideration relates to amounts payable in the future on acquisitions.  The amounts payable are based on the amounts agreed in the contracts and based on the future profitability of each entity acquired.  In valuing each provision, estimates have been made as to when the options are likely to be exercised and the future profitability of the entity at this date.  Further details of these provisions are shown in Note 11.  If the future profitability of the entities was to decline by 10%, the size of the contingent consideration would decrease by approximately £1.2 million.

16.    Acquisitions

During the period the Group acquired two lettings businesses for a total consideration of £455,000.  The entire purchase price for both acquisitions has been assumed to be goodwill.

In June 2013, the Group acquired the trade and assets of Walker Fraser Steele LLP, a Scottish surveying business for an initial consideration of £25,000 and a contingent consideration, valued based on estimates of the payments due under the contract, calculated to be to £987,000.  The fair value of the identifiable assets, except for cash and cash equivalents, and liabilities of Walker Fraser Steele LLP as at the date of acquisition have been determined as below:

	Fair value recognised on acquisition
	£'000
Intangible assets	24
Total identifiable net liabilities acquired	24
Purchase consideration	1,012
Goodwill	988

Purchase consideration discharged by:

Cash	25
Contingent consideration	987
	1,012

The acquisition accounting above, is considered provisional as LSL is still reviewing our estimates of the likely payments under the contract, but the calculation above represents our best estimate at 30 June 2013.

The goodwill of Walker Fraser Steele LLP comprises certain intangible assets that cannot be individually separated and reliably measured from the acquiree due to their nature.  These items include an experienced management team with a good record of delivering a quality service to customers against the backdrop of challenging market conditions, the expected value of synergies and the potential to significantly grow the business. No determination has been made yet as to what proportion, if any, of the goodwill will be tax deductible.

The revenue and profits of Walker Fraser Steele LLP are not material to the Group and as the acquisition was subsumed into the surveying business, is it not possible to separately determine.  Transaction costs have been expensed and are included under exceptional costs (see note 6)

Prior year acquisitions

Lauristons Limited was acquired in July 2012.  As allowed under IFRS 3 Business Combinations, the acquisition accounting for Lauristons was adjusted as a result of identifying additional liabilities which should have been recognised on acquisition.  This resulted in an increase in goodwill of £612,000 which has been adjusted retrospectively.

INDEPENDENT REVIEW REPORT 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 2013 which comprises the Interim Group Income Statement, the Interim Group Statement of Comprehensive Income, the Interim Group Balance Sheet, the Interim Group Cash Flow Statement, the Interim Group Statement of Changes in Equity and the related notes 1 to 16. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

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

Directors' Responsibilities

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

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

Our Responsibility

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

Scope of Review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

Leeds

30 July 2013

 

END

 

 

IR QKLFLXDFZBBZ