INTERIM RESULTS

RNS Number : 2260O

LSL Property Services

05 August 2014

 



For immediate release

5th August 2014

LSL Property Services plc (LSL)

Interim Results For the six months ended 30^TH june 2014

LSL Property Services plc (LSL) a leading provider of residential property services incorporating estate agency and surveying businesses (Group), announces its interim results for the six months ended 30^th June 2014.

	2014	2013	Change
Group revenue	£139.8m	£118.8m	18%
Group Underlying Operating Profit(1)	£15.1m	£11.5m	31%
Overall operating margin	10.8%	9.7%	1.1%
Profit before tax	£31.4m	£8.4m	275%
Basic earnings per share	24.2p	6.3p	285%
Adjusted basic earnings per share	10.6p	7.6p	39%
Net Bank Debt(2) at 30th June	£18.7m	£31.7m	(41%)
Half year dividend	4.0p	3.3p	21%
Special dividend	16.5p	-	-

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

(2)      See Note 13 for calculation. 2014 includes proceeds of £18.9m received from Zoopla sale proceeds

§ Strong market growth in the first quarter followed by more modest growth in the second quarter.

§ Excellent performance from the Estate Agency Division.

§ Major contract secured in the Surveying Division and on-going investment in capacity.

§ Excellent value creation from investment in Zoopla Property Group PLC (Zoopla) investment - Total value created of £34.2m (net of tax) as at the 30^th June 2014, £18.0m exceptional profit, special dividend of 16.5p per share and retention of 51% of original holding.

§ Substantial increase in interim dividend of 21% to 4.0 pence (2013: 3.3 pence).

Estate Agency Division Performance

§ Revenue increased by 20% to £108.6m (2013: £90.3m).

§ Underlying Operating Profit increased by 46% to £12.2m (2013: £8.4m).

§ Estate Agency Division operating margin increased to 11.3% (2013: 9.3%).

§ Residential Sales up 27% including average fee growth of 11%.

§ Lettings revenue up 12% to £27.7m and financial services revenue up 27% to £19.9m year on year.

§ Excluding Marsh & Parsons, profit per branch up 43% to £38k on rolling 12 month basis (2013: £26k).

§ Strong performance from Marsh & Parsons with revenue up 19% and operating profit increased by 20% year on year.

Surveying Division Performance

§ Revenue up 10% to £31.3m (2013: £28.5m).

§ Underlying Operating Profit up 5% to £5.7m (2013: £5.4m) after £1.1m cost of on-going investment in new capacity.

§ Surveying Division operating margin 18.2% (2013: 19.0%).

§ Secured multi-year contract with Barclays Bank.

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

"The Group has delivered a strong first half performance. Key economic growth indicators and consumer confidence remain positive but recent changes such as the implementation of MMR and tighter lending criteria have affected mortgage approval levels and sentiment in the housing market. The outlook from lenders remains positive and as a result we expect the market to continue to grow, but at more modest levels, in the second half of the year.  The Board remains confident of delivering significant growth in 2014.

The business is very cash generative at the operational level and has a strong balance sheet. By focusing the strategy on driving benefit from operational gearing in the improved market, the Group is extremely well positioned to deliver increased shareholder value."

For further information, please contact:

Ian Crabb, Group Chief Executive Officer                            

Steve Cooke, Group Finance Director

LSL Property Services plc                                                                                                              0207 382 0360

Richard Darby, Sophie McNulty, Sophie Cowles

Buchanan                                                                                                                                            0207 466 5000

 

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^th June 2014, please visit LSL's website: www.lslps.co.uk

Chairman's Statement

Introduction

I am pleased to report an 18% increase in Group revenue to £139.8m (2013: £118.8m) and a 31% increase in Group Underlying Operating Profit⁽¹⁾  to £15.1m (2013: £11.5m). This was a strong performance in a market which showed significant growth in the period despite more modest growth during the second quarter, following the implementation of changes to mortgage application processing by lenders following the  Mortgage Market Review (MMR) in April.

The Estate Agency Division delivered another excellent result driven by the benefit of operational gearing on all key income streams. Residential Sales increased by 27% including average fee growth of 11% while Financial Services and Lettings income grew by 27% and 12% respectively.

We are delighted to have secured a new multi-year valuation services contract with Barclays Bank plc (Barclays). While volume growth in the period has recently been constrained by availability of qualified surveyors we have continued to invest in new capacity through our graduate recruitment scheme and we are in a very good position to provide a high level of service to all of the Group's clients.

The Group is very cash generative at the operational level and maintains a strong balance sheet. However, as expected we have continued to absorb high levels of PI cash outflows.  Net Bank Debt at 30^th June 2014 was £18.7m. Excluding the £17.8m net⁽²⁾ benefit from the sale of Zoopla shares, Net Bank Debt increased by £4.8m to £36.5m at 30^th June 2014 (30^th June 2013: £31.7m).

The business remains extremely well placed to benefit from the higher market transaction levels in 2014 and as a result we have announced a substantial increase in our interim dividend of 21% to 4.0 pence per share (2013: 3.3 pence). As previously announced, we are also returning the net proceeds after tax of the sale of Zoopla shares of £16.8m to shareholders by way of a special dividend of 16.5 pence per share to be paid at the same time as the interim dividend payment.

Financial Results

Group revenue increased by 18% to £139.8m (2013: £118.8m). Group Underlying Operating Profit increased by 31% to £15.1m (2013: £11.5m) and Group Underlying Operating Margin increased from 9.7% to 10.8%.

The Estate Agency Division increased revenue by 20% to £108.6m (2013: £90.3m) and Underlying Operating Profit by 46% to £12.2m (2013: £8.4m) in a market where house purchase approvals⁽³⁾  increased by 19% in the six months to 30^th June 2014 compared to 2013.

The Surveying Division revenue increased by 10% to £31.3m (2013: £28.5m) compared to a 10% year on year increase in total mortgage approvals⁽³⁾ for the six months to 30^th June 2014. Underlying Operating Profit growth was constrained to a 5% increase to £5.7m (2013: £5.4m) because of the investment of £1.1m in new graduates in the period.

Net interest payable was £1.2m (2013: £1.3m) and Group profit before tax, amortisation and exceptionals was £13.9m⁽⁴⁾ (2013: £10.2m). Group profit before tax was £31.4m (2013: £8.4m) including an exceptional profit of £18.7m (2013: loss of £1.7m) of which £18.0m related to the sale of the Zoopla shares.  The effective tax rate for the period was 21%.  If the impact of exceptional costs and the prior year tax adjustments are excluded, the underlying tax rate would remain at 21%.  Group profit after tax was £24.9m (2013: £6.5m). Earnings per share was 24.2p (2013: 6.3p) and adjusted earnings per share increased by 39% to 10.6p (2013: 7.6p).

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

(2)      Net of reinvestment in additional Zoopla shares

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

Cash generated from operations was £4.2m (2013: £3.9m). Operating cash flow included PI cash settlements of £6.5m (2013: £5.0m). Capital expenditure increased to £4.6m (2013: £3.4m) due to  investment in a number of new IT systems, including a common platform for our Financial Services businesses and the development of enhanced lettings systems in Your Move and Reeds Rains, new branches in Marsh & Parsons and the refurbishment of a number of Reeds Rains and Your Move branches.

Net assets at 30^th June 2014 were £113.3m (2013: £77.3m) which was driven by the revaluation of the investment in Zoopla. Net Bank Debt at 30^th June 2014 was £18.7m compared to £31.7m at 30^th June 2013. Compared to 31^st December 2013, Net Bank Debt has decreased by £7.6m driven by the proceeds from the sale of Zoopla shares offset by the normal seasonality of the Estate Agency Division cashflows, continuing high levels of PI cash outflows, the acquisition of Hawes & Co and other businesses and the payment of dividend, tax and bonuses.

Interim Dividend

The Board has declared an interim dividend payable of 4.0 pence per share, an increase of 21% on last year (2013: 3.3p). The dividend payment reflects our strong performance during the period, our confidence in future prospects and the strength of our cash generation and balance sheet. The ex dividend date for the interim dividend is 13^th August, with a record date of 9^th September 2014 and a payment date of 15^th September 2014. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan.

Zoopla Disposal and Special Dividend

We were extremely pleased that the initial public offering (IPO) of Zoopla was successful and this represented a point of significant value creation for the Group. The cost of the investment was £1.9m and this increased in value to £44.0m on IPO.  As a result of the sale of part of our shareholding we have generated an £18.0m exceptional profit on disposal while still retaining a shareholding which has been revalued in the balance sheet at £27.2m. In addition we received a total dividend of £1.1m from Zoopla during the period (2013: £0.5m).

The Board has declared a special dividend payable of 16.5 pence per share which returns to shareholders the net after tax proceeds of £16.8m from the sale of the Zoopla shares, including the sale of shares in July. Payment of the special dividend reflects the strength of the balance sheet and the Board's confidence in the growth prospects of the Group. The special dividend has the same ex dividend and record dates as the interim dividend.  As with the interim dividend, Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan.

Estate Agency Division

The Estate Agency Division capitalised on the growing market and delivered an excellent performance driven by very good growth across all Estate Agency branch income streams. Despite another market driven decline in Asset Management, the benefit of strong operational gearing increased overall the Estate Agency Division's operating margin to 11.3% (2013: 9.3%).

Residential Sales income increased by 27% to £44.4m (2013: £34.9m) including average fee growth of 11%. Financial Services revenue increased by 27% to £19.9m (2013: £15.7m) and in total the Group arranged mortgage lending of £5.0bn during the first half (2013: £2.9bn). We were particularly pleased that our Lettings income increased by 12% to £27.7m (2013: £24.7m) primarily driven by organic growth, despite the anticipated slowdown in the Lettings market.

(4)      Note 5 of the financial statements

The Estate Agency Division has continued to make very strong progress towards our branch profitability target of £50k per branch. Estate Agency Division branches, excluding Marsh & Parsons, increased profit per owned branch on a rolling 12 month basis by 43% to £38k (2013: £26k).

Marsh & Parsons enjoyed a strong first half with revenue increasing by 19% to £16.1m (2013: £13.5m) driven by Residential Sales and Lettings growth of 16% and 22% respectively. Operating profit increased by 20% to £3.2m (2013: £2.6m) despite the on-going costs of the new branch opening programme. One new branch was opened during the period in Askew Road, Shepherds Bush and is trading in line with expectations. We plan to open a further three new branches during the second half of the year.

While the market has grown strongly overall during the period, there was a significant reduction in the rate of growth during the second quarter. House purchase approvals increased by 35% in the first quarter compared to 2013 but by only 7% in the second quarter. This reduction was partly expected given the more challenging comparatives since April but also reflects the impact of changes to mortgage application processing by lenders following the MMR in April.  In prime central London, there has been evidence of a slowdown in the rate of price growth and an increase in the time taken to sell towards the end of first half of 2014.

Asset Management revenue declined by 10% in the period to £6.4m (2013: £7.1m). However, this reduction compares to an estimated 20% decline in the repossession market from 28,900 in 2013 to 23,000 in 2014. The business is making good progress in developing new property management contracts but lengthy tender processes mean that financial benefit will be geared to the medium term.

We have continued with our strategy of targeting selective acquisitions and purchased Hawes & Co, a six branch estate agency business trading in South London in addition to three separate lettings books.

Surveying Division

The Surveying Division has traded satisfactorily in the first half and increased revenue by 10% in a market which grew by 10%. We continued to build new capacity during the period with further investment in our graduate recruitment programme while maintaining a strong focus on delivery of excellent service to lender clients. A £1.1m cost of investment constrained operating profit growth to 5% but as the productivity of new capacity improves, profitability will increase at a higher rate in the second half of the year.  If this cost were excluded, operating profit growth would have been 25%.

As noted in the comments on our Estate Agency division, there has been a significant change in the market during the second quarter. Total mortgage approvals increased by 25% in the first quarter compared to 2013 but reduced by 1% in the second quarter.

We are delighted to announce that we secured a major contract in the period with Barclays.  This is a renewal following on from the previous arrangement which expired in June 2014. The new contract is non-exclusive and is for a multi-year term beginning on 1^st July 2014. Contract terms reflect current improved conditions in the mortgage market.

Since announcing in November 2013 an increase in our PI Costs provisions for work performed in the 2004 to 2008 period, the rate of new claims and the cost per claim through to 30^th June 2014 has overall been consistent with the assumptions behind the provision. Notification levels in recent months have remained at a high level but we are assuming that new notifications will reduce significantly during the second half of the year and beyond as the period for high risk lending ended in 2008.  The basis of the provisions therefore remains unchanged at the half year and represents the Group's best estimate of likely claim costs.  However the provision remains highly sensitive to the rate of new notifications and the average cost of current and future claims.

Outlook

Key economic growth indicators and consumer confidence remain positive but recent changes such as the implementation of MMR and tighter lending criteria have affected mortgage approval levels and sentiment in the housing market. The outlook from lenders remains positive and as a result we expect the market to continue to grow, but at more modest levels, in the second half of the year.  The Board remains confident of delivering significant growth in 2014.

LSL is continuing with its strategy of delivering organic growth and evaluating selective acquisitions. This has resulted in a strong first half performance and both the Estate Agency Division and the Surveying Division will continue to selectively invest in order to drive future returns.

The business is very cash generative at the operational level and has a strong balance sheet. By focusing the strategy on driving benefit from operational gearing in the improved market the Group is extremely well positioned to deliver increased shareholder value.

Roger Matthews

5^th August 2014

Principal risks and uncertainties

There are a number of risks and uncertainties facing the LSL business in the second half of the financial year.  These risks and uncertainties and mitigating factors are described in more detail on page 27 of LSL's Annual Report and Accounts 2013, dated 6^th March 2014 (a copy of which is available on LSL's website at www.lslps.co.uk).  The Board has reviewed these risks and uncertainties, and a summary of this review is below. Following this review, the Board consider the risk and uncertainties specified in LSL's Annual Report and Accounts 2013 as updated below, to be appropriate.

Updated risks and uncertainties 

·     Market uncertainty most recently caused by the implementation of MMR, tightening of lending criteria and some cooling of sentiment in the housing market. In addition to these risks there is also medium term political risk around the 2015 general election.  Overall there is uncertainty over whether market improvement seen over the last 12 months will be sustained in the second half and beyond.

·     Liability for inaccurate professional services advice especially resulting in claims relating to the high risk lending period from 2004 to 2008. Notifications relating to this period are still being received. Our provision for PI costs represents the Group's best estimate of likely claim costs. It remains sensitive to the rate of new notifications and the average cost of current and future claims.

·     Loss of key Surveying or Asset Management clients or contracts.

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

·     Change in legislation, regulation or government policy.

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 27 of LSL's Annual Report and Accounts 2013 and on this page 7 of this statement, together with information on the management of the principal risks and uncertainties faced by LSL.

Definitions

Definitions for words and expressions referred to and included in this statement which are not expressly defined within, can be found at page 135 to 138 of LSL's Annual Report and Accounts 2013 (a copy of which is available on LSL's website at: www.lslps.co.uk).  All references to 'note(s)' in the statement, are unless expressly stated otherwise, references to the 'Notes to the Interim Condensed Group Financial Statements'

included in this statement.

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

We confirm that to the best of our knowledge:

·     The 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^th June 2014

		Unaudited Six Months Ended		Audited Year Ended
		30th June 2014	30th June 2013	31st December 2013
	Note	£'000	£'000	£'000
Revenue	3,4	139,838	118,767	258,603
Operating expenses:
Employee and subcontractor costs		(84,528)	(72,400)	(150,158)
Establishment costs		(10,211)	(9,264)	(19,386)
Depreciation on property, plant  and equipment		(2,346)	(1,904)	(3,977)
Other		(29,686)	(25,164)	(52,125)
		(126,771)	(108,732)	(225,646)
Other operating income	3	1,613	771	2,376
Gain on sale of property, plant and equipment		13	32	38
Group's share in post tax profits of joint ventures		405	694	1,731
Group operating profit before contingent consideration, exceptional costs, amortisation and share-based payments	4	15,098	11,532	37,102
Share-based payments		(1,119)	(328)	(1,323)
Amortisation of intangible assets		(310)	(119)	(375)
Contingent consideration	6	915	(1,036)	(2,793)
Exceptional gains	6	18,111	43	134
Exceptional costs	6	(298)	(707)	(13,124)
Group operating profit	4	32,397	9,385	19,621
Finance income	3	-	10	7
Finance costs		(1,217)	(1,334)	(3,154)
Exceptional finance credit	6	230	308	606
Net finance costs		(987)	(1,016)	(2,541)
Profit before tax	4	31,410	8,369	17,080
Taxation (charge)/credit
- related to exceptional costs		(3,638)	83	2,879
- other		(2,865)	(1,985)	(5,945)
	8	(6,503)	(1,902)	(3,066)
Profit for the period/year		24,907	6,467	14,014
Attributable to:
- Owners of the parent		24,887	6,471	14,001
- Non-controlling interest		20	(4)	13
Earnings per share expressed in pence per share:
Basic	5	24.2	6.3	13.6
Diluted	5	23.9	6.3	13.5
Adjusted - basic	5	10.6	7.6	25.3
Adjusted - diluted	5	10.5	7.6	25.2

Interim Group Statement of Comprehensive Income

for the six months ended 30^th June 2014

		Unaudited Six Months Ended		Audited Year Ended
		30th June 2014	30th June 2013	31st December 2013
		£'000	£'000	£'000
Profit for the period		24,907	6,467	14,014
Items to be reclassified to profit and loss in subsequent periods:
Reclassification adjustments for disposal of financial assets		(18,602)	-	-
Income tax effect		3,721	-	-
Revaluation of financial assets		10,597	1,175	23,806
Income tax effect		(2,120)	(201)	(4,380)
Net other comprehensive income to be reclassified to profit and loss in subsequent periods:		(6,404)	974	19,426
Total other comprehensive income, net of tax		(6,404)	974	19,426
Total comprehensive income, net of tax		18,503	7,441	33,440
Attributable to     - Owners of the parent     - Non-controlling interest		18,483 20	7,445 (4)	33,427 13

Interim Group Balance Sheet

as at 30^th June 2014

		Unaudited Six Months Ended		Audited Year Ended
		30th June 2014	30th June 2013	31st December 2013
	Note	£'000	£'000	£'000
Non-current assets
Goodwill		130,431	121,732	125,642
Other intangible assets		20,058	18,716	19,080
Property, plant and equipment		18,584	14,221	16,230
Financial assets	9	28,863	13,096	36,574
Investments in joint ventures		2,342	2,204	3,239
Total non-current assets		200,278	169,969	200,765
Current assets
Trade and other receivables		40,812	35,566	35,340
Current tax receivables		-	-	771
Cash and cash equivalents		1,025	218	469
Total current assets		41,837	35,784	36,580
Non-current assets held for sale	10	-	654	276
Total assets		242,115	206,407	237,621
Current liabilities
Financial liabilities	11	(4,218)	(1,969)	(5,113)
Trade and other payables		(53,833)	(49,226)	(54,090)
Current tax liabilities		(4,570)	(1,184)	-
Provisions for liabilities	12	(8,345)	(3,010)	(8,458)
Total current liabilities		(70,966)	(55,389)	(67,661)
Non-current liabilities
Financial liabilities	11	(37,882)	(49,542)	(43,749)
Deferred tax liability		(7,284)	(5,566)	(9,014)
Provisions for liabilities	12	(12,730)	(18,615)	(17,881)
Total non-current liabilities		(57,896)	(73,723)	(70,644)
Total Liabilities		(128,862)	(129,112)	(138,305)
Net assets		113,253	77,295	99,316
Equity
Share capital		208	208	208
Share premium account		5,629	5,629	5,629
Share-based payment reserve		3,066	1,626	2,475
Treasury shares		(2,452)	(2,689)	(4,292)
Fair value reserve		21,243	9,195	27,647
Retained earnings		85,457	63,261	67,567
Equity attributable to owners of parent		113,151	77,230	99,234
Non-controlling interests		102	65	82
Total equity		113,253	77,295	99,316

Interim Group Cash Flow Statement

for the 6 months ended 30^th June 2014

			Unaudited 30th June 2014					Unaudited 30th June 2013				Audited 31st December 2013
			£'000		£'000			£'000	£'000			£'000	£'000
	Cash generated from operating activities
	Profit before tax				31,410				8,369				17,080
	Adjustments to reconcile profit before tax to net cash from operating activities
	Exceptional operating income and costs and contingent consideration (non-cash)		(18,693)					1,539				15,491
	Amortisation of intangible assets		310					119				375
	Finance income		-					(10)				(7)
	Finance costs		1,217					1,538				3,580
	Exceptional finance credit		(230)					(308)				(606)
	Share-based payments		1,119					328				1,323
					(16,277)				3,206				20,156
	Group operating profit before amortisation and share-based payments				15,133				11,575				37,236
	Depreciation		2,346					1,904				3,977
	Dividend income		(1,160)					(489)				(1,141)
	Share of results of joint ventures		(405)					(694)				(1,731)
	Gain on sale of property, plant and equipment		(48)					(75)				(172)
					733				646				933
	Increase in trade and other receivables		(5,358)					(5,006)				(4,656)
	(Decrease)/increase in trade and other payables		(934)					572				4,881
	Decrease in provisions		(5,339)					(3,917)				(11,544)
					(11,631)				(8,351)				(11,319)
	Cash generated from operations				4,235				3,870				26,850
	Interest paid		(809)					(830)				(2,142)
	Payment of contingent consideration relating to remuneration		(1,160)					-				-
	Loan refinance costs paid		-					(1,128)				(1,128)
	Tax (paid)/refund		(1,022)					1,425				(2,537)
					(2,991)				(533)				(5,807)
	Net cash generated from operating activities				1,244				3,337				21,043

	Unaudited 30th June 2014		Unaudited 30th June 2013		Audited 31st December 2013
	£'000	£'000	£'000	£'000	£'000	£'000
Cash flows from investing activities
Cash acquired on purchase of subsidiary undertaking	250		-		24
Acquisition of subsidiaries and other businesses	(3,887)		(1,030)		(3,515)
Payment of contingent consideration	(88)		-		(520)
Investment in financial assets	(1,155)		-		(847)
Cash received on sale of financial assets	18,850		-		-
Dividends received from joint ventures	1,302		-		805
Dividends received from financial assets	1,160		1,292		1,141
Interest received	-		10		7
Purchase of property, plant and equipment and intangible assets	(4,576)		(3,381)		(7,859)
Proceeds from sale of property,  plant and equipment	92		973		1,475
Net cash from/(used in) investing activities		11,948		(2,136)		(9,289)
Cash flows from financing activities
(Repayment)/drawdown of loans	(6,787)		5,345		510
Payment of deferred consideration	-		-		(494)
Purchase of LSL shares by the employee benefit trust (EBT) (Treasury Shares)	-		(626)		(2,625)
Proceeds from exercise of share options	1,557		657		1,084
Dividends paid	(7,406)		(6,584)		(9,985)
Net cash used in financing activities		(12,636)		(1,208)		(11,510)
Net increased/(decrease) in cash and cash  equivalents		556		(7)		244
Cash and cash equivalents at the beginning of the year		469		225		225
Cash and cash equivalents at the end of the year		1,025		218		469

Interim Group Statement of changes in equity

for the 6 months ended 30^th June 2014

Unaudited six months ended 30^th June 2014

	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 1st January 2014	208	5,629	2,475	(4,292)	27,647	67,567	99,234	82	99,316
Disposal of financial assets (net of tax)	-	-	-	-	(14,881)	-	(14,881)	-	(14,881)
Revaluation of financial assets (net of tax)	-	-	-	-	8,477	-	8,477	-	8,477
Other comprehensive income for the period	-	-	-	-	(6,404)	-	(6,404)	-	(6,404)
Profit for the period	-	-	-	-	-	24,887	24,887	20	24,907
Total comprehensive income for the period	-	-	-	-	(6,404)	24,887	18,483	20	18,503
Exercise of options	-	-	(692)	1,840	-	409	1,557	-	1,557
Share-based payments	-	-	1,119	-	-	-	1,119	-	1,119
Tax on share-based payments	-	-	164	-	-	-	164	-	164
Dividend payment	-	-	-	-	-	(7,406)	(7,406)	-	(7,406)
At 30 June 2014	208	5,629	3,066	(2,452)	21,243	85,457	113,151	102	113,253

In July 2014, LSL's employee benefit trust (EBT) acquired 1,485,000 shares in the Group for £5,621,000.  During the period 616,043 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the EBT.  LSL received £1,557,000 on exercise of these options.

Unaudited six months ended 30^th 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 1st January 2013	208	5,629	1,526	(2,691)	8,221	63,117	76,010	69	76,079
Revaluation of financial assets (net of tax)	-	-	-	-	974	-	974	-	974
Other comprehensive income for the period	-	-	-	-	974	-	974	-	974
Profit for the period	-	-	-	-	-	6,471	6,471	(4)	6,467
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 30th 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^th June 2013, the EBT acquired 185,000 shares in the Group for £626,000.  In addition, during the period 271,156 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the EBT.  LSL received £657,000 on exercise of these options.

Audited year ended 31^st December 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 1st January 2013	208	5,629	1,526	(2,691)	8,221	63,117	76,010	69	76,079
Revaluation of financial assets (net of tax)	-	-	-	-	19,426	-	19,426	-	19,426
Other comprehensive income for the year	-	-	-	-	19,426	-	19,426	-	19,426
Profit for the year	-	-	-	-	-	14,001	14,001	13	14,014
Total comprehensive income for the year	-	-	-	-	19,426	14,001	33,427	13	33,440
Investment in Treasury Shares	-	-	-	(2,625)	-	-	(2,625)	-	(2,625)
Exercise of options	-	-	(374)	1,024	-	434	1,084	-	1,084
Share-based payments	-	-	1,323	-	-	-	1,323	-	1,323
Dividend payment	-	-	-	-	-	(9,985)	(9,985)	-	(9,985)
At 31st December 2013	208	5,629	2,475	(4,292)	27,647	67,567	99,234	82	99,316

During the year ended 31^st December 2013, the EBT acquired 640,485 shares in the Group for £2,625,000.  In addition, during the period 442,625 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the EBT.  LSL received £1,084,000 on exercise of these options.

Notes to the Interim Condensed Group Financial Statements

The interim condensed group financial statements for the period ended 30^th June 2014 were approved by the LSL Board on 4^th August 2014. The interim financial statements are not the statutory accounts. The financial information for the year ended 31^st December 2013 is extracted from the audited statutory accounts for the year ended 31^st December 2013, which have been filed with the Registrar of Companies. The auditor's report was unqualified and did not contain an emphasis of matter paragraph, and did not make a statement under section 498 (2) or (3) of the Companies Act 2006.

1              Basis of preparation

The interim condensed group financial statements for the period ended 30^th June 2014 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct 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^st December 2013.

There have been no significant related party transactions in the period to 30^th June 2014.

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^st December 2013.

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^st December 2013. These assumptions are discussed in detail on pages 79 and 80 and in notes 7, 14, 16, 21 and 22 of the Group's annual financial statements for the year ended 31^st December 2013. 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 following new standards, new interpretations and amendments to standards and interpretations have been issued and were effective from 1^st January 2014.

International Accounting Standards (IAS/IFRSs)		Effective date
IFRS 10	Consolidated Financial Statements	1stJanuary 2014
IFRS 11	Joint Arrangements	1stJanuary 2014
IFRS 12	Disclosure of Interests in Other Entities	1stJanuary 2014
IAS 27 (Revised)	Separate Financial Statements	1stJanuary 2014
IAS 28 (Revised)	Investments in Associates and Joint Ventures	1stJanuary 2014
IFRIC Interpretation 21	Levies	1stJanuary 2014
Amendments to IAS 32	Offsetting Financial Assets and Financial Liabilities	1stJanuary 2014

The adoption of the above standards and interpretations did not have a material impact on the Group's Financial Statements, other than additional disclosures, in the period of initial application.

Going concern

The Group has a £100m banking facility which expires in 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 residential property market turnover is normally higher in the second half of the year.

3.      Revenue

                                                   Six months ended             Year Ended

	30th June 2014 £'000	30th June 2013 £'000	31st December 2013 £'000
Revenue from services	139,838	118,767	258,603
Operating revenue	139,838	118,767	258,603
Rental income	453	282	1,235
Dividend income	1,160	489	1,141
Other operating income	1,613	771	2,376
Finance income	-	10	7
Total revenue	141,451	119,548	260,986

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 residential properties.  It operates a network of high street branches. As part of this process, the Estate Agency Division also provides marketing and arranges conveyancing services.  In addition, it provides repossession asset management services to a range of lenders. It also arranges mortgages for a number of lenders and arranges pure protection and general insurance policies for a panel of insurance companies via the estate agency branches, Pink Homes Loans, First Complete and Linear Mortgage Network.  The financial services segment included within the Estate Agency division includes two mortgage and insurance distribution networks providing products and services for sale via financial intermediaries. The results of this financial services segment, does not meet the quantitative criteria for separate reporting under IFRS and has therefore been aggregated with those of Estate Agency and Related Services.

·      The Surveying and Valuation Services segment provides a valuations and professional survey service of residential properties to various lenders and individual customers.

Each segment has various products and services and the revenue from these products and services are disclosed in the LSL's Annual Report and Accounts 2013 within the Business Review section of the Strategic Report. 

The Management Team monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects, as explained in the table below, is measured differently from operating profit or loss in the Group Financial Statements. Head office costs, Group financing (including finance costs and finance 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^th June 2014, for the six months ended 30^th June 2013 and for the year ended 31^st December 2013.

Six months ended 30^th June 2014

Income statement  information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Segmental revenue	108,568	31,270	-	139,838
Segmental result:
- before exceptional costs, contingent consideration, amortisation and     share-based payments	12,235	5,685	(2,822)	15,098
- after exceptional costs, contingent
consideration, amortisation and     share-based payments	30,976	5,365	(3,944)	32,397
Finance income				-
Finance costs				(1,217)
Exceptional finance credit				230
Profit before tax				31,410
Taxation				(6,503)
Profit for the period				24,907

In the period ended 30^th June 2014, there is no revenue from one customer that accounts for 10% or more of the Group's total revenue (2013 - none).  The Estate Agency and Related Services segment result includes a gain of £17,989,000 relating to sale of Zoopla shares (see note 9)

Balance sheet information
Segment assets - intangible	139,602	10,887	-	150,489
Segment assets - other	79,097	10,569	1,960	91,626
Total Segment assets	218,699	21,456	1,960	242,115
Total Segment liabilities	(61,681)	(34,229)	(32,952)	(128,862)
Net assets/(liabilities)	157,018	(12,773)	(30,992)	113,253

All of the joint venture interests of the Group are recorded in the Estate Agency and Related Services segment.  Unallocated net liabilities comprise certain property, plant and equipment (£29,000), cash and bank balances (£1,025,000), other assets (£906,000), other taxes and liabilities (£217,000), accruals (£1,120,000), financial liabilities (£19,761,000) and deferred and current tax liabilities (£11,854,000).

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

Operating segments

Six months ended 30^th 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	4,619	(3,096)	9,385
Finance income				10
Finance costs				(1,334)
Exceptional finance credit				308
Profit before tax				8,369
Taxation				(1,902)
Profit for the period				6,467

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

All of the joint venture interests of the Group are recorded in the Estate Agency and Related Services segment.  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

Year ended 31^st December 2013

Income statement  information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Segmental revenue	198,170	60,433	-	258,603
Segmental result:
- before exceptional costs, contingent consideration, amortisation and     share-based payments	29,116	13,096	(5,110)	37,102
- after exceptional costs, contingent
consideration, amortisation and     share-based payments	25,540	204	(6,123)	19,621
Finance income				7
Finance costs				(3,154)
Exceptional finance credit				606
Profit before tax				17,080
Taxation				(3,066)
Profit for the year				14,014

	Estate agency and related  activities £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Balance sheet information
Segment assets - intangible	133,840	10,882	-	144,722
Segment assets - other	79,907	10,640	2,352	92,899
Total Segment assets	213,747	21,522	2,352	237,621
Total Segment liabilities	(61,209)	(39,444)	(37,652)	(138,305)
Net assets/(liabilities)	152,538	(17,922)	(35,300)	99,316

All of the joint venture interests of the Group are recorded in the Estate Agency and Related Services segment.  Unallocated net liabilities comprise certain property, plant and equipment (£28,000), cash and bank balances (£469,000), other assets (£1,084,000), other taxes and liabilities (£219,000), accruals (£1,642,000) financial liabilities (£26,548,000), deferred and current tax liabilities (£8,243,000), interest rate swap (£230,000).

5.      Earnings per share (EPS)

Basic EPS amounts are calculated by dividing net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the period.

Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Six months ended 30^th June

		Profit after tax £'000	Weighted average number of shares	2014 Per share amount Pence	Profit after tax £'000	Weighted average number of shares	2013 Per share amount Pence
	Basic EPS	24,887	102,993,275	24.2	6,471	103,016,142	6.3
	Effect of dilutive share options	-	1,031,362	-	-	426,217	-
	Diluted EPS	24,887	104,024,637	23.9	6,471	103,442,359	6.3

Year ended 31st December 2013				Profit after tax £'000	Weighted average number of shares	2013 Per share amount Pence
Basic EPS				14,001	102,955,662	13.6
Effect of dilutive share options				-	410,999	-
Diluted EPS				14,001	103,366,661	13.5

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
	30th June 2014 £'000	30th June 2013 £'000	31st  December 2013 £'000
Group operating profit before contingent consideration in acquisitions linked to employment, exceptional costs, share-based payments and amortisation (excluding non-controlling interest)	15,078	11,536	37,089
Net finance costs (excluding exceptional costs and unwinding of discount on contingent consideration)	(1,217)	(1,324)	(3,147)
Normalised taxation	(2,980)	(2,374)	(7,892)
Adjusted profit after tax(1) before exceptional costs, share-based payments and amortisation	10,881	7,838	26,050

5.      EPS (continued)

Six months ended 30^th June

	Adjusted profit after tax1 £'000	Weighted average number of shares	2014 Per share amount Pence	Adjusted profit after tax1 £'000	Weighted average number of shares	2013 Per share amount Pence
Adjusted basic EPS	10,881	102,993,275	10.6	7,838	103,016,142	7.6
Effect of dilutive share options	-	1,031,362	-	-	426,217	-
Adjusted diluted EPS	10,881	104,024,637	10.5	7,838	103,442,359	7.6

Year ended 31^st December 2013

				Adjusted profit after tax1 £'000	Weighted average number of shares	2013 Per share amount Pence
Adjusted basic EPS				26,050	102,955,662	25.3
Effect of dilutive share options				-	410,999	-
Adjusted diluted EPS				26,050	103,366,661	25.2

(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 21.5% (30^th June 2013: 23.25%; 31^st December 2013: 23.25%).

6.      Exceptional items

	Six Months Ended		Year Ended
	30th June 2014	30th  June 2013	31st  December 2013
Exceptional costs:	£'000	£'000	£'000
Provision for professional indemnity claims/notifications	-	-	(12,000)
Branch closure costs including redundancy costs	(170)	(672)	(924)
Acquisition related costs	(128)	(35)	(200)
Total operating exceptional costs	(298)	(707)	(13,124)
Contingent consideration on acquisitions	915	(1,036)	(2,793)
	915	(1,036)	(2,793)
Exceptional gains
Gain on disposal of freehold properties	35	43	134
Settlement of legal dispute	87	-	-
Sale of Zoopla shares	17,989	-	-
	18,111	43	134
Finance costs
Movement in fair value of interest rate swap	230	308	606
	230	308	606
Net exceptional gain/(cost)	18,958	(1,392)	(15,177)

6.    Exceptional items (continued)

Provision for professional indemnity (PI) claims/notifications

Since early 2012 the Group has experienced a high level of claims 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 in June 2012 and again by £12.0m in November 2013.

The PI Costs provision at 30^th June 2014 was made up of a 'Specific Provision' and 'Incurred But Not Reported' (IBNR).  The Specific Provision was based on the Group's review of any notifications or claims which had been made against the Group as at 30^th June 2014.  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 was based on the Directors estimates of the number of claims which would be received in the future with regard to work completed before 30^th June 2014.  The Directors have then applied an average cost per case, based on historical averages, to estimate the IBNR provision.

In June 2012, it was assumed that the run rate of new claims would reduce significantly from July 2013 following the change in legislation governing civil litigation taking effect in April 2013 (the Jackson Reforms). This reduction has not yet materialised and the run rate of new cases has remained at the level established in June 2012. In addition, the cost per claim has increased and in most recent months has been running higher than assumed in 2012. The increasing trend in cost per claim has been driven by a relatively small number of high value claims and by increases in legal costs.  An additional exceptional charge of £12.0m (c£9.2m after tax) was made in the year ending 31^st December 2013 in order to increase the PI Costs provision. Since December 2013, the rate of new claims and cost per claim has overall been consistent with the assumptions behind the provision. This provision represents our current best estimate of likely claims costs but the process of resolving open claims and estimating future claims is on-going.

A number of risks and uncertainties remain, in particular the actual monthly run rate of new claims, the date at which the high rate of claims will significantly reduce, and the average cost per case both for existing open claims and for claims yet to be received. The cost of these factors could differ materially from the Directors' estimates, which could result in a further provision being required.

At 30^th June 2014 the total provision for PI Costs was £20.8m. The Directors have considered sensitivity analysis on the key risks and uncertainties discussed which is set out in note 12. 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, which has been considered as an operating expense rather than as an exceptional cost.

Sale of Zoopla shares

On 18^th June 2014, Zoopla underwent an IPO and successfully completed a listing on the London Stock Exchange.  As part of the IPO, LSL sold 8,889,317 Zoopla shares at an average price of £2.19 per share.  The total gain on sale of the shares was £17,989,000 net of associated costs.  LSL estimates that it will pay tax of £3,626,000 on sale of these shares.  Further details on the transaction are disclosed in note 9.

Freehold properties

During the period, freehold properties with a book value totalling £29,000 (31^st December 2013: £1,227,000 and 30^th June 2013: £846,000) were sold for net proceeds of £64,000 (31^st December 2013: £1,361,000 and 30^th June 2013: £889,000) resulting in a gain on disposal of £35,000 (31^st December 2013: £134,000 and 30^th June 2013: £43,000). 

Contingent consideration on acquisitions

The expense for contingent consideration on the acquisition of Marsh & Parsons (in 2011) amounted to £731,000 (Dec 2013: £352,000 and June 2013: £610,000). The exceptional contingent consideration credit recognised in the year relating to other acquisitions, all by LSLi, is £1,646,000 (31^st December 2013: £2,441,000 expense and 30^th June 2013: £426,000 expense).

7.      Dividends paid and proposed

	Six Months Ended		Year Ended
	30th June 2014 £'000	30th June 2013 £'000	31st December 2013 £'000
Declared and paid during the period
Equity dividends on ordinary shares:
Interim dividend for 2013: 3.3 pence	-	-	3,401
Final dividend for full year 2013: 7.2 pence (full year 2012: 6.4 pence)	7,406	6,584	6,584
Dividends on ordinary shares proposed (not recognised as a liability as at 30th June):
Interim dividend for 2014: 4.0 pence per share (201: 3.3 pence)	4,074	3,401	7,406
Special dividend for 2014: 16.5 pence per share (2013: nil pence)	16,805	-	-

8.      Taxation

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

	Six Months Ended		Year Ended
	30th June 2014	30th June 2013	31st December 2013
	£'000	£'000	£'000
UK corporation tax:
- current year	6,305	2,058	4,474
- adjustment in respect of prior years	(10)	(56)	(574)
	6,295	2,002	3,900
Deferred tax:
Origination and reversal of temporary differences	74	(93)	(814)
Adjustment in respect of prior year	134	(7)	(20)
	208	(100)	(834)
Total tax charge in the income statement	6,503	1,902	3,066

Income tax charged directly to other comprehensive income is £2,120,000 (30^th June 2013: £201,000 and 31^st December 2013: £4,380,000) and relates to the revaluation of financial assets. Income tax credited directly to the share based payment reserve is £164,000 (30^th June 2013 and 31^st December 2013: £ nil).

In March 2013, the UK government announced additional proposals to reduce the main rate of corporation tax to 20% from 1^st April 2015.  As of 30^thJune 2014 reductions to the main rate of corporation tax to 20% had been enacted.  Accordingly this is the rate at which deferred tax has been provided.

9.      Financial assets

	Six Months Ended		Year Ended
Available-for-sale financial assets	30th June 2014	30th June 2013	31st December 2013
	£'000	£'000	£'000
Unquoted shares at fair value	1,687	13,096	36,574
Quoted shares at fair value	27,176	-	-
	28,863	13,096	36,574
Opening balance	36,574	11,921	11,921
Acquisitions	1,155	-	847
Disposals	(19,463)	-	-
Fair value adjustment recorded through other comprehensive income	10,597	1,175	23,806
Closing balance	28,863	13,096	36,574

9.      Financial assets (continued)

The financial assets include unlisted equity instruments which are carried at fair value.  Fair value is judgemental given the assumptions required and have been valued using a level 3 valuation techniques (see note 15).  Financial assets also include shares Zoopla which are listed on the London Stock Exchange and again are carried at fair value.  These shares are valued using a level 1 valuation technique.

Zoopla

On 18^th June 2014, Zoopla underwent an IPO.  Prior to the IPO, LSL owned 4.91% of Zoopla which was valued at £17.50 per share, £35.1m  As part of the IPO, LSL received 10 shares in the new company for each share it owned reducing the value to £1.75 per new share.  The IPO price was £2.20 per share so revaluing LSL's investment prior to the IPO at £44,039,000. 

LSL sold 44.3% of its stake in Zoopla for £18,850,000, net of associated costs, £15,224,000 net of tax.  The gain on the disposal of the shares recognised in the income statement was £17,989,000 gross, £14,363,000 net of tax.  As part of the IPO, LSL was invited to acquire an additional 619,318 shares for £1,090,000, which was at a 20% discount to the IPO price due to its existing customer relationship with Zoopla.  A gain of £273,000 was recorded through other comprehensive income to revalue these shares back to the IPO price. 

Following the above transactions, the Group continues to own 2.82% of Zoopla.  Under the terms of the IPO, the Group is unable to sell any additional shares in Zoopla until 18^th December 2014 (6 months from the IPO date). 

Zoopla's share price at 30^th June 2014 was £2.305 per share.  The Directors consider this to be the best estimate of the fair value of LSL's investment in Zoopla to be the current share price which values the Group's stake in Zoopla at £27,176,000.  An additional valuation uplift of £1,237,000 has been recorded through other comprehensive income to reflect the change in share price since the IPO.

The total revaluation amount of £10,597,000 comprises of:

			£'000
Revaluation of Zoopla shares up to IPO price of £2.20 per share			8,933
Revaluation of Zoopla shares bought at a discount on IPO up to IPO price of £2.20			273
Revaluation of Zoopla shares from £2.20 to £2.305 per share post IPO			1,237
Revaluation movements of other investments			154
Closing balance			10,597

On 3^rd July 2014, the Group sold a further 926,813 shares as part of the IPO over allotment and received proceeds of £1,978,000, £1,589,000 net of tax.  To date the Group has received proceeds net of associated tax costs of £16,814,000.  The Directors have decided that a special distribution of 16.5 pence per share be declared to return this exceptional gain to Shareholders.

Other investments

The Group acquired additional shares in Vibrant Energy Matters Limited (VEM) during the period, increasing its stake to 16.5%.  The price paid for the VEM shares has been deemed by the Directors to be a good approximation of fair value as at 30^th June 2014 and the Group's entire stake has been revalued upwards to £824,000 with the movement recorded through other comprehensive income.

Due to the issue of additional shares to management, the Group's stake in GPEA Limited (GPEA) was reduced to 16.8% during the period.  This resulted in a small decrease in the fair value of the investment which has been recorded through other comprehensive income.  The carrying value of the investment at 30^th June 2014 has been assessed as £862,000. 

10.    Assets held for sale

During the period the Group classified £nil (31^st December 2013: £276,000 and 30^th June 2013: £654,000) as assets held for sale.   These assets were part of the Estate Agency and Related Services segment. 

11.    Financial liabilities

	Six Months Ended		Year Ended
	30th June 2014	30th June 2013	31st December 2013
	£'000	£'000	£'000
Current
Overdraft	261	882	2,548
Contingent consideration	3,957	559	2,335
Derivatives carried at fair value	-	528	230
	4,218	1,969	5,113
Non-current
Bank loans - revolving credit facility(RCF)	19,500	30,500	24,000
12% unsecured loan notes	9,507	9,172	9,339
Deferred consideration	446	401	446
Contingent consideration	8,429	9,469	9,964
	37,882	49,542	43,749

Bank loans - RCF and overdraft

A £100m loan facility which expires in August 2017 was arranged in June 2013.  Loan refinance costs of £1,128,000 were incurred in June 2013 which have been capitalised and are being amortised over the life of the loan facility.

The bank loan totalling £19.5m (31^st December 2012: £24.0m and 30^th June 2013: £30.5m) and overdraft totalling £0.3m (31^st December 2013: £2.5m and 30^th June 2013: £0.9m) are secured via cross guarantees 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 the LSLi subsidiaries.

The utilisation of the revolving credit facility may vary each month as long as this does not exceed the maximum
£100m facility (31^st December and 30^th June 2013: £100m).  The Group's overdraft is also secured on the same facility but cannot exceed £5m and the combined overdraft and revolving credit facility cannot exceed £100m (Dec and June 2013: £100m).  The banking facility is repayable when funds permit on or by August 2017.

Interest and fees payable on the RCF facility amounted to £1.0m (31^st December 2013: £2.1m and 30^th 30^th June 2013: £0.8m). The interest rate applicable to the facility is LIBOR plus a margin rate of 1.50% (31^st December and 30^th June 2013: LIBOR plus 1.50%). The margin rate is linked to the leverage ratio of the Group and the margin rate is reviewed at six monthly intervals.  An additional fee is charged if the facility is more than 33% drawn with a further fee due if the facility is more than 67% drawn.

12% unsecured loan notes

12% unsecured loan notes with a face value of £6,146,000 and a fair value of £8,660,000 were issued as part satisfaction of the consideration for acquisition of Marsh & Parsons in November 2011.  These loan notes carry a coupon of 12% which is compounded every year on 1st January and rolled up to redemption.  The loan notes are redeemable at par value plus rolled up interest at any time after 31^st 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^st March 2020.  The amounts shown in the table above include accrued interest of £847,000 (31^st December 2013: £679,000 and 30^th June 2013: £512,000).

11.    Financial liabilities (continued)

Contingent consideration

	Six Months Ended		Year Ended
	30th June 2014	30th June 2013	31st December 2013
	£'000	£'000	£'000
Marsh & Parsons Growth Shares	2,951	2,478	2,220
LSLi contingent consideration	8,599	6,575	9,206
Other	836	975	873
	12,386	10,028	12,299
Opening balance	12,299	8,088	8,088
Cash paid	(1,248)	(12)	(520)
Acquisition	2,250	987	1,997
Fair value adjustment recorded against goodwill	-	(71)	(58)
Amounts recorded though income statement	(915)	1,036	2,792
Closing balance	12,386	10,028	12,299

£2,951,000 (31^st December 2013: £2,220,000 and 30^th June 2013: £2,478,000) of contingent consideration relates to the Growth Shares acquired by 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^st March 2016 and 1^st 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.

£8,599,000 (31^st December 2013: £9,206,000 and 30^th June 2013: £6,575,000) of contingent consideration relates to payments to third parties in relation to the acquisition of LSLi and certain of its subsidiaries between 2007 and 2014. This is payable between three and five years after the acquisition dates depending on the profitability of those subsidiaries in the relevant years. In 2014, the contingent consideration has been recalculated based on the Directors' latest expectation using a discount rate of 6.5% (31^st December 2013 and 30^th June 2013: 6.5%).

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

	Six Months Ended		Year Ended
Contingent consideration balances relating to amounts accounted for as:	30th June 2014	30th June 2013	31st December 2013
	£'000	£'000	£'000
Remuneration	4,806	4,754	5,624
Put options over non-controlling interests	3,062	3,524	4,371
Arrangement under IFRS 3	4,518	1,750	2,304
Closing balance	12,386	10,028	12,299
Contingent consideration profit and loss impact in the period relating to amounts accounted for as:
Remuneration	343	636	1,506
Put options over non-controlling interests	(1,310)	375	1,223
Arrangement under IFRS 3	52	25	63
(Credit)/charge	(915)	1,036	2,792

Deferred consideration

During the prior period the Group paid £438,000 with regard to deferred consideration.  Deferred consideration totalling £446,000 is payable at any time between 31^st March 2016 and 31^st March 2020 at the option of the management shareholders. 

Derivatives carried at fair value -interest rate swap

See note 14 below.

12.    Provisions for liabilities

Six months ended 30^th June:

	2014			2013
	Professional indemnity claim provision	Onerous leases	Total	Professional indemnity claim provision	Onerous leases	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1st January	25,864	475	26,339	24,163	1,037	25,200
Amount utilised	(6,469)	(65)	(6,534)	(4,990)	(236)	(5,226)
Unwinding of discount	75	-	75	342	-	342
Provided in the period (including exceptional costs)	1,292	(97)	1,195	1,309	-	1,309
Balance at 30th June	20,762	313	21,075	20,824	801	21,625
Current	8,032	313	8,345	2,528	482	3,010
Non-current	12,730	-	12,730	18,296	319	18,615
	20,762	313	21,075	20,824	801	21,625

Year ended 31^st December 2013

	Professional indemnity claim provision	Onerous leases	Total
	£'000	£'000	£'000
Balance at 1st January	24,163	1,037	25,200
Amount utilised	(14,445)	(506)	(14,951)
Amount released	-	(90)	(90)
Unwinding of discount	683	-	683
Provided in the period (including exceptional costs)	15,463	34	15,497
Balance at 31st December	25,864	475	26,339
Current	8,378	80	8,458
Non-current	17,486	395	17,881
	25,864	475	26,339

The PI Cost provision is to cover the costs of claims relating to valuation services for clients which are not covered by PI insurance. The PI Cost provision includes amounts for claims already received from clients, claims yet to be received and any other amounts which may be payable as a result of legal disputes associated with provision of valuation services.

The provision is the Directors' best estimate of the likely outcome of such claims, taking account of the incidence of claims and the size of the loss that may be borne by the claimant, after taking account of actions that can be taken to mitigate losses. The provision will be utilised as individual claims are settled and the settlement amount may vary from the amount provided depending on the outcome of each claim. It is not possible to estimate the timing of payment of all claims and therefore a significant portion of the provision has been classified as non-current. 

An additional exceptional charge of £12.0m (c£9.2m after tax) was made in the year ending 31^st December 2013 in order to increase the PI Cost provision. Since December 2013, the rate of new claims and cost per claim has overall been consistent with the assumptions behind the provision. This additional provision represents the Directors' current best estimate of likely claims costs but the process of resolving open claims and estimating future claims is on-going. A number of risks and uncertainties remain, in particular the actual monthly run rate of new claims, the date at which the high rate of claims will significantly reduce, and the average cost per case both for existing open claims and for claims yet to be received. The cost of these factors could differ materially from the Directors' estimates, which could result in a further provision being required.

12.    Provisions for liabilities (continued)

At 30^th June 2014 the total provision for PI Costs was £20.8m. The Directors have considered sensitivity analysis on the key risks and uncertainties discussed above. If the rate of new claims relating to the 2004 to 2008 high risk lending period experienced during the second quarter of 2014 were to continue through to June 2015 (rather than reduce during the second half of 2014 and then fall to zero in 2015) an additional provision of £2.4m would be required. If the average cost per case for both existing open claims and for claims yet to be received was 10% higher or lower than assumed in the year end provision of £20.8m, an additional or lower provision of £3.2m would be required.

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
	30th June 2014	30th June 2013	31st December 2013
	£'000	£'000	£'000
Interest bearing loans and borrowings
-       Current	4,218	1,969	5,113
-       Non-current	37,882	49,542	43,749
	42,100	51,511	48,862
Less: 12% unsecured loan notes	(9,507)	(9,172)	(9,339)
Add: cash and short-term deposits	(1,025)	(218)	(469)
Less: deferred and contingent consideration	(12,832)	(10,429)	(12,745)
Net Bank Debt at the end of the year	18,736	31,692	26,309

Net Bank Debt excluding the net sale proceeds from the sale of Zoopla shares and reinvestment into Zoopla totalling of £17.8m was £36.5m.

14.    Financial instruments - risk management

The financial risks the Group faces and the methods used to manage these risks have not changed since 31^st December 2013.  Further details of the risk management policies of the Group are disclosed in Note 29 of the Group's Financial Statements for the year ended 31^st December 2013.

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 and so have expired at 30^th June 2014. At 30^th June 2014, after taking into account the effect of interest rate swaps, none of the Group's RCF is at a fixed rate of interest ( 31^st December 2013: 94% and 30^th June 2013: 80%).

The Group has a current ratio of Net Bank Debt (excluding loan notes) to EBITDA of 0.41 (31^st December 2013: 0.63 and 30^th June 2013: 0.87). 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 these financial statements:

	June 2014	June 2013	Dec 2013
	Book and Fair value	Book and Fair value	Book and Fair value
	£'000	£'000	£'000
Financial assets
Cash and cash equivalents	1,025	218	469
Available-for-sale financial assets	28,863	13,096	36,574
Financial liabilities
Interest-bearing loans and borrowings:
Floating rate borrowings	(19,761)	(31,382)	(26,548)
Fixed rate borrowings	-	-	-
Derivative financial liabilities - interest rate swaps	-	(528)	(230)
Contingent consideration	(12,386)	(10,028)	(12,299)
Deferred consideration	(446)	(401)	(446)
12% unsecured loan notes	(9,507)	(9,172)	(9,339)

The fair value of the Zoopla investment is made with reference to the latest share price as this is a listed investment (listed on the London Stock Exchange).  The fair value of the remaining available for sale financial assets have been calculated with reference to the last trades in these assets. The fair values of the interest rate swaps were determined by reference to market values for similar instruments. The fair values for the remaining financial instruments have been calculated by discounting the expected future cash flows at interest rates prevailing for a comparable maturity period for each instrument

Fair value hierarchy

As at 30^th June 2014, 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 2014	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
Assets measured at fair value
Financial assets	28,863	27,176	-	1,687
Liabilities measured at fair value
Contingent consideration	12,386	-	-	12,386
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings: Floating rate borrowings	19,761	-	19,761	-
12% unsecured loan notes	9,507	-	9,507	-

·	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 swaps	528	-	528	-
Contingent consideration	10,028	-	-	10,028
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings: Floating rate borrowings	31,382	-	31,382	-
12% unsecured loan notes	9,172	-	9,172	-

15.    Fair values of financial assets and financial liabilities (continued)

·	Dec 2013	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
Assets measured at fair value
Financial assets	36,574	-	-	36,574
Liabilities measured at fair value
Interest rate swaps	230	-	230	-
Contingent consideration	12,299	-	-	12,299
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings: Floating rate borrowings	26,548	-	26,548	-
12% unsecured loan notes	9,339	-	9,339	-

As disclosed in note 9, Zoopla completed an IPO on 18^th June 2014.  Immediately prior to IPO, the fair value of the investment in Zoopla was revalued to £44,039,000.  These financial assets are now valued based on a price in an active market, representing a transfer from a Level 3 to a Level 1 valuation technique. At 30^th June 2014, the remaining stake in Zoopla was revalued to £27,176,000 based on the Zoopla share price at that date of £2.305 per share.

The other investments totalling £1,687,000 are still valued using Level 3 valuation techniques. The Directors reviewed the fair value of the financial assets at 30^th June 2014.  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%, £0.2 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.

Fair values of the Group's interest-bearing borrowings and loans are determined by using DCF methodology using a discount rate that reflects the issuer's borrowing rate as at the end of the reporting period. The own non-performance risk as at 30^th June 2014 was assessed to be insignificant.

16.    Acquisitions

During the period the Group acquired three lettings businesses for a total consideration of £695,000. The entire purchase price for the acquisitions has been assumed to be goodwill except £180,000 assigned to fixed assets.

In March 2014, the Group acquired 65% of Hawes & Co, a 6 branch estate agency chain based in Wimbledon for an initial consideration of £3.2m. The remaining 35% is subject to put and call options which are exercisable between 2016 and 2019 dependent on profit performance. Due to the nature of the payment terms, the contingent consideration is considered to be a capital payment for accounting purposes.

The fair value of the identifiable assets, except for cash and cash equivalents, and liabilities of Hawes & Co as at the date of acquisition have been determined as below:

	Fair value recognised on acquisition
	£'000
Intangible assets	942
Property, plant and equipment	58
Trade and other receivables	384
Cash and cash equivalents	250
Trade and other payables	(466)
Current tax liabilities	-
Total identifiable net assets acquired	1,168
Purchase consideration	5,442
Goodwill	4,274

Purchase consideration discharged by:

Cash	3,192
Contingent consideration	2,250
	5,442

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^th June 2014.

The goodwill of Hawes & Co 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.

From the date of acquisition to 30^th June 2014, the acquisitions in aggregate have contributed to £1.3m of revenue and £0.2m profit before tax of the Group, excluding the impact of movements in the contingent consideration recorded through the profit and loss.  If all of these combinations had taken place at the beginning of the year, the consolidated revenue would have been higher by £1.2m and the consolidated profit before tax would have been higher by £0.2m. 

Transaction costs have been expensed and are included under exceptional costs (see note 6)

INDEPENDENT REVIEW REPORT LSL PROPERTY SERVICES PLC (Company)

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^th June 2014 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^th June 2014 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

4^thAugust 2014

 

END

 

 

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