Interim Results

RNS Number : 9469U

LSL Property Services

04 August 2015

 

For immediate release

4th August 2015

LSL Property Services plc

Interim Results For the six months ended 30^TH june 2015

LSL Property Services plc (LSL or the Group), a leading provider of residential property services incorporating estate agency and surveying businesses, announces its interim results for the six months ended 30^th June 2015.

	2015	2014	Change
Group revenue	£140.2m	£139.8m	-%
Group operating profit(1)	£10.3m	£15.1m	(32)%
Operating profit margin(1)	7.4%	10.8%
Profit before tax	£6.2m	£31.4m	(80)%
Basic earnings per share	4.7p	24.2p	(80)%
Adjusted basic earnings per share	7.2p	10.6p	(32)%
Net Bank Debt(2) at 30th June	£53.0m	£18.7m
Half year dividend	4.0p	4.0p	-%
Special dividend	-	16.5p	n/a

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

(2)      See Note 12 for calculation. 2014 includes proceeds of £18.9m received from Zoopla share sale proceeds

Resilient Group financial performance in an evolving market

§ Board remains confident in delivering year on year operating profit growth in the second half of 2015 and a full year result in line with expectations

§ Double digit organic revenue growth delivered by the lettings and financial services businesses.  Residential sales exchange revenue impacted by weak first half market conditions

§ Estate agency profitability impacted by additional investment ahead of anticipated market improvement in the second half

§ Excellent performance from the Surveying Division with operating profit ⁽¹⁾up by a third

Positive market outlook for H2

§ Improving UK residential housing market expected in the second half of 2015 following a slow start to the year

§ Indicators positive for an improving second half of the year across the estate agency business with robust pipelines, positive market sentiment and increasing activity levels seen over recent months

§ Stronger current trading in Estate Agency and Surveying Division seen in June and July

§ Acquisition of Thomas Morris in February and increased pace of lettings book acquisitions with £3.9m invested to acquire 13 businesses in the first six months of the year

§ Interim dividend of 4.0 pence (2014: 4.0 pence) reflecting the Board's confidence in the outlook for the second half of the year

§ Confident in delivering a full year result in line with expectations

Estate Agency Division Performance

§ Revenue broadly flat at £109.1m (2014: £108.6m)

§ Selective investment in headcount and branch infrastructure providing excellent base to support the achievement of medium term profit per branch targets

§ Operating profit⁽¹⁾ of £6.3m (2014: £12.2m).

§ Estate Agency Division operating margin⁽¹⁾ at 5.8% (2014: 11.3%)

§ Residential sales exchange volumes down 6% against a market contraction of 3% with average fees maintained across the businesses

§ Lettings revenue up 11% to £30.6m and financial services revenue up 14% to £22.8m

§ Marsh & Parsons profitability adversely impacted by stamp duty changes in December 2014, a weaker pipeline going into 2015, short-term uncertainty caused by the General Election in core Prime Central London markets and continued investment in branch openings

Surveying Division Performance

§ Revenues steady at £31.1m (2014: £31.3m)

§ Back office restructure announced in 2014 completed and savings achieved as expected

§ Operating profit⁽¹⁾ up 34% to £7.6m (2014: £5.7m) as a result of improved contract terms in the 2014 contract renewals and wins, a favourable demand mix and efficiency optimisation

§ Surveying Division operating margin⁽¹⁾ at 24.4% (2014: 18.2%)

§ Professional indemnity (PI) provisions in line with anticipated future liabilities

Commenting on today's announcement, Simon Embley, Chairman, said:

"The Group has delivered a resilient first half performance in an evolving market. Key economic growth indicators, the political landscape and consumer confidence all remain positive although the market is seeing lower levels of estate agency instructions and availability of stock outside of London and the South East.  With increasing levels of activity seen in recent months, robust pipelines and a broad coverage of the whole UK residential property sector, LSL is well placed to capitalise on the underlying market fundamentals. 

The outlook from lenders remains positive with historically low mortgage rates and increased distribution of products through intermediary channels.  As a result, we expect the market to return to year on year growth in the second half of the year and the Board remains confident in delivering year on year operating profit growth in the second half of 2015 and a full year result in line with expectations."

For further information, please contact:

Ian Crabb, Group Chief Executive Officer                            

Andrew Burchall, Interim 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 2015, please visit LSL's website: www.lslps.co.uk

Chairman's Statement

Introduction

Against a backdrop of an evolving UK residential housing market place in the first half, I am pleased to report Group revenues stable at £140.2m (2014: £139.8m) and Group operating profit⁽¹⁾ of £10.3m (2014: £15.1m). This was a resilient performance in a market where sentiment and activity had slowed significantly in the second half of 2014 which impacted pipelines coming into 2015 and where the comparative period last year was characterised by strong growth, particularly in the first quarter, ahead of the implementation of the Mortgage Market Review in April 2014.  

Underlying housing transaction⁽²⁾ volumes were off 12% in the first quarter of the year, but showed an improved position in the second quarter being 4% ahead of the comparative period in 2014.   The Estate Agency Division performed broadly in line with these market statistics with residential exchange volumes down 6% year on year in the first half with average fees broadly flat across the businesses.  The resilience of the division was again evident in both lettings and financial services where revenues increased by 11% and 14% respectively, predominantly through organic growth.  With the prospect of recovering markets in the second half and in line with the Group's strategy, we invested in the business by continuing to refurbish branches, selectively adding head count in the growth areas of financial services and lettings and maintaining teams across core estate agency activities. As a consequence, the cost base has risen and profitability during the first half of 2015 was adversely impacted.

The Surveying Division delivered an excellent result in the first half with operating profits⁽¹⁾ increasing by a third from £5.7m in the first half of 2014 to £7.6m in the first half of 2015.  This performance was driven by a number of factors.  Contract renewals and wins secured in 2014 combined with favourable lender and work mix are delivering benefits in terms of increased revenue per job.  In addition, the benefits from the graduate recruitment scheme combined with the operational cost efficiencies arising from the 2014 restructuring of the back office have resulted in a reduced cost base which is 8% lower than 2014.  We have continued to focus on capacity utilisation and are in a strong position to provide a high level of service to all of the Group's clients as demand increases.

Net Bank Debt at 30^th June 2015 was £53.0m.  This compares on a like for like basis (including the £17.8m net cash benefit from the sale of Zoopla shares) to £36.5m at 30^th June 2014.  The balance of the increase in Net Bank Debt relates to both Professional Indemnity cash outflows in line with expectations and capital investment in the Group including £7.3m net to acquire subsidiaries and other businesses.

Financial Results

Group revenue was broadly flat at £140.2m (2014: £139.8m). Group operating profit⁽¹⁾ was £10.3m (2014: £15.1m) and Group operating margin⁽¹⁾ decreased to 7.4% from 10.8%.

The Estate Agency Division held revenues broadly flat at £109.1m (2014: £108.6m) with operating profits⁽¹⁾ of £6.3m (2014: £12.2m) in a market where house purchase approvals⁽²⁾  decreased by 3% in the six months to 30^th June 2015 compared to 2014.  The Surveying Division revenues were steady  at £31.1m (2014: £31.3m) compared to a 1% year on year decrease in total mortgage approvals⁽²⁾ for the six months to 30^th June 2015.  Operating profits⁽¹⁾ in the Surveying Divisions increased by 34% to £7.6m (2014: £5.7m).

Net interest payable was £1.3m (2014: £1.2m) and Group profit before tax, amortisation and exceptional items was £9.0m (2014: £13.9m). Group profit before tax was £6.2m (2014: £31.4m).  The prior year included an exceptional profit of £18.0m which related to the sale of Zoopla shares.  The effective tax rate for the period was 22.3%.  Group profit after tax was £4.8m (2014: £24.9m). Earnings per share were 4.7p (2014: 24.2p) and adjusted earnings per share were 7.2p (2014: 10.6p).

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

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

Cash used by operations was £0.3m (2014: cash generated £4.2m). Operating cash flow included PI cash settlements of £7.6m (2014: £6.5m). Capital expenditure, including intangibles, decreased to £3.1m (2014: £4.6m) reflecting the completion of investments 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.  There were two new branch openings in Marsh & Parsons and the selective refurbishment of a number of Your Move and Reeds Rains branches continued.

Net assets at 30^th June 2015 were £88.1m (2014: £113.3m) which was driven by the payment of a £16.8m special dividend in the second half of 2014. Net Bank Debt at 30^th June 2015 was £53.0m compared to £18.7m at 30^th June 2014. Compared to 31^st December 2014, Net Bank Debt has increased by £18.3m driven by investments in acquisitions and the normal seasonality of the Estate Agency Division cash flows, continuing high levels of PI cash outflows, and the payment of dividend, tax and bonuses.

Interim Dividend

The Board has declared an interim dividend payment amounting to 4.0 pence per share (2014: 4.0 pence).  The interim dividend reflects the Board's confidence in future prospects and the strength of LSL's cash generation and balance sheet. The ex-dividend date for the interim dividend is 12^th August 2015, with a record date of 14^th August 2015 and a payment date of 8^th September 2015. 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 delivered a resilient performance in an evolving market.  Lower levels of market activity in the second half of 2014 resulted in weaker sales pipelines and more subdued trading activity coming into the first few months of the current year.  General Election uncertainty also held back transaction volumes.  However, sentiment has improved in June and July with improved trading performances across the division.  The division enters the second half of the year with robust sales pipelines and higher levels of activity across all income streams.  Although instruction volumes are weaker than expected, the broad UK wide coverage of the business is a significant attribute.

Residential Sales income decreased by 5% to £42.0m (2014: £44.4m) with average fees broadly flat across the businesses.  Exchange volumes were down 6% year on year.  Financial Services revenue increased by 14% to £22.8m (2014: £19.9m) and in total the Group arranged mortgage lending of £6.0bn during the first half (2014: £5.1bn). We were particularly pleased that our Lettings income again increased by a further 11% (2014: 12%) to £30.6m (2014: £27.7m) primarily driven by organic growth.  The lettings books acquired in the first half of the year will contribute to further growth in the second half.

Whilst the surprise changes to stamp duty announced by the Chancellor in late 2014 have benefitted the majority of LSL's businesses, they have adversely impacted the Prime Central London market served by Marsh & Parsons.  General Election uncertainty also weighed more heavily on the Prime Central London market during the first five months of 2015.  As a consequence, total revenue at Marsh & Parsons decreased by 5% to £15.4m (2014: £16.1m).  Residential Sales were down by 13% offset in part by good lettings income growth of 6%.  Lettings revenue now represents 50% of total Marsh & Parsons income.  Further growth in activity was held back by the availability of stock. Operating profit of £1.5m (2014: £3.2m) was impacted by the residential sales performance and the impact of the on-going costs of the new branch opening programme. Two new branches were opened during the period in Shoreditch and Queens Park and both are trading in line with expectations. Marsh & Parsons plan to open further new branches during the second half of the year if suitable sites can be identified and a number of initiatives are being investigated to improve profitability in this changed market.

With sentiment improving and good economic fundamentals supporting the UK residential housing sector, we expect to see a return to year on year market growth during the second half of the year.

Asset Management revenue declined by a third in the period to £4.3m (2014: £6.4m). This performance is in line with an estimated 30% decline in the repossession market from 23,000 properties in 2014 to 16,000 in 2015. 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.

Our national network of brands and branches represents a key strength for the division as the Group seeks to leverage the more positive outlook for the residential housing sector in the second half and beyond.  The Group has continued with our strategy of targeting selective acquisitions and purchased Thomas Morris, a multi-award winning estate agency and lettings business with seven branches in Cambridgeshire, Bedfordshire and Hertfordshire in February 2015. 

In line with our strategy, LSL businesses have also increased the rate of lettings book acquisitions and invested £3.9m in 13 businesses in the first six months of 2015.  The pipeline of other opportunities has also grown.  We have maintained consistent investment criteria and continue to target accretive opportunities.

Surveying Division

The Surveying Division has traded strongly in the first half.  Revenue was broadly flat year on year in a market that shrunk by 1%.  In the period, we completed 165,000 jobs, a 19% reduction on the comparable period last year.  However, the revenue per job increased by 16% to £188 (2014: £159) reflecting the benefits from contract renewals and wins in 2014, a favourable mix across lenders and the types of jobs performed.  Surveyor headcount was optimised to meet business requirements and was maintained at 367 (2014: 371).

As noted in the comments on the Estate Agency Division, there has been an improvement in the market during the second quarter with year on year volumes growing. Total mortgage approvals increased by 9% in the second quarter compared to 2014 and compared to an 11% reduction in the first quarter.

Following the important contract renewals and wins in 2014, the core customer base has been secured for the medium term.  The contract terms reflect current improved conditions in the mortgage market which is being reflected in the trading performance of the business.

Since announcing the further increase in Professional Indemnity (PI) provisions in December 2014 for work performed in the 2004 to 2008 high risk lending period, the cost of claims settlement has been in line with assumptions made at that time.  The total paid in the first six months of the year of £7.6m is in line with expectations.  Similarly, the cost per new claim through to 30^th June 2015 has been consistent overall with the assumptions supporting the PI provision.  The basis of the provisions 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 and the outcome from the General Election has removed political uncertainty from the market.  The recent announcements by the Governor of the Bank of England regarding longer term trends for interest rates could impact mortgage rates and consequently sentiment in the housing market.  However, the outlook from lenders remains positive and as a result we expect the market to show year on year growth in the second half of the year.  Given the robust sales pipelines and the current higher levels of activity across both the Estate Agency and Surveying income streams, the Board remains confident of delivering year on year growth in the second half of 2015 and full year result in line with expectations.

LSL's strategy is to continue to deliver organic growth and evaluate selective acquisitions.  Both the Estate Agency Division and the Surveying Division will continue to selectively invest in order to drive future returns.

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

Simon Embley

Chairman

4^th August 2015

 

Principal risks and uncertainties

During 2015, and in line with Financial Reporting Council (FRC) guidance, LSL's risk management and internal controls framework included:

a.   ownership of the risk management and internal controls framework by the Board, supported by the Company Secretary, Head of Risk and Internal Audit and Group Finance;

b.   a network of Risk Owners in each of LSL's businesses with specific responsibilities relating to risk management and internal controls;

c.    the documentation and monitoring of risks are recorded and managed through a risk appetite statement and through standardised risk registers which undergo regular reviews and scrutiny by local boards and the Head of Risk and Internal Audit;

d.    the Board regularly identifies, reviews and evaluates the principal risks and uncertainties which may impact the Group as part of the planning and reporting cycle to ensure that such risks and uncertainties are identified, monitored and mitigated; and

e.    reporting by the Chairman of the Audit Committee to the Board on any matters which have arisen from the Audit Committee's review of the way in which the risk management and internal control framework has been applied together with any breakdowns in, or exceptions to, these procedures.

In line with the 2014 edition of the Corporate Governance Code and the FRC's 'Guidance on Risk Management, Internal Control and Related Financial and Business Report', LSL has adopted a Group-wide risk appetite statement and framework. The new framework is being applied during 2015, and LSL will report on its progress in the 2015 Annual Report and Accounts.

Listed below are the risks which the Board has identified as being the principal risks and uncertainties faced by the Group at the date of this Statement, together with details of key management and mitigation initiatives, which are subject to regular review. 

LSL also faces other risks which, although important and subject to regular review, have been assessed as less significant and are not listed below.  This may include some risks which are not currently known to the Group or that LSL currently deems as immaterial, or were included in previous Annual Report and Accounts and through changes in external factors and careful management, are no longer deemed to be material to the Group as a whole.

However, these risks may individually or cumulatively also have a material adverse effect together with other risk factors which are beyond the direct control of LSL, and may have a material adverse impact on LSL's business, results of operations and/or financial condition.  The risk management framework and procedures in place can only provide reasonable but not absolute assurance that the principal risks and uncertainties are managed to an acceptable level.

Further information relating to how LSL managed these risks and uncertainties during 2014 is set out in the Audit Committee Report (Internal Controls) of the 2014 Annual Report and Accounts.

Principal Risk and Uncertainty

Description and Impact:	Management and Mitigation
Housing Market - UK: • The UK residential housing market in 2015 was somewhat subdued in the first quarter with signs of improvement in quarter two.  The General Election result in May has removed electoral uncertainty, but the possibility of interest rate rises could adversely impact the market should they materialise. • The UK residential housing market is also impacted by sentiment driven by statements from the Bank of England and Government. Any impact on transaction volumes (both house purchase and remortgage) and house prices may adversely affect the profitability and cash flow of all key brands and businesses.	The Board regularly reviews trends in market volumes and monitors the Group's operational gearing to decide on the appropriate level of resourcing.  In addition, the Board regularly focuses on non-cyclical and counter cyclical income streams, in particular Lettings, to offset any impact on residential transaction numbers. Further, regular reviews of trends in market volumes are undertaken and decisions made on any cost base reductions measures.
Housing Market - Central London: • LSL has an exposure to the Prime Central London property market via Marsh & Parsons.  While historically the Prime Central London market has been more robust compared to the rest of the UK, recent changes to stamp duty are impacting the volume of transactions, particularly in the Prime Central London market where average house prices are in excess of £1.0m.  There remains a risk that the London market fails to grow or that LSL fails to maximise the potential growth.	Marsh & Parsons has an incentivised and established management team with a growth strategy. It operates in all segments of the prime Central London market and has opened two new branches in 2015 with further new openings planned to improve geographical coverage, particularly outside the prime central London market.  The Board closely monitors the company's performance.
Client Contracts: • A failure to secure or renew, key Valuation Services or Asset Management contracts, or any significant reduction in volumes combined with a pressure on fees, either as a result of adverse market conditions, market consolidation, competition or inadequate service delivery.	There continues to be investment in customer services to retain existing clients and to attract new ones. In addition, LSL continues to provide private survey services to provide a supplemental income stream to the core B2B arrangements. Group-wide relationship management arrangements are in place to ensure that LSL uses its networks to strengthen relationships with key lender clients.
Professional Services: • Liabilities arising from the provision of inaccurate professional services advice to clients (e.g. valuation services) arising from employee errors and/or a failure by LSL businesses to put in place and to maintain appropriate internal controls. • The period from 2004 to 2008 is identified as the high risk lending period and notifications relating to this period are still being received. Accordingly, the PI provisions disclosed in the Report is the Group's best estimate of likely claim costs, and this remains sensitive to the rate of new notifications and the average cost of current and future claims. • The costs and management resources applied in responding to claims and notifications can divert resources away from value adding activities. • Costs and losses arising from a failure to manage any actual or threatened legal claims.	Monitoring arrangements include oversight by the Board (including regular review of the PI provision relating to Surveying and Valuation Services) and appropriate quality controls and Risk and Internal Audit reviews of services provided on a sample basis.  There are also specific operational controls implemented within the Surveying Division which includes a risk based criteria for the identification of transactions to be subject to enhanced review measures. During 2014 LSL completed a detailed review, with the assistance of external consultants, of its PI claims and the associated PI provision and further initiatives to improve internal controls and related reporting have continued into 2015. The Board regularly review the PI provision to ensure that the cost per claim, number of notifications and the rate of deterioration from notifications to claims are in line with the parameters used to calculate the provision.
Regulatory and Government: • Failure to comply with existing legislation/regulation or changes to legislation/regulation and/or Government/EU policy which may impact on business results or the UK housing market in general. •Changes in macro Government economic policy or specific initiatives in respect of the UK Residential Housing sector or policy changes by the Bank of England regarding interest rates and the availability of mortgages may adversely impact the business.	LSL business units are supported by the Compliance and Legal Services teams who monitor existing business practices and any reform proposals.  Where appropriate Government departments and/or trade bodies are engaged in a dialogue. The Board also monitors the impacts of changes and assesses changes to business practices which may be required to respond to Government policy changes and to ensure compliance with any new legislation. Where necessary external specialists are engaged to provide advice to ensure that all laws and regulations are adhered to and that a culture of ensuring appropriate customer outcomes is embedded across the Group.
Financial Services Regulation (including Financial Conduct Authority (FCA) requirements): • Failure to comply with relevant legislation including FCA requirements or changes to Financial Services legislation which would result in a fine, adverse publicity, reputational damage and could result in loss of authorisations which would impact on business results.	The Group has improved its Financial Services compliance framework through the enhancement of technology solutions and the inception of new Compliance roles operating across the breadth of Financial Services operations. LSL has a proactive engagement strategy with the FCA and the Board closely monitors the Financial Services business and receives regular updates on its communications with the FCA.
Acquisitions: • Failure to identify and secure appropriate targets for acquisition and once acquired, the businesses are not successfully integrated into the Group. • Liabilities arising from a failure to carry out appropriate due diligence prior to an acquisition.	Each Division has plans in place to identify acquisition opportunities and wherever necessary additional external consultants are hired to assist with this process.  Further, the Group has in place dedicated teams to deliver, monitor and integrate acquisitions.  Where opportunities arise, thorough due diligence is carried out and all significant acquisitions are approved by the Board, to ensure acquisitive growth is delivered within strategic financial parameters.  Detailed 100 day integration plans are prepared by management and implemented once the business has been acquired. A post acquisition review is presented to the Board on the financial and operational success of each significant acquisition, the integration of the business within the Group and any lessons learned and improvements arising from the process.
IT Systems, Infrastructure and Security: • Failures, interruptions or security breaches of any Group IT services on which any business is reliant for operational performance and financial information.	Dedicated in-house IT departments with specialist staffing. Maintenance of Group policies, including a formalised business continuity infrastructure and contingency plans in the event of a system failure.  Regular monitoring by subsidiary company management, external specialists and Risk and Internal Audit, with any system issues highlighted to the Board.
Retention and Recruitment: • Failure to retain/recruit qualified or experienced individuals with the necessary skills and experience into the senior management team which is key to delivering the future growth strategy of the Group.	The executive team focuses on the retention of all senior management and ensures that adequate remuneration policies, management development and succession plans are in place. This is supported by annual reviews by the Remuneration and Nominations Committees. The Group HR Department includes a dedicated Talent Acquisition Team focusing on the recruitment of high quality employees.  The Group also has in place a range of graduate recruitment and training schemes.

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 30 and 31 of LSL's Annual Report and Accounts 2014 and in 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 149 to 152 of LSL's Annual Report and Accounts 2014 (a copy of which is available on LSL's website at: www.lslps.co.uk).  All references to 'note(s)' in this 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

Ian Crabb

Director
 

Interim Group Income Statement

for the six months ended 30^th June 2015

		Unaudited Six Months Ended		Audited Year Ended
		30th June 2015	30th June 2014	31st December 2014
	Note	£'000	£'000	£'000
Revenue	3,4	140,159	139,838	287,498
Operating expenses:
Employee and subcontractor costs		(86,522)	(84,528)	(167,581)
Establishment costs		(10,826)	(10,211)	(18,852)
Depreciation on property, plant  and equipment		(2,666)	(2,346)	(4,918)
Other		(30,367)	(29,686)	(57,938)
		(130,381)	(126,771)	(249,289)
Other operating income	3	600	1,613	2,404
Gain on sale of property, plant and equipment		19	13	13
Group's share in post-tax profits of joint ventures		(84)	405	1,383
Group operating profit before contingent consideration, exceptional costs, amortisation and share-based payments	4	10,313	15,098	42,009
Share-based payments		(397)	(1,119)	(1,775)
Amortisation of intangible assets		(186)	(310)	(565)
Contingent consideration	6	(2,142)	915	405
Exceptional gains	6	-	18,111	19,841
Exceptional costs	6	(83)	(298)	(26,035)
Group operating profit	4	7,505	32,397	33,880
Finance income	3	112	-	14
Finance costs		(1,403)	(1,217)	(2,181)
Exceptional finance credit	6	-	230	230
Net finance costs		(1,291)	(987)	(1,937)
Profit before tax	4	6,214	31,410	31,943
Taxation (charge)/credit
- related to exceptional costs		17	(3,638)	1,146
- other		(1,404)	(2,865)	(7,931)
	8	(1,387)	(6,503)	(6,785)
Profit for the period/year		4,827	24,907	25,158
Attributable to:
- Owners of the parent		4,804	24,887	25,103
- Non-controlling interest		23	20	55
Earnings per share expressed in pence per share:
Basic	5	4.7	24.2	24.5
Diluted	5	4.7	23.9	24.3
Adjusted - basic	5	7.2	10.6	30.5
Adjusted - diluted	5	7.2	10.5	30.2

 

Interim Group Statement of Comprehensive Income

for the six months ended 30^th June 2015

		Unaudited Six Months Ended		Audited Year Ended
		30th June 2015	30th June 2014	31st December 2014
		£'000	£'000	£'000
Profit for the period		4,827	24,907	25,158
Items to be reclassified to profit and loss in subsequent periods:
Reclassification adjustments for disposal of financial assets		-	(18,602)	(20,568)
Income tax effect		-	3,721	4,114
Revaluation of financial assets		8,855	10,597	6,903
Income tax effect		(1,771)	(2,120)	(1,381)
Net other comprehensive income to be reclassified to profit and loss in subsequent periods:		7,084	(6,404)	(10,932)
Total other comprehensive income, net of tax		7,084	(6,404)	(10,932)
Total comprehensive income, net of tax		11,911	18,503	14,226
Attributable to     - Owners of the parent     - Non-controlling interest		11,888 23	18,483 20	14,171 55

 

Interim Group Balance Sheet

as at 30^th June 2015

		Unaudited Six Months Ended		Audited Year Ended
		30th June 2015	30th June 2014	31st December 2014
	Note	£'000	£'000	£'000
Non-current assets
Goodwill		135,954	130,431	131,560
Other intangible assets		23,734	20,058	20,110
Property, plant and equipment		20,863	18,584	20,272
Financial assets	9	31,976	28,863	23,033
Investments in joint ventures		9,036	2,342	9,121
Total non-current assets		221,563	200,278	204,096
Current assets
Trade and other receivables		39,070	40,812	36,165
Cash and cash equivalents		998	1,025	-
Total current assets		40,068	41,837	36,165
Total assets		261,631	242,115	240,261
Current liabilities
Financial liabilities	10	(8,990)	(4,218)	(4,659)
Trade and other payables		(47,659)	(53,833)	(50,336)
Current tax liabilities		(1,612)	(4,570)	(373)
Provisions for liabilities	11	(15,086)	(8,345)	(16,539)
Total current liabilities		(73,347)	(70,966)	(71,907)
Non-current liabilities
Financial liabilities	10	(75,032)	(37,882)	(56,420)
Deferred tax liability		(8,191)	(7,284)	(6,462)
Provisions for liabilities	11	(16,995)	(12,730)	(22,372)
Total non-current liabilities		(100,218)	(57,896)	(85,254)
Total Liabilities		(173,565)	(128,862)	(157,161)
Net assets		88,066	113,253	83,100
Equity
Share capital		208	208	208
Share premium account		5,629	5,629	5,629
Share-based payment reserve		3,275	3,066	3,498
Treasury shares		(6,341)	(2,452)	(7,922)
Fair value reserve		23,799	21,243	16,715
Retained earnings		61,336	85,457	64,835
Equity attributable to owners of parent		87,906	113,151	82,963
Non-controlling interests		160	102	137
Total equity		88,066	113,253	83,100

 

Interim Group Cash Flow Statement

for the six months ended 30^th June 2015

			Unaudited 30th June 2015					Unaudited 30th June 2014				Audited 31st December 2014
			£'000		£'000			£'000	£'000			£'000	£'000
	Cash generated from operating activities
	Profit before tax				6,214				31,410				31,943
	Adjustments to reconcile profit before tax to net cash from operating activities
	Exceptional operating income and costs and contingent consideration (non-cash)		2,142					(18,693)				4,324
	Amortisation of intangible assets		186					310				565
	Finance income		(112)					-				(14)
	Finance costs		1,403					1,217				2,181
	Exceptional finance credit		-					(230)				(230)
	Share-based payments		397					1,119				1,775
					4,016				(16,277)				8,601
	Group operating profit before amortisation and share-based payments				10,230				15,133				40,544
	Depreciation		2,666					2,346				4,918
	Dividend income		(309)					(1,160)				(1,579)
	Share of results of joint ventures		84					(405)				(1,383)
	Loss/(gain) on sale of property, plant and equipment		83					(48)				(48)
					2,524				733				1,908
	Increase in trade and other receivables		(2,727)					(5,358)				(449)
	Decrease in trade and other payables		(3,413)					(934)				(4,263)
	Decrease in provisions		(6,909)					(5,339)				(12,075)
					(13,049)				(11,631)				(16,787)
	Cash (utilised by)/generated from operations				(295)				4,235				25,665
	Interest paid		(890)					(809)				(1,764)
	Payment of contingent consideration relating to remuneration		-					(1,160)				(1,426)
	Loan refinance costs paid		-					-				-
	Tax paid		(415)					(1,022)				(1,339)
					(1,305)				(2,991)				(4,529)
	Net cash (utilised by)/generated from operating activities				(1,600)				1,244				21,136

 

	Unaudited 30th June 2015		Unaudited 30th June 2014		Audited 31st December 2014
	£'000	£'000	£'000	£'000	£'000	£'000
Cash flows from investing activities
Cash acquired on purchase of subsidiary undertaking	773		250		250
Acquisition of subsidiaries and other businesses	(8,058)		(3,887)		(4,963)
Payment of contingent consideration	(162)		(88)		-
Investment in joint venture	-		-		(2,422)
Investment in financial assets	(88)		(1,155)		(1,155)
Cash received on sale of financial assets	-		18,850		20,838
Tax on Sale of Zoopla	-		-		(4,015)
Dividends received from joint ventures	-		1,302		1,302
Dividends received from financial assets	309		1,160		1,579
Interest received	112		-		14
Purchase of property, plant and equipment and intangible assets	(3,109)		(4,576)		(9,244)
Proceeds from sale of property,  plant and equipment	163		92		195
Net cash (used in)/ from investing activities		(10,060)		11,948		2,379
Cash flows from financing activities
Drawdown/(repayment) of loans	20,000		(6,787)		8,233
Purchase of LSL shares by the employee benefit trust (EBT) (Treasury Shares)	-		-		(5,621)
Proceeds from exercise of share options	1,116		1,557		1,690
Dividends paid	(8,458)		(7,406)		(28,286)
Net cash from/(used in) financing activities		12,658		(12,636)		(23,984)
Net increase/(decrease) in cash and cash  equivalents		998		556		(469)
Cash and cash equivalents at the beginning of the year		-		469		469
Cash and cash equivalents at the end of the year		998		1,025		-

 

Interim Group Statement of changes in equity

for the six months ended 30^th June 2015

Unaudited six months ended 30^th June 2015

	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 2015	208	5,629	3,498	(7,922)	16,715	64,835	82,963	137	83,100
Disposal of financial assets (net of tax)	-	-	-	-	-	-	-	-	-
Revaluation of financial assets (net of tax)	-	-	-	-	7,084	-	7,084	-	7,084
Other comprehensive income for the period	-	-	-	-	7,084	-	7,084	-	7,084
Profit for the period	-	-	-	-	-	4,804	4,804	23	4,827
Total comprehensive income for the period	-	-	-	-	7,084	4,804	11,888	23	11,911
Exercise of options	-	-	(620)	1,581	-	155	1,116	-	1,116
Share-based payments	-	-	397	-	-	-	397	-	397
Tax on share-based payments	-	-	-	-	-	-	-	-	-
Dividend payment	-	-	-	-	-	(8,458)	(8,458)	-	(8,458)
At 30th June 2015	208	5,629	3,275	(6,341)	23,799	61,336	87,906	160	88,066

During the six month period to 30^th June 2015 a total of 450,928 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the Trust.  LSL received £1,116,000 on exercise of these options.

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 30th June 2014	208	5,629	3,066	(2,452)	21,243	85,457	113,151	102	113,253

During the six month period ended 30^th June 2014, the Trust 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 Trust.  LSL received £1,557,000 on exercise of these options.

Audited year ended 31^st December 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)	-	-	-	-	(16,454)	-	(16,454)	-	(16,454)
Revaluation of financial assets (net of tax)	-	-	-	-	5,522	-	5,522	-	5,522
Other comprehensive income for the year	-	-	-	-	(10,932)	-	(10,932)	-	(10,932)
Profit for the year	-	-	-	-	-	25,103	25,103	55	25,158
Total comprehensive income for the year	-	-	-	-	(10,932)	25,103	14,171	55	14,226
Investment in Treasury Shares	-	-	-	(5,621)	-	-	(5,621)	-	(5,621)
Exercise of options	-	-	(752)	1,991	-	451	1,690	-	1,690
Share-based payments	-	-	1,775	-	-	-	1,775	-	1,775
Dividend payment	-	-	-	-	-	(28,286)	(28,286)	-	(28,286)
At 31st December 2014	208	5,629	3,498	(7,922)	16,715	64,835	82,963	137	83,100

During the year ended 31^st December 2014, the Trust acquired 1,485,000 LSL shares in the Group for £5,621,000.  In addition, during the period 669,077 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the Trust.  LSL received £1,690,000 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 2015 were approved by the LSL Board on 3^rd August 2015. The interim financial statements are not the statutory accounts. The financial information for the year ended 31^st December 2014 is extracted from the audited statutory accounts for the year ended 31^st December 2014, 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 2015 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 2014.

There have been no significant related party transactions in the period to 30^th June 2015.

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 2014.

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 2014. These assumptions are discussed in detail on pages 92 and 93 and in notes 7, 14, 16, 21 and 22 of the Group's annual financial statements for the year ended 31^st December 2014. 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

There are no accounting standards or interpretations that have become effective in the current reporting period which have had a material effect on the net assets, results and disclosures of the Group.   The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. 

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 and operating profits are normally higher in the second half of the year.

3.      Revenue

                                                   Six months ended             Year Ended

	30th June 2015 £'000	30th June 2014 £'000	31st December 2014 £'000
Revenue from services	140,159	139,838	287,498
Operating revenue	140,159	139,838	287,498
Rental income	291	453	825
Dividend income	309	1,160	1,579
Other operating income	600	1,613	2,404
Finance income	112	-	14
Total revenue	140,871	141,451	289,916

 

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 2014 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 2015, for the six months ended 30^th June 2014 and for the year ended 31^st December 2014.

Six months ended 30^th June 2015

Income statement  information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Segmental revenue	109,067	31,092	-	140,159
Segmental result:
- before exceptional costs, contingent consideration, amortisation and     share-based payments	6,343	7,598	(3,628)	10,313
- after exceptional costs, contingent	3,537	7,595	(3,627)	7,505
consideration, amortisation and     share-based payments
Finance income				112
Finance costs				(1,403)
Profit before tax				6,214
Taxation				(1,387)
Profit for the period				4,827

In the period ended 30^th June 2015, there is no revenue from one customer that accounts for 10% or more of the Group's total revenue (2014 - none). 

Balance sheet information
Segment assets - intangible	148,860	10,828	-	159,688
Segment assets - other	89,354	10,615	1,974	101,943
Total Segment assets	238,214	21,443	1,974	261,631
Total Segment liabilities	(63,598)	(44,290)	(65,677)	(173,565)
Net assets/(liabilities)	174,616	(22,847)	(63,703)	88,066

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 (£14,000), cash and bank balances (£998,000), other assets (£962,000), accruals (£1,874,000), financial liabilities (£54,000,000) and deferred and current tax liabilities (£9,803,000).

 

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

Operating segments

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

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

Year ended 31^st December 2014

Income statement  information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Segmental revenue	225,274	62,224	-	287,498
Segmental result:
- before exceptional costs, contingent consideration, amortisation and     share-based payments	33,892	13,331	(5,214)	42,009
- after exceptional costs, contingent
consideration, amortisation and     share-based payments	52,310	(12,611)	(5,819)	33,880
Finance income				14
Finance costs				(2,181)
Exceptional finance credit				230
Profit before tax				31,943
Taxation				(6,785)
Profit for the year				25,158

The Estate Agency and Related Services segment result includes a gain of £19,806,000 relating to sale of Zoopla shares (see note 9)

	Estate agency and related  activities £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000
Balance sheet information
Segment assets - intangible	140,786	10,884	-	151,670
Segment assets - other	77,317	10,319	955	88,591
Total Segment assets	218,103	21,203	955	240,261
Total Segment liabilities	(47,507)	(52,711)	(56,943)	(157,161)
Net assets/(liabilities)	170,596	(31,508)	(55,988)	83,100

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 (£31,000), other assets (£924,000), accruals (£2,329,000), financial liabilities (£13,060,000), deferred and current tax liabilities (£6,836,000), overdraft of (£718,000), Revolving Credit Facility (£34,000,000).

 

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	2015 Per share amount Pence	Profit after tax £'000	Weighted average number of shares	2014 Per share amount Pence
	Basic EPS	4,804	102,337,501	4.69	24,887	102,993,275	24.2
	Effect of dilutive share options	-	436,809	-	-	1,031,362	-
	Diluted EPS	4,804	102,774,310	4.67	24,887	104,024,637	23.9

Year ended 31st December 2014				Profit after tax £'000	Weighted average number of shares	2014 Per share amount Pence
Basic EPS				25,103	102,955,662	24.5
Effect of dilutive share options				-	925,536	-
Diluted EPS				25,103	103,405,525	24.3

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 2015 £'000	30th June 2014 £'000	31st  December 2014 £'000
Group operating profit before contingent consideration in acquisitions linked to employment, exceptional costs, share-based payments and amortisation (excluding non-controlling interest)	10,290	15,078	41,954
Net finance costs (excluding exceptional costs and unwinding of discount on contingent consideration)	(1,032)	(1,217)	(2,167)
Normalised taxation	(1,874)	(2,980)	(8,554)
Adjusted profit after tax(1) before exceptional costs, share-based payments and amortisation	7,384	10,881	31,233

 

5.      EPS (continued)

Six months ended 30^th June

	Adjusted profit after tax1 £'000	Weighted average number of shares	2015 Per share amount Pence	Adjusted profit after tax1 £'000	Weighted average number of shares	2014 Per share amount Pence
Adjusted basic EPS	7,384	102,337,501	7.21	10,881	102,993,275	10.6
Effect of dilutive share options	-	436,809	-	-	1,031,362	-
Adjusted diluted EPS	7,384	102,774,310	7.18	10,881	104,024,637	10.5

Year ended 31^st December 2014

				Adjusted profit after tax1 £'000	Weighted average number of shares	2014 Per share amount Pence
Adjusted basic EPS				31,233	102,479,989	30.5
Effect of dilutive share options				-	925,536	-
Adjusted diluted EPS				31,233	103,405,525	30.2

(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 20.25% (30^th June 2014: 21.5%; 31^st December 2014: 21.5%).

6.      Exceptional items

	Six Months Ended		Year Ended
	30th June 2015	30th  June 2014	31st  December 2014
Exceptional costs:	£'000	£'000	£'000
Loss on disposal of freehold properties	(83)	-	-
Provision for professional indemnity claims/notifications	-	-	(24,570)
Branch closure costs including redundancy costs	-	(170)	(1,092)
Acquisition related costs	-	(128)	(373)
Total operating exceptional costs	(83)	(298)	(26,035)
Contingent consideration on acquisitions	(2,142)	915	405
	(2,142)	915	405
Exceptional gains
Gain on disposal of freehold properties	-	35	35
Settlement of legal dispute	-	87	-
Sale of Zoopla shares	-	17,989	19,806
	-	18,111	19,841
Finance costs
Movement in fair value of interest rate swap	-	230	230
	-	230	230
Net exceptional gain/(cost)	(2,225)	18,958	(5,559)

6.    Exceptional items (continued)

Provision for professional indemnity (PI) claims/notifications

Since early 2012 the Group has experienced a high level of claims and notifications 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 and finally by £24.6m in December 2014.

The PI Costs provision at 30^th June 2015 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 2015.  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 2015.  The Directors have then applied an average cost per case, based on historical averages, to estimate the IBNR 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 2015 the total provision for PI Costs was £31.9m. The Directors have considered sensitivity analysis on the key risks and uncertainties discussed which is set out in note 11. 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.  Prior to the IPO, LSL owned 4.91% of Zoopla.  Valued at the IPO price of £2.20 per share, LSL's investment was £44,039,000. 

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.   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.  In total, the Group received proceeds net of associated tax costs of £16,814,000.  A special distribution of 16.5 pence per share was declared to return this exceptional gain to Shareholders in 2014.

Freehold properties

During the period, a single freehold property with a book value totalling £246,000 (31^st December 2014: £30,000 and 30^th June 2014: £29,000) was sold for net proceeds of £163,000 (31^st December 2014: £65,000 and 30^th June 2014: £64,000) resulting in a loss on disposal of £83,000 (31^st December 2014: gain of £35,000 and 30^th June 2014: gain of £35,000). 

Contingent consideration on acquisitions

The expense for contingent consideration on the acquisition of Marsh & Parsons (in 2011) amounted to £602,000 (31^st December 2014: £2,281,000 and 30^th June 2014: £731,000). The exceptional contingent consideration charge recognised in the period relating to other acquisitions is £1,540,000 (31^st December 2014: credit of £2,686,000 and 30^th June 2014: credit of £1,646,000). 

7.      Dividends paid and proposed

	Six Months Ended		Year Ended
	30th June 2015 £'000	30th June 2014 £'000	31st December 2014 £'000
Declared and paid during the period
Equity dividends on ordinary shares:
2013 Final: 7.2 pence	-	7,406	7,406
2014 Interim: 4.0 pence	-	-	4,074
2014 Special dividend: 16.5 pence	-	-	16,806
2014 Final: 8.3 pence	8,458	-	-
Dividends on ordinary shares proposed (not recognised as a liability as at 30th June):
2015 Interim: 4.0 pence (2014 Interim: 4.0 pence)	4,093	4,074	-
2014 Special dividend: 16.5 pence	-	16,806	-
Dividends on ordinary shares proposed (not recognised as a liability as at 31st December): 2014 Final: 8.3 pence	-	-	8,458

8.      Taxation

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

	Six Months Ended		Year Ended
	30th June 2015	30th June 2014	31st December 2014
	£'000	£'000	£'000
UK corporation tax:
- current year	1,429	6,305	6,460
- adjustment in respect of prior years	-	(10)	144
	1,429	6,295	6,604
Deferred tax:
Origination and reversal of temporary differences	(42)	74	98
Adjustment in respect of prior year	-	134	83
	(42)	208	181
Total tax charge in the income statement	1,387	6,503	6,785

Income tax charged directly to other comprehensive income is £1,771,000 (30^th June 2014: credit of £1,601,000 and 31^st December 2014: credit of £2,733,000) and relates to the revaluation of financial assets. Income tax credited directly to the share based payment reserve is £ nil (30^th June 2014: £164,000 and 31^st December 2014: £ 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 2015 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 2015	30th June 2014	31st December 2014
	£'000	£'000	£'000
Unquoted shares at fair value	1,774	1,687	1,686
Quoted shares at fair value	30,202	27,176	21,347
	31,976	28,863	23,033
Opening balance	23,033	36,574	36,574
Acquisitions	88	1,155	1,155
Disposals	-	(19,463)	(21,599)
Fair value adjustment recorded through other comprehensive income	8,855	10,597	6,903
Closing balance	31,976	28,863	23,033

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 14).  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

Zoopla's share price at 30th June 2015 was £2.78 per share.  The Directors consider 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 £30,201,000.  Subsequent to 30^th June 2015, LSL was invited to participate in the Zoopla Anniversary offer.  As a consequence, a further 619,318 shares were purchased at £1.76 per share, a 20% discount to the IPO price. Further, 169,350 Zoopla shares were sold for net proceeds of £296,565.

Other investments

The carrying value of the Group's investment in Vibrant Energy Matter (VEM) at 30th June 2015 has been assessed as £912,000 (31st December 2014: £824,000).

The carrying value of the Group's investment in GPEA Limited (GPEA) at 30th June 2015 has been assessed as £862,000 (31st December 2014: £862,000).

10.    Financial liabilities

	Six Months Ended		Year Ended
	30th June 2015	30th June 2014	31st December 2014
	£'000	£'000	£'000
Current
Overdraft	-	261	718
2% unsecured loan notes	-	-	63
Deferred consideration	2,422	-	-
Contingent consideration	6,568	3,957	3,878
	8,990	4,218	4,659
Non-current
Bank loans - revolving credit facility (RCF)	54,000	19,500	34,000
12% unsecured loan notes	9,918	9,507	9,681
Deferred consideration	465	446	2,887
Contingent consideration	10,649	8,429	9,852
	75,032	37,882	56,420

Contingent consideration -

	Six Months Ended		Year Ended
	30th June 2015	30th June 2014	31st December 2014
	£'000	£'000	£'000
Marsh & Parsons Growth Shares	5,103	2,951	4,501
LSLi contingent consideration	8,963	8,599	7,496
LMS	2,388	-	957
Other	763	836	776
	17,217	12,386	13,730
Opening balance	13,730	12,299	12,299
Cash paid	(162)	(1,248)	(1,426)
Acquisition	1,248	2,250	3,262
Amounts recorded though income statement	2,401	(915)	(405)
Closing balance	17,217	12,386	13,730

10.    Financial liabilities (continued)

£5,103,000 (31^st December 2014: £4,501,000 and 30^th June 2014: £2,951,000) of contingent consideration relates to the Growth Shares acquired by 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.

£8,963,000 (31^st December 2014: £7,496,000 and 30^th June 2014: £8,599,000) of contingent consideration relates to payments to third parties in relation to the acquisition of LSLi and certain of its subsidiaries between 2007 and 2015. This is typically payable between three and five years after the acquisition dates depending on the profitability of those subsidiaries in the relevant years. In 2015, the contingent consideration has been recalculated based on the Directors' latest expectation using a discount rate of 6.5% (31^st December 2014 and 30^th June 2014: 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 2015	30th June 2014	31st December 2014
	£'000	£'000	£'000
Remuneration	6,718	4,806	7,463
Put options over non-controlling interests	5,662	3,062	4,217
Arrangement under IFRS 3	4,837	4,518	2,050
Closing balance	17,217	12,386	13,730
Contingent consideration profit and loss impact in the period relating to amounts accounted for as:
Remuneration	607	343	756
Put options over non-controlling interests	1,341	(1,310)	(1,110)
Arrangement under IFRS 3	194	52	(51)
(Credit)/charge	2,142	(915)	(405)

11.    Provisions for liabilities

Six months ended 30^th June:

	2015			2014
	Professional indemnity claim provision	Onerous leases	Total	Professional indemnity claim provision	Onerous leases	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1st January	38,719	192	38,911	25,864	475	26,339
Amount utilised	(7,901)	-	(7,901)	(6,469)	(65)	(6,534)
Amount released	-	(55)	(55)
Unwinding of discount	79	-	79	75	-	75
Provided in the period (including exceptional costs)	1,047	-	1,047	1,292	(97)	1,195
Balance at 30th June	31,944	137	32,081	20,762	313	21,075
Current	15,031	55	15,086	8,032	313	8,345
Non-current	16,913	82	16,995	12,730	-	12,730
	31,944	137	32,081	20,762	313	21,075

11.    Provisions for liabilities (continued)

Year ended 31^st December 2014

	Professional indemnity claim provision	Onerous leases	Total
	£'000	£'000	£'000
Balance at 1st January	25,864	475	26,339
Amount utilised	(13,271)	(66)	(13,337)
Amount released	-	(217)	(271)
Unwinding of discount	75	-	75
Provided in the period (including exceptional costs)	26,051	-	26,051
Balance at 31st December	38,719	192	38,911
Current	16,388	151	16,539
Non-current	22,331	41	22,372
	38,719	192	38,911

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 £24.6m (c£19.3m after tax) was made in the year ending 31^st December 2014 in order to increase the PI Cost provision. Since December 2014, although the rate of new claims received has been marginally ahead of the assumptions behind the provision, the cost per new claim and cost per settled claim has been favourable. Accordingly, this 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 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 2015 the total provision for PI Costs was £31.9m. The Directors have considered sensitivity analysis on the key risks and uncertainties discussed above.

Cost per claim

A substantial element of the provision relates to specific claims where disputes are on-going.  These specific cases have been separately assessed and specific provisions have been made.  The average cost per claim has been used to calculate the required IBNR.  Should the costs to settle and resolve these claims and future claims increase by 10%, an additional provision of £2.8m would be required.

Rate of claim

The IBNR assumes that that the rate of claim for the high risk lending period in particular reduces over time with the expiry of the primary limitation period as well as the expectation that fewer claims will arise through the passing of time.  Should the rate of reduction be lower than anticipated and the duration extend, further costs may arise.  An increase of 30% in notifications in excess of that assumed in the IBNR calculations would increase the required provision by £1.0m.

Notifications

 The company has received a number of notifications which have not deteriorated into claims or loss.  Should the rate of deterioration increase by 50%, an additional provision of £1.1m would be required.

11.    Provisions for liabilities (continued)

Onerous leases

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.

12.    Analysis of Net Bank Debt

	Six Months Ended		Year Ended
	30th June 2015	30th June 2014	31st December 2014
	£'000	£'000	£'000
Interest bearing loans and borrowings
-       Current	8,990	4,218	4,659
-       Non-current	75,032	37,882	56,420
	84,022	42,100	61,079
Less: 12% unsecured loan notes	(9,918)	(9,507)	(9,744)
Add: cash and short-term deposits	(998)	(1,025)	-
Less: deferred and contingent consideration	(20,104)	(12,832)	(16,617)
Net Bank Debt at the end of the year	53,002	18,736	34,718

Net Bank Debt at 30^th June 2014 excluding the net sale proceeds from the sale of Zoopla shares and reinvestment into Zoopla totalling £17.8m, was £36.5m.

13.    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 2014.  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 2014.

The Group has a current ratio of Net Bank Debt (excluding loan notes) to EBITDA of 1.25 (31^st December 2014: 0.74 and 30^th June 2014: 0.41). The business is cash generative with a low level of maintenance capital expenditure requirement.  The Group remains committed to its stated dividend policy of 30% to 40% of adjusted 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.

14.    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 2015	June 2014	Dec 2014
	Book and Fair value	Book and Fair value	Book and Fair value
	£'000	£'000	£'000
Financial assets
Cash and cash equivalents	998	1,025	-
Available-for-sale financial assets	31,976	28,863	23,033
Financial liabilities
Interest-bearing loans and borrowings:
Floating rate borrowings	(54,000)	(19,761)	(34,718)
Contingent consideration	(17,217)	(12,386)	(13,730)
Deferred consideration	(2,887)	(446)	(2,887)
12% unsecured loan notes	(9,918)	(9,507)	(9,744)

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

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 2015, 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 2015	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
Assets measured at fair value
Financial assets	31,976	30,201		1,775
Liabilities measured at fair value
Contingent consideration	17,217			17,217
Deferred consideration	2,887			2,887
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings: Floating rate borrowings	54,000	-	54,000	-
12% unsecured loan notes	9,918	-	9,918	-

·	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
Deferred consideration	446			446
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	-

·	Dec 2014	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
Assets measured at fair value
Financial assets	23,033	21,347	-	1,686
Liabilities measured at fair value
Contingent consideration	13,730	-	-	13,730
Deferred consideration	2,887	-	-	2,887
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings: Floating rate borrowings	34,718	-	34718	-
12% unsecured loan notes	9,744	-	9,744	-

The other investments totalling £1,775,000 are still valued using Level 3 valuation techniques. The Directors reviewed the fair value of the financial assets at 30^th June 2015.  The methods used to determine the fair value are disclosed in more detail in note 9.  The underlying value of the investments 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%, £1.7 million.

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

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 10. 

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 2015 was assessed to be insignificant.

15.    Acquisitions

During the period the Group acquired thirteen lettings businesses for a total consideration of £3.9m. The fair value of the identifiable assets and liabilities of these businesses as at the date of acquisition have been determined as below: 

	Fair value recognised on acquisition
	£'000
Intangible assets	2,418
Property, plant and equipment	250
Cash and cash equivalents	425
Trade and other payables	(6)
Total identifiable net assets acquired	3,087
Purchase consideration	3,910
Goodwill	823

In February 2015, the Group acquired 80% of Thomas Morris (Property Management Ltd), a 7 branch estate agency chain in Cambridgeshire, Bedfordshire and Hertfordshire for an initial consideration of £4.1m. The remaining 20% is subject to put and call options which are exercisable between 2018 and 2020 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 and liabilities of Thomas Morris as at the date of acquisition have been determined as below: 

	Fair value recognised on acquisition
	£'000
Intangible assets	1,209
Property, plant and equipment	28
Trade and other receivables (No impairment identified)	177
Cash and cash equivalents	348
Trade and other payables	(202)
Current tax liabilities	(224)
Total identifiable net assets acquired	1,336
Purchase consideration	5,301
Goodwill	3,965

Purchase consideration discharged by:

Cash	4,148
Contingent consideration	1,153
	5,301

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 30th June 2015.

The goodwill of Thomas Morris 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, 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.  Thomas Morris has contributed £228,000 profit before tax and £1,564,000 in the period since acquisition.  If it has been acquired at the beginning of the year then the consolidated revenue would have been £782,000 higher and the consolidated profit before tax would have been £114,000 higher. An analysis of cashflow on acquisition is given in the table below.

	£'000
Net cash acquired with the subsidiaries and other businesses	(773)
Purchase consideration discharged	8,058
Net Cash outflow on acquisition	7,285

From the date of acquisition to 30th June 2015, the acquisitions in aggregate, including Thomas Morris, have contributed £2,057,000 of revenue and £448,000 profit before tax to 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 £1,390,000 and the consolidated profit before tax would have been higher by £358,000.

Transaction costs have been expensed.
 

INDEPENDENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30^th June 2015 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 15.  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 2015 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

3^rd August 2015

 

END

 

 

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