Preliminary Results

RNS Number : 5189F

LSL Property Services PLC

10 March 2020

For Immediate Release 10^th March 2020

LSL Property Services plc ("LSL" or "The Group")

PRELIMINARY RESULTS ANNOUNCEMENT

LSL Property Services plc, a leading provider of residential property services incorporating estate agency, financial services and surveying and valuation businesses, announces its preliminary results for the year ended 31^st December 2019.

	2019	2018	change
Group Revenue - £m	311.1	324.6	-4%
Group Underlying Operating Profit¹ - £m	37.0	35.9	+3%
Group Underlying Operating Margin - %	11.9	11.1
Group Adjusted EBITDA² - £m	51.9	41.6	+25%
Net Exceptional Cost - £m	(13.2)	(3.0)
Group Operating Profit - £m	19.7	25.4	-22%
Profit Before Tax - £m	16.0	23.1	-31%
Basic Earnings Per Share - pence	12.6	17.4	-28%
Adjusted Basic Earnings Per Share³ - pence	28.0	27.2	+3%
Net Bank Debt⁴ at 31^st December - £m	41.9	32.1	+30%
Final Dividend Per Share⁵ - pence	7.2	6.9	+4%
Full Year Dividend Per Share⁵ - pence	11.2	10.9	+3%

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4 of the Financial Statements). Excluding the impact of IFRS 16 Group Underlying Operating Profit in 2019 was £36.2m.

2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation of right of use assets, plant, property and equipment (as defined in Note 4 of the Financial Statements). Excluding the impact of IFRS 16, Group Adjusted EBITDA in 2019 was £40.9m.

3 Refer to Note 6 of the Financial Statements for the calculation.

4 Refer to Note 10 of the Financial Statements for the calculation

5 Assuming Final intended 2019 proposed dividend is approved

Positive Group financial performance

· Group Revenues increased by 4% on a like-for-like basis, which was a highly resilient performance in the context of challenging residential market conditions during 2019. Reported Group Revenues were down 4% to £311.1m (2018: £324.6m) including the impact of the reshaping of the Your Move and Reeds Rains branch networks announced on 5^th February 2019

· Positive performance with Group Underlying Operating Profit¹ up 3% to £37.0m (2018: £35.9m) and Group Adjusted EBITDA² up 25%. Excluding the impact of IFRS 16, Group Underlying Operating Profit was 1% ahead of prior year and Group Adjusted EBITDA was down 2% on prior year

· Profit Before Tax declined to £16.0m (2018: £23.1m) as anticipated, reflecting the investment in 2019 in Exceptional Costs to deliver the Your Move and Reeds Rains branch reshaping. The reshaping has delivered a material year-on-year improvement in Your Move and Reeds Rains operating profit

· The Estate Agency Division³ delivered a strong performance with Underlying Operating Profit¹ up 30% to £14.5m (2018: £11.1m), benefiting materially from the reshaping of the Your Move and Reeds Rains branch networks, announced on 5^th February 2019

· The Financial Services Division³ delivered a strong performance with Underlying Operating Profit¹ up 23% to £11.6m (2018: £9.5m) reflecting growth in the core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018, including cost synergies delivered in line with expectations

· The Surveying Division's Underlying Operating Profit¹ of £16.3m (2018: £20.4m) was impacted by market volumes, and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new surveying and valuation services contract in May 2018

· Exceptional costs of £15.7m were recognised in the period predominantly from the reshaping of the Your Move and Reeds Rains branch networks. Continued positive progress was made in addressing historical professional indemnity (PI) claims with a £2.5m exceptional provision release as claims were settled below previous expectations

· Net Bank Debt £41.9m (2018: £32.1m) and modest level of gearing⁴ at 0.8x EBITDA (2018: 0.8x)

· The Group generated strong cash from operations of £38.8m (2018: £36.9m) converting 105% of Group Underlying Operating Profit to cash-flow from operations (pre PI and exceptionals) (2018: 103%).

· The Board intends to propose a final dividend of 7.2p per share, resulting in a full year dividend of 11.2p per share. This is a payout at the upper end of the range of LSL's stated dividend policy, reflecting our confidence in the current level of performance of the business and of our balance sheet strength. Taking into account the unknown potential impact of COVID-19 virus on the UK housing market, the LSL Board will keep the proposed final dividend under review ahead of presenting its proposal to shareholders at the 2020 AGM

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

"The Group delivered a highly resilient Revenue and Underlying Operating Profit performance in 2019 in the context of challenging residential market conditions and the introduction of the tenant fee ban on 1^st June 2019. This is a strong operational performance, as the successful execution of the stated Group strategy delivered tangible benefits to the Group's financial performance. We continue to deliver a range of proactive strategic and operational initiatives across our business lines, demonstrating the breadth of opportunity across the Group.

Market conditions to date in 2020 have been encouraging, reflected by our Estate Agency sales pipeline at 29^th February 2020 being £3.6m ahead of the Board's prior expectations, benefiting from a favourable Estate Agency net sales performance during January and February. The operating profit performance of the Group in the two-month period to 29^th February 2020 has been, as expected, circa £2m ahead of the same period in the prior year, benefiting materially from the successful execution of the reshaping of the Your Move and Reeds Rains branch networks, which was announced on 5^th February 2019. These benefits have now normalised year-on-year.

Whilst we have been encouraged by the residential property market conditions to date in 2020, the situation regarding the COVID-19 virus is rapidly evolving and we have in recent days, seen some slight softening of our lead sales indicators in Estate Agency. We are monitoring the situation very closely as it may create headwinds for our business in 2020 if changes in consumer behaviour impact residential property market conditions. As and when any potential impact on the Group becomes clearer, we will provide updates as necessary.

The Board intends to propose a final dividend of 7.2p per share, resulting in a full year dividend of 11.2p per share. This is a payout at the upper end of the range of LSL's stated dividend policy, reflecting our confidence in the current level of performance of the business and of our balance sheet strength. Taking into account the unknown potential impact of COVID-19 virus on the UK housing market, the LSL Board will keep the proposed final dividend under review ahead of presenting its proposal to shareholders at the 2020 AGM.

The business is expected to continue to benefit from the range of LSL's ongoing strategic and operational measures. The Group has a robust balance sheet with relatively low levels of gearing and is highly cash generative at an operational level. The Board remain confident of the opportunities for further positive progress for the Group."

Estate Agency Financials

· LSL announced the reshaping of its Your Move and Reeds Rains branch networks on 5^th February 2019. We are pleased that the financial impact of this programme was ahead of our expectations despite the scale and complexity of the project. As a result, the revenue and operating profit in the keystone branch network in 2019 was ahead of the LSL business plan. During Q1, the Your Move and Reeds Rains Estate Agency branch network was reshaped from 308 owned branches to 144 keystone branches following the closure and merging of 81 neighbouring branches into the keystone branch network, the franchising of 39 branches and the closure of 44 branches

· The Estate Agency Division³ delivered a strong performance with Underlying Operating Profit¹ up 30% to £14.5m (2018: £11.1m), benefiting materially from the successful execution of the reshaping of the Your Move and Reeds Rains branch networks

· Residential net sales for the Your Move and Reeds Rains keystone branches increased slightly in 2019, despite the challenging market conditions during the year, and showed modest growth in market share as measured by new instructions during 2019

· Profit per branch (Your Move, Reeds Rains and LSLi) increased in 2019 to £47.0k (2018: £18.3k) as a result of the benefit from the reshaping of Your Move and Reeds Rains networks

· The London market conditions continued to be challenging throughout 2019. Marsh & Parsons delivered a resilient revenue performance despite these market conditions with total revenue down 3%

· In line with LSL's stated strategy, Marsh & Parsons opened two new branches in April 2019 in outer prime Central London, in Willesden Green and Streatham Hill. These new branches are trading in line with expectations

· Legislation banning tenant fees came into effect on 1^st June 2019 and LSL implemented the required changes across its Estate Agency brands

· LSL continued its accretive lettings book acquisition programme with seven lettings books acquired during the period for a total consideration of £3.0m

Financial Services Financials

· The Financial Services Division³ delivered a strong performance with Underlying Operating Profit¹ up 23% to £11.6m (2018: £9.5m), reflecting growth in core businesses and the full year benefit of the acquisitions of PTFS and RSC in Q1 2018, including cost synergies delivered in line with expectations

· Total Financial Services Division Revenue decreased by 2% to £69.8m (2018: £71.0m), reflecting the planned reshaping of the Your Move and Reeds Rains branch networks. Financial Services organic revenue growth, excluding Estate Agency, was 1% in 2019

· The value of LSL's mortgage completions arranged in 2019 increased to £31.7bn (2018: £29.0bn)

· The number of appointed representative firms as at 31^st December 2019 increased to 878 (2018: 841)

· The number of financial advisers as at 31^st December 2019 was 2,392 (2018: 2,321)

· The roll out of Toolbox, the Financial Services technology system acquired with PTFS has been successfully completed in line with expectations

Surveying Financials

· The Surveying Division's Underlying Operating Profit¹ of £16.3m (2018: £20.4m) was impacted by market conditions and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new surveying and valuation services contract in May 2018. Work is ongoing to leverage the scale benefits of the Surveying Division with the aim of improving cost efficiency

· Surveying Division Revenue increased by 24% to £86.4m (2018: £69.8m) due to the new contract with Lloyds Bank plc, which was awarded in May 2018

· In June 2019, the Surveying Division was awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank

· Continued positive progress was made in addressing historical PI claims with a £2.5m exceptional provision release in 2019 as claims were settled below previous expectations

· Technology enhancements were implemented during 2019 with further functionality releases designed to drive quality and efficiency improvements

For further information, please contact:

Ian Crabb, Group Chief Executive Officer
Adam Castleton, Group Chief Financial Officer
LSL Property Services plc	0207 382 0360
Melanie Cowell, LSL PR Manager	07968 604 660

Helen Tarbet, Simon Compton
Buchanan	0207 466 5000

Notes:

1. Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4 to the Financial Statements)

2. Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation on property, plant and equipment (as defined in Note 4 to the Financial Statements)

3. Following the change to LSL's segment reporting effective from 1^st January 2019, the 2018 revenue and Underlying Operating Profit of the Estate Agency and Financial Services Divisions have been restated. The Estate Agency Division also receives a commercially agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison.

4. Operational gearing is defined as Net Bank Debt divided by Group Adjusted EBITDA². Excluding the impact of IFRS 16, gearing was at 1.0x EBITDA

Notes on LSL:

LSL is a leading provider of residential property services to its key customer groups. Services to consumers include: residential sales, lettings, surveying, conveyancing support, and mortgage, pure protection and general insurance brokerage services. Services to mortgage lenders include: valuations and panel management services, and asset management and property management services. For further information, please visit LSL's website: lslps.co.uk

Chairman's Statement

Introduction

The Group delivered a highly resilient Revenue and Underlying Operating Profit performance in 2019 in the context of challenging residential market conditions and the introduction of the tenant fee ban on 1^st June 2019. This is a strong operational performance, as the successful execution of the stated Group strategy delivered tangible benefits to the Group's financial performance. We continue to deliver a range of proactive strategic and operational initiatives across our business lines, demonstrating the breadth of opportunity across the Group. We are pleased with the market share performance of the Your Move and Reeds Rains keystone branch networks in 2019. Estate Agency Division Franchise income increased materially in 2019, following the successful franchising of 39 Your Move and Reeds Rains branches from the previous owned network.

Group Underlying Operating Profit¹ was up 3% to £37.0m (2018: £35.9m), and Group Adjusted EBITDA² was up 25% to £51.9m (2018: £41.6m). Excluding the impact of IFRS 16, Group Underlying Operating Profit was 1% ahead of prior year at £36.2m (2018: £35.9m) and Group Adjusted EBITDA was down 2% to £40.9m (2018: £41.6m). Following decisive and early action to restructure the Your Move and Reeds Rains branch networks, Group Revenues increased by 4% on a like-for-like basis, which was a highly resilient performance in the context of challenging residential market conditions during 2019.

Estate Agency Division

In the Estate Agency Division, the changes to the structure of the Your Move and Reeds Rains estate agency branch networks and operations announced on 5^th February 2019, has delivered a material improvement in financial performance of the Estate Agency Division, ahead of expectations. The successful implementation of this large and complex project demonstrates LSL's commitment and ability to evolve our business model to adapt to changes in the landscape and customer demands in order to drive value for our Shareholders.

We have transformed the Your Move and Reeds Rains businesses into a combined branch network of 144 keystone branches. All central support functions have been simplified and streamlined to provide more cost effective support to the smaller network of much larger keystones branches with both brands benefiting from new investment in people, systems, and marketing.

We are pleased to have created a branch network platform that is already benefiting from its larger scale, enabling us to invest in people and technology with the aim of providing enhanced levels of service to our customers whilst ensuring operational performance is optimised by competing more effectively in local markets.

Financial Services Division

In the Financial Services Division, we delivered further strong growth. The Group identified Financial Services as a major opportunity some time ago, since which time LSL's position has strengthened consistently, and w e are now an established leading distributor of mortgage and non-investment insurance products.

The Financial Services Division generated £11.6m of Underlying Operating Profit in the 2019 financial year, compared to £2.7m in 2015. I anticipate further positive opportunities for our Financial Services businesses going forwards. We have reported Financial Services as a separate Division from 1^st January 2019 onwards, to reflect the increasing importance and development of LSL's Financial Services businesses over the last five years.

During 2019 we have delivered organic growth and executed in line with expectations on the delivery of cost synergies following the acquisition of PTFS and successfully re-branded the Group's Financial Service network activities as PRIMIS and reorganised our Estate Agency Financial Services structure under the Embrace Financial Services Brand. We continue to hold a strategic investment in Mortgage Gym, which is a digital mortgage marketplace for consumers.

Surveying Division

In the Surveying Division, the surveying and valuation services contract awarded to e.surv by Lloyds Bank plc in May 2018 has strengthened our position as a leading player in the market, and we are now taking the steps to drive improved financial performance by leveraging the scale benefits of the Surveying Division with the aim of improving cost efficiency.

Surveying Division's Underlying Operating Profit performance was disappointing at £16.3m (2018: £20.4m), impacted by market conditions, and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new contract. Whilst operating profit margin was 14.8% in the first half of 2019, this improved to 22.9% in the second half of 2019 as our operational changes started to deliver financial improvements.

In 2019, the Group continued to make positive progress in addressing historical Surveying PI claims and there has been a net £2.5m exceptional gain for the year. At 31^st December 2019 the total provision for PI Costs reduced materially to £8.2m (2018: £12.4m).

Discussions with Countrywide plc ("Countrywide")

On 24^th February 2020, the Board of LSL confirmed that it is in discussions with Countrywide regarding a possible all-share combination. Discussions between Countrywide and LSL are ongoing. At this stage, there can be no certainty that any offer will ultimately be made for Countrywide. LSL reserves the right to introduce other forms of consideration and/or vary the mix or composition of consideration of any offer. Further announcements will be made in due course as appropriate.

Dividend

The Board continues to support the previously communicated dividend policy to apply a dividend pay-out ratio of between 30% to 40% of Group Underlying Operating Profit¹ after interest and tax. The Board has reviewed the dividend policy while considering the risks and capital management decisions facing the Group.

Adjusted Basic Earnings per Share for 2019 was 28.0 pence, an increase of 3% on the prior year (2018: 27.2 pence per Share). The Board intends to propose a final dividend of 7.2p per Share (2018: 6.9 pence per Share), resulting in a full year dividend of 11.2p per Share (2018: 10.9 pence per Share). This is a payout at the upper end of the range of LSL's stated dividend policy, reflecting our confidence in the current level of performance of the business and of our balance sheet strength. Taking into account the unknown potential impact of COVID-19 virus on the UK housing market, the LSL Board will keep the proposed final dividend under review ahead of presenting its proposal to shareholders at the 2020 AGM.

Corporate Governance and Board

During 2019, the Board remained committed to high levels of corporate governance as we further strengthened the Board with the appointment of two new independent Non-Executive Directors. Darrell Evans joined the Board and its Committees in February 2019 and Gaby Appleton joined in September 2019. Darrell's and Gaby's skills enhanced the existing Board composition and further details on all of the Directors can be found within The Board section of the Annual Report and Accounts 2019 and within the AGM Notice.

Further, in compliance with the UK Corporate Governance Code (2018) LSL developed and published its Purpose Statement, supported by a series of values and culture statements that reflect the diverse group of businesses across LSL. Darrell Evans was also appointed as LSL's designated workforce engagement director. Since this appointment, Darrell has been working closely with the Group HR Director and participating in LSL's employee engagement arrangements. Further details are included within the Stakeholder Engagement and Corporate GovernanceReport sections of the Annual Report and Accounts 2019.

In relation to 2019, as Chairman, I have been responsible for leadership of the Board, and I have together with my fellow Directors, reviewed the effectiveness of the Board and its Committees. The 2019 annual evaluation exercise had regard to the requirements of the Code and its associated guidance. In particular, we reviewed the composition of the Board and its Committees and our succession arrangements. Following this review, we concluded that together we have the appropriate balance of skills, independence and knowledge of the Group together to enable the Board to discharge its duties and responsibilities effectively. The evaluation also considered other matters such as leadership, division of responsibilities, meeting arrangements, and included a review of the annual evaluation process itself.

Details of our corporate governance arrangements and the recommendations arising from the 2019 evaluation exercise are contained within the Corporate Governance Report section of the Annual Report and Accounts 2019 together with details of how we have implemented recommendations, which arose from the 2018 evaluation exercise.

Outlook

Simon Embley

Chairman

10^th March 2020

Notes:

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4 to the Financial Statements). Excluding the impact of IFRS 16 Group Underlying Operating Profit in 2019 was £36.2m

2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation of right of use assets, plant, property and equipment (as defined in Note 4 to the Financial Statements). Excluding the impact of IFRS 16, Group Adjusted EBITDA in 2019 was £40.9m

Group Chief Executive's Review

2019 Overview

In the context of challenging market conditions, the Group delivered a highly resilient performance in 2019, underpinned by a continuing range of proactive strategic and operational measures delivered across the Group. LSL successfully executed its stated strategy during 2019, underpinned by consistent and effective implementation.

Group Revenues for the year ended 31^st December 2019 decreased by 4% to £311.1m (2018: £324.6m) including the impact of the reshaping of the Your Move and Reeds Rains branch networks announced on 5 ^th February 2019, with Estate Agency Revenue¹ down 16%, Financial Services revenue¹ down 2% and Surveying Division revenue up 24%. Excluding the impact of the planned branch closures during Q1 2019, Group like-for-like revenues increased by 4%.

Group Underlying Operating Profit² was up 3% to £37.0m (2018: £35.9m), and Group Adjusted EBITDA³ was up 25% to £51.9m (2018: £41.6m). Excluding the impact of IFRS 16, Group Underlying Operating Profit was 1% ahead of prior year at £36.2m (2018: £35.9m) and Group Adjusted EBITDA was down 2% to £40.9m (2018: £41.6m). Profit before tax of £16.0m was down 31% compared to the prior year (2018: £23.1m).

The Group has a maintained a strong balance sheet with closing Net Bank Debt at 31^st December 2019 of £41.9m (2018: £32.1m) and a low level of reported gearing⁴ at 0.8 times Group Adjusted EBITDA (2018: 0.8 times). The increase in Net Bank Debt in 2019 is after incurring total exceptional cash expenditure of £8.8m including the Estate Agency restructuring costs, £9.9m in respect of deferred and contingent consideration for the funding of two prior year Financial Services acquisitions (PTFS and Group First) and seven lettings books acquisitions during the year.

In the Estate Agency Division¹, LSL executed the reshaping of the Your Move and Reeds Rains branch networks delivering an increase in Underlying Operating Profit (+30%). In the Financial Services Division¹ we delivered 23% growth in Underlying Operating Profit. In the Surveying Division, Underlying Operating Profit was £16.3m (2018: £20.4m) impacted by market conditions and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new surveying and valuation services contract in May 2018.

During 2019, we continued to execute on our stated strategy and made positive progress across the Group:

· In Estate Agency, the effective execution of the major reshaping of the Your Move and Reeds Rains branch networks, announced on 5^th February 2019 delivering material financial benefits

· Successful implementation of Lloyds Bank plc surveying and valuation services contract strengthening LSL's position as the leading provider of surveying and valuation services in the UK

· In June 2019, the Surveying Division was awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank

· Successful integration of PTFS (acquired in 2018) into the PRIMIS network and cost synergies delivered, as well as the successful roll-out out of the Toolbox operating system (part of the rationale for acquiring PTFS)

· During 2019, LSL continued its lettings book acquisition programme with seven lettings books acquired during the period

The Market in 2019

The UK residential property market remained challenging in 2019. HM Land Registry Property Transactions in 2019 decreased by 7%. Full year Rightmove Total Market Residential New Instructions decreased by 7% in 2019. Market transactions continued to decline in London and the South East⁶ and Approvals for House Purchases⁵ in 2019 were up by 0.9%. Total Mortgage Approvals⁵ increased by 0.9% in 2019, with Re-mortgage Approvals up by 0.7%.

Average house prices⁷ in England and Wales grew by 0.8% (2018: 0.5%) to £304k. Excluding London and the South East, the rest of England and Wales showed house price growth of 1.6%.

The proportion of residential housing stock available for sale with online and hybrid estate agents sector has declined on a year-on-year basis, decreasing from 7.6% in 2018 to 7.3% in 2019⁸.

Total gross mortgage lending in 2019 was in line with the prior year at £268bn⁹ (2018: £269bn). The proportion of mortgage lending in the market placed through intermediaries increased to 74% in 2019 (2018: 71%)¹⁰.

Following market declines in the repossession market in the past few years, market repossessions volumes grew in 2019, increasing by 16% to 8,000¹¹ the highest since 2016, although still low in a historical context.

LSL's market position

LSL continues to hold market leading positions in its core Estate Agency business comprising 12 Estate Agency brands: Your Move, Reeds Rains, LSLi group (nine brands) and Marsh & Parsons. We continue to believe that traditional estate agents will represent the substantial majority of the Residential Sales and Lettings markets for the foreseeable future and that our Estate Agency branches will continue to remain core to providing the service our customers expect.

In Your Move and Reeds Rains, the newly established keystone network of 144 branches are situated in core locations across the UK and generally have larger teams of dedicated experts in Residential Sales, Lettings and Financial Services roles than the average Your Move and Reeds Rains branches previously had in place.

The continuing ambition for these keystone branches is to re-enforce a platform that will benefit from their larger scale, enabling us to invest in people and technology with the aim of providing enhanced levels of service to our customers whilst ensuring operational performance is optimised by competing more effectively in local markets. Our commitment to continued IT investment is intended to give these Your Move and Reeds Rains branches the opportunity to cover a wider geography and benefit from further scale.

Marsh & Parsons continues to implement its well established strategy of expanding its branch network with a focus on locations outside prime Central London. During 2019 we opened two new Marsh & Parsons branches in Willesden Green and Streatham Hill, in outer prime Central London, which are performing in line with expectations.

The LSLi group of companies today operate 57 owned branches and they will continue with their existing strategy to develop the nine well established local brands in their existing markets in the South East of England. In addition, in 2020 the LSLi group of companies will continue to actively evaluate opportunities for lettings book acquisitions.

In 2019, LSL further strengthened its position as a leading distributor of mortgage and non-investment insurance products and delivered strong overall growth in the value of mortgage completions which were up 9% to £31.7bn in 2019 (2018: £29.0bn). LSL's market share is estimated to be 8.5% (2018: 8.0%) of the total market value of mortgage completions. LSL is the second largest combined network nationwide, measured by the combined number of appointed representative firms. The number of financial advisers as at 31^st December 2019 was 2,392 (2018: 2,321).

Our Surveying Division continued as a leading player in the market in 2019, maintaining strong relationships with many of the UK's largest lenders. During 2019 LSL was pleased to be awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank. LSL's Surveying Division is the UK's largest provider of residential valuation services nationwide and is the largest employer of residential surveyors in the UK⁶ with 514 operational surveyors as at 31^st December 2019.

Segment reporting

To reflect the increased importance of LSL's Financial Services businesses over the last five years, from 1^st January 2019, LSL's Financial Services businesses are reported as a separate segment. The Estate Agency Division receives and reports a commercially agreed commission payment from the Financial Services segment, which reflects Financial Services income generated from the Estate Agency segment. Financial Services revenue reported in our full year financial results for 2018 has therefore been restated on this basis to assist comparison. The Surveying Division reporting is unchanged.

Strategy

LSL remains committed to delivering on its stated strategy:

Estate Agency

· Ambition to achieve £80k-£100k profit per branch¹³ in the medium term based on the expectation of a normalised level of market transactions

· Ambition to expand the number of Marsh & Parsons branches to a total of 36 in the medium term, particularly outside prime Central London

· Grow recurring and where market conditions permit counter-cyclical income streams

· Evaluate selective acquisitions of lettings books

Financial Services

· Enhance LSL's position as a leading distributor of mortgage and non-investment insurance products

· Consistent delivery of appropriate outcomes for consumers with a focus on "best practice" standards of regulatory compliance

· Enhancement of technology solutions to improve the customer experience and operational efficiency

· Evaluate further selective Financial Services acquisitions

Surveying and Valuation Services

· Optimise contract performance and revenue generation from business to business customers

· Achieve further improvement in efficiency and capacity utilisation

· Use technology to target further improvements in customer satisfaction and performance

· Continue the graduate recruitment programme

LSL performance in 2019

Estate Agency Division¹

LSL announced the reshaping of its Your Move and Reeds Rains branch networks on 5^th February 2019. We are pleased that the implementation of this programme has progressed slightly ahead of our expectations despite the scale and complexity of the project. During Q1 the Your Move and Reeds Rains estate agency branch network was reshaped from 308 owned branches to 144 keystone branches following the closure and merging of 81 neighbouring branches into the keystone branch network, the franchising of 39 branches and the closure of 44 branches. This reshaping was executed in-line with LSL announcement of 5^th February 2019. Including the impact of this reshaping, total Estate Agency income of £154.9m (2018: £183.8m) decreased by 16%. Adjusting for the closure of the Your Move and Reeds Rains branches during the first quarter of 2019, like-for-like total Revenue decreased by 5% compared to 2018. Estate Agency Division Operating expenditure decreased by 19%, and o perating profit increased by 30%, reflecting the material improvement to Underlying Operating Profit in Your Move and Reeds Rains as a result of reshaping their branch networks.

Residential Net Sales for the Your Move and Reeds Rains keystone branches increased slightly in 2019, despite the challenging market conditions during the year, and showed modest growth in market share as measured by new instructions during 2019.

Residential Sales exchange income

Residential Sales exchange income decreased by 17% to £57.7m (2018: £69.9m) impacted by the reshaping of the Your Move and Reeds Rains branch networks and the market conditions. Adjusting for the closure of the Your Move and Reeds Rains branches during Q1 2019 Residential Sales income decreased by 3%.

LSL has remained extremely disciplined in its Residential Sales exchange fee strategy throughout 2019. Reported average LSL Estate Agency Residential Sales exchange fee (£) per unit increased by 12% to £3,452 (2018: £3,071). The average residential fee in 2019 benefitted from the closure of Your Move and Reeds Rains branches, which generated lower average fees. Like-for-like Residential Sales exchange fee (£) per unit in 2019 were maintained at the same level compared to the same period last year.

Lettings income

Legislation banning tenant fees came into effect on 1^st June 2019 and LSL implemented the required changes across its Estate Agency brands. LSL continues to implement operational measures in lettings with the aim of optimising lettings income, and, in line with our stated strategy, we continued our lettings book acquisition programme during 2019 acquiring seven lettings books in 2019 for a total consideration of £3.0m. The lettings books are performing in line with expectations and have been successfully integrated into the Estate Agency networks.

Marsh & Parsons

Given the overall challenging prime Central London market, Marsh & Parsons delivered a resilient top line performance with revenue down by 3% in 2019 to £32.4m (2018: £33.5m). Marsh & Parsons Residential Sales income fell by 5% in 2019, which is a creditable performance in light of the overall prime Central London market conditions. Lettings declined by 2%. Lettings revenue represents 64% of Marsh & Parson's total revenue (2018: 63%). Full year Underlying Operating Profit remained flat at £2.3m (2018: £2.3m). Adjusted EBITDA as reported was £6.2m (2018: £3.4m). Excluding the impact of IFRS 16, Underlying Operating Profit was £1.7m (2018: £2.3m) and Adjusted EBITDA was £2.8m (2018: £3.4m).

In line with LSL's stated strategy, we continued with our Marsh & Parsons branch expansion strategy in 2019, opening two new branches in April 2019 in outer prime Central London, in Willesden Green and Streatham Hill. These new branches are trading in line with expectations. This takes our total number of Marsh & Parsons branches to 30 as at 31^st December 2019.

Our ambition remains to expand the number of Marsh & Parsons branches to a total of 36 in the medium term, particularly outside prime Central London. Outer prime Central London has not been as negatively impacted by subdued market conditions as prime Central London and Marsh & Parsons continues to look to expand its branch footprint in outer prime Central London locations.

Estate Agency profit per branch (Your Move, Reeds Rains and LSLi)

In 2019, Profit per branch (Your Move, Reeds Rains and LSLi) increased to £47.0k (2018: £18.3k), benefiting materially from the reshaping of the Your Move and Reeds Rains networks during 2019.

Yopa

Traditional estate agents continue to represent the substantial majority of the Residential Sales and Lettings markets. LSL believes this will continue for the foreseeable future and that Estate Agency branches will continue to remain core to providing the service our customers expect.

LSL has an 8.8% minority shareholding in Yopa. LSL's previous carrying value of £7.8m (as at 31^st December 2018) for Yopa was written down through reserves by £1.3m to £6.5m at the 2019 half year to reflect the Board's assessment of fair value, as reported in the Interim Results statement released by LSL on 30^th July 2019.

Financial Services Division¹

Total Financial Services Division Revenue including Estate Agency for the year was down by 2% to £69.8m (2018: £71.0m), reflecting the impact of the planned closure of the Your Move and Reeds Rains branches. Financial Services organic revenue growth was 1% year on year, excluding Estate Agency.

In 2019, LSL further strengthened its position as a leading distributor of mortgage and non-investment insurance products and LSL delivered strong overall growth in the value of mortgage completions which were up 9% to £31.7bn in 2019 (2018: £29.0bn). LSL's market share is estimated to be 8.5% (2018: 8.0%) of the total market value of mortgage completions. LSL is the second largest combined network nationwide, measured by combined number of appointed representative firms. The number of financial advisers as at 31^st December 2019 was 2,392 (2018: 2,321).

The Financial Services Division delivered a strong performance with Underlying Operating Profit¹ up 23% to £11.6m (2018: £9.5m) reflecting growth in core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018. The Financial Services Division continues to display positive progress across its breadth of products including mortgage products, pure protection products and general insurance products. The integration of PTFS, which was acquired in January 2018, into the Financial Services Division is delivering cost synergy benefits in line with expectations.

In 2019, the roll out of the Toolbox operating system to network firms including Group businesses was completed in line with expectations, to the full network of over 2,300 brokers and 500 administrators. The technology was part of rationale for acquiring PTFS.

Surveying Division

Surveying Division Revenue increased by 24% to £86.4m (2018: £69.8m), which included a material contribution from the successful commencement of the Lloyds Bank plc surveying and valuation services relationship, awarded in May 2018. Total number of jobs performed during the year were 508,061 (2018: 365,504).

Revenue in the first half of 2019 was up by 37% year-on-year, which included a material contribution from the successful commencement of the Lloyds Bank plc surveying and valuation services contract awarded in May 2018 and which commenced in the second half of September 2018. Revenue in the second half 2019 was up 13% on the same period in 2018, reflecting the commencement of the Lloyds Bank plc revenue from September 2018.

Income per job in 2019 reduced to £170 (2018: £191) due to a change in the business mix. Total Surveying Division expenditure increased due to the additional headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new contract in May 2018. As a result, LSL reported a reduced Underlying Operating Profit in 2019 of £16.3m (2018: £20.4m) with a profit margin of 18.9% (2018: 29.3%). Profit margin was 14.8% in H1 2019, improving to 22.9% in H2 2019.

The total number of operational surveyors at 31^st December 2019 was 514 (2018: 503). In 2020, the Surveying Division will continue to focus on its successful graduate programme, which assists in alleviating the impact of capacity constraints in the market.

During the first half of 2019, the Surveying Division was pleased to be awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank.

Work is ongoing to leverage the scale benefits of the Surveying Division with the aim of improving cost efficiency.

The technology roll out continued during 2019 with further functionality releases designed to enhance quality and drive efficiencies such as an updated surveyor software application to improve the user experience and surveyor efficiency.

At 31^st December 2019 the total provision for PI Costs was £8.2m (2018: £12.4m). In 2019, the Group continued to make positive progress in addressing historical claims and there has been a net £2.5m exceptional gain in the year.

Our customers

Our continued focus on providing the best service to our customers has been recognised in 2019 with numerous industry awards including:

Estate Agency

· Davis Tate: Best Estate Agent Guide 2020 (*): Best Estate Agency Guide Award (Berks/Hamps/Isle of Wight (Sales & Lettings)). Henley and Abingdon - Rated Exceptional (Lettings), Reading - Rated Excellent (Lettings). The AllAgents Awards: Best Estate Agency Award, Abingdon, Burghfield, Goring, Henley, Pangbourne, Reading, Sonning, Twyford, Wallingford - Gold Award, Best Letting Agency Award, Abbingdon, Burghfield, Goring, Henley, Reading, Wallingford and Wantage - Gold Award, Best Overall Agent, Abingdon, Burghfield, Goring, Henley, Pangbourne, Reading, Sonning, Twyford, Wallingford.

· Frosts: The ESTAS : Estate Agency of the Year Awards: Best in County Letting Agent (Hertfordshire) - Winner

· Goodfellows: Best Estate Agent Guide 2020 (*): Best Estate Agency Guide Award ( South West London (Sales)). The AllAgents Awards: Best O verall Agent Award, Carshalton, Cheam Village, Mitcham and Morden - Gold Award, Best Estate Agency Award, Cheam Village and Mitcham - Gold Award, Best Lettings Agency Award, Carshalton, Cheam Village, Mitcham and Morden - Gold Award

· Intercounty: The Negotiator of the Year Awards: Large Lettings Agency of the Year - Gold Award, Regional: East of England Agency of the Year - Gold Award. Best Estate Agent Guide 2020(*): East of England (Lettings) - Winner

· JNP: The AllAgents Awards: Best Estate Agency Award, Hazlemere, Princes Risborough and High Wycombe - Gold Award, Best Letting Agency Award, Princes Risborough - Gold Award.

· Marsh & Parsons: UK Property Awards 2019 : Best Estate Agency Marketing, London - Gold Award, Best Real Estate Agency, Single Office, London - Award Winner. The Drum Out of Home Advertising Awards 2019: Best Local Campaign.The Data and Marketing Association (DMA) Awards 2019: Best Integrated Campaign and Best Customer Acquisition Campaign

· Reeds Rains: Best Estate Agent Guide 2020: Reeds Rains Lettings - Best Estate Agency Guide Award. Bamber Bridge, Blackpool, Chorley, Didsbury, Garstang, Hanley, Huddersfield, Hull, Leyland, Manchester, Prescot, Rhyl, Sale, Salford, Stanley, Woodseats and York - Rated Exceptional (Lettings). Plaistow - Rated Exceptional (Sales). Bridlington, Castleford, Chester, Congleton, Durham City, Halifax, Hazel Grove, Hyde, Liverpool City Living, Macclesfield and Newcastle Under Lyme - Rated Excellent (Lettings). Chorley, Hillsborough, Salford Quays City Living, Wakefield and Wilmslow - Rated Excellent (Sales). The AllAgents Awards: Best Estate Agency Award, Kennington and Dartford - Gold Award

· Thomas Morris: Guild of Property Professionals 2019 : Lettings (East Anglia) - Gold Award, Sales (East Anglia) - Gold Award. Fine & Country Awards 2019: Branch of the Year, East of England. The ESTAS: Estate Agency of the Year Awards: Best Local Estate Agency Group- East of England. The AllAgents Awards: Best Estate Agency Award, St.Ives - Gold Award. The Negotiator Awards 2019: Estate Agency of the Year (6-9 branches) - Gold Award. Relocation Agent Network Awards 2019: Best Agent - Eastern Region. Best Estate Agent Guide 2020 (*): Best Estate Agency Guide Award (East of England (Sales & Lettings))

Financial Services

· TMA: Money Age Mortgage Awards 2019 - Best Mortgage Club of the Year. Precise Mortgage Awards - Residential Mortgage Club of the Year, Mortgage Strategist 2019, Lisa Martin

· PRIMIS: Financial Reporter Awards 2019 - Best Network. Mortgage Introducer Awards 2019 - Mortgage Network of the Year. The Financial Innovation Awards 2019 - Best Technology Initiative, United Kingdom

· LSL Financial Services: Precise Mortgage Awards: Best Distribution Group 2019

Surveying

· e.surv Chartered Surveyors: Mortgage Finance Gazette Awards 2020: Best Surveying Firm - Winner Equity Release Awards 2019: Best Surveyor - Winner. Employee Benefits Awards 2019: Best Alignment of Benefits to Business Strategy - Winner

(*) As judged and announced in 2019

Our people

The continued success of our business model is attributable to, and underpinned by, our strong brands and excellence in the delivery of high levels of customer services by our colleagues in our Estate Agency, Financial Services and Surveying businesses. I would like to take this opportunity to thank all my colleagues across all our businesses for their professionalism and dedication during 2019. I look forward to working with my colleagues to deliver a successful year in 2020.

Outlook

Ian Crabb

Group Chief Executive Officer

10^th March 2020

Notes:

1 Following the change to LSL's segment reporting effective from 1st January 2019, the 2018 revenue and Underlying Operating Profit of the Estate Agency and Financial Services Divisions have been restated. The Estate Agency Division also receives a commercially agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison

2 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4 to the Financial Statements)

3 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation on property, plant and equipment (as defined in Note 4 to the Financial Statements)

4 Operational gearing is defined as Net bank Debt divided by Group Adjusted EBITDA³. Excluding the impact of IFRS 16, gearing at 1.0x EBITDA

5 Bank of England - House Purchase Approvals and Total Mortgage Approvals

6 LSL estimates and including Land Registry regional data

7 LSL Property Services/ACADATA HPI

8 LSL sources/data analysis

9 UK Finance New mortgages by purpose of loan (excluding product transfers)

10 UK Finance 'New mortgages sold by intermediaries'

11 UK Finance 'Possessions on mortgaged properties'

12 Which-Network - network performance figures

13 The profit per branch methodology has been consistently applied since the profit per branch ambition of £80k-£100k was first announced by LSL in March 2014. Profit per branch is calculated for Your Move, Reeds Rains and the LSLi owned branches and excludes Marsh & Parsons

14 LSL's market share is calculated using gross mortgage completions excluding product transfers

Business Review - Estate Agency Division

Financial	2019 £m	2018 Restated¹ £m	% change
Residential Sales exchange income	57.7	69.9	-17
Lettings income	67.3	76.6	-12
Financial Services income	13.6	16.4	-17
Asset Management income	5.3	5.5	-4
Other income²	11.1	15.4	-29

Total Revenue	154.9	183.8	-16
Operating expenditure	(140.5)	(172.7)	+19
Underlying Operating Profit³	14.5	11.1	+30

KPIs	2019	2018	% change
Exchange units	16,707	22,747	-27
Underlying Operating Margin (%)	9.3	6.0
Fees per unit (£)	3,452	3,071	+12

Market data
House purchase approvals (000s)⁴	789	781	+1
Total mortgage approvals (000s)⁴	1,549	1,535	+1
UK housing transactions (000s)⁵	1,181	1,191	-1
Repossessions⁶	8,000	6,900	+16

Notes:

1 Following the change to LSL's segment reporting effective from 1^st January 2019, the 2018 revenue and Underlying Operating Profit of the Estate Agency and Financial Services Divisions have been restated. The Estate Agency Division also receives a commercially agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison

2 'Other income' includes franchising income, conveyancing services, EPCs, Home Reports, utilities and other products and services to clients of the branch network

3 Refer to Note 4 to the Financial Statements for the calculation

4 Bank of England for House Purchase Approvals and Total Mortgage Approvals

5 HMRC Monthly property transactions completed in the UK with value of £40,000 or above

6 UK Finance Possessions on mortgaged properties

Estate Agency Division performance

LSL announced the reshaping of its Your Move and Reeds Rains branch networks on 5^th February 2019. We are pleased that the implementation of this programme has progressed in-line with our expectations despite the scale and complexity of the project. During Q1 2019, the Your Move and Reeds Rains estate agency branch network was reshaped from 308 owned branches to 144 keystone branches following the closure and merging of 81 neighbouring branches into the keystone branch network, the franchising of 39 branches and the closure of 44 branches.

Including the impact of this reshaping, total Estate Agency Revenue of £154.9m (2018: £183.8m) decreased by 16%. Adjusting for the closure of the Your Move and Reeds Rains branches during the first quarter of 2019, like-for-like total Revenue decreased by 5% compared to 2018.

The Underlying Operating Profit performance was strong with 30% growth in 2019 to £14.5m (2018: £11.1m), benefiting materially from the reshaping of the Your Move and Reeds Rains branch networks, with Estate Agency Division Operating Expenditure decreasing by 19%. Underlying Operating Margin improved to 9.3% (2018: 6.0%).

Residential Sales exchange income

Residential Sales exchange income decreased by 17% to £57.7m (2018: £69.9m), average fees per unit increased by 12% to £3,452 (2018: £3,071) and Residential Sales exchange volumes fell by 27%. On a like-for-like basis, adjusting for the Your Move and Reeds Rains branch network reshaping, Residential Sales exchange income decreased by 3%, average fee per unit was in line with prior year, and Residential Sales exchange volumes fell by 3%.

Lettings income

Total Lettings income decreased by 12% to £67.3m (2018: £76.6m). On a like-for-like basis, adjusting for the reshaping of the Your Move and Reeds Rains branch networks, Lettings income was down 4% on the prior year. Lettings income represented 43% of total Estate Agency Division income in 2019 (2018: 42%). Legislation banning tenant fees came into effect on 1^st June 2019 and LSL implemented the required changes across its Estate Agency brands.

Financial Servicesincome

Following the change to LSL's segment reporting effective from 1^st January 2019, the Estate Agency Division receives a commercially agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison. Financial Services income was down 17% to £13.6m (2018: £16.4m) reflecting the planned reshaping of the Your Move and Reeds Rains branch network.

Other income

Other income fell by 29% year-on-year in large part due to a fall in conveyancing income due to lower Residential Sales transaction volumes following the branch network reshaping.

Asset Management

Asset Management maintained its market position in the historically low repossessions market. Other income included in this category was down during the period.

Branch numbers

Breakdown of LSL's Estate Agency branches as at 31^st December 2019 and 31^st December 2018:

	Owned	Franchise	Total 2019	Total 2018
Your Move	89	80	169	252
Reeds Rains	55	50	105	152
Sub total	144	130	274	404
LSLi	57	2	59	59
Marsh & Parsons	30	0	30	28
Total	231	132	363	491

The total number of Estate Agency branches reduced by 128 in 2019, following the changes to the structure of the Your Move and Reeds Rains estate agency branch networks announced on 5^th February 2019 which reduced the total number of Your Move and Reeds Rains branches from 404 to 279 of which 144 are owned keystone branches and 135 were franchised. Subsequent to these announced changes, there have been closures of five pre-existing franchise branches and the opening of two new branches in Marsh & Parsons.

Business Review - Financial Services Division

Financial	2019 £m	2018 Restated¹ £m	% change
Revenue	69.8	71.0	-2
Operating expenditure	(58.2)	(61.5)	+5
Underlying Operating Profit²	11.6	9.5	+23

KPIs	2019	2018	% Change
Underlying Operating Margin (%)	16.7	13.3
LSL Mortgage completion units (000s)	179.4	166.0	+8
LSL Mortgage completion lending³ (£bn)	31.7	29.0	+9
Total advisers at 31^st December	2,392	2,321	+3
Number of AR firms at 31^st December	878	841	+4

Gross New Mortgage Lending⁴ (£bn)	267.6	268.7	-

Notes:

2 Refer to Note 4 to the Financial Statements for the calculation

3 LSL mortgage completions lending quoted include product transfers

4 UK Finance New mortgage lending by type of lender (excludes product transfers)

Financial Services Division performance

Total Financial Services Division revenue including Estate Agency for the year was down by 2% to £69.8m (2018: £71.0m), reflecting the impact of the planned closure of the Your Move and Reeds Rains branches. Financial Services organic revenue growth was 1% year-on-year, excluding Estate Agency.

The Financial Services Division delivered a strong performance with Underlying Operating Profit¹ up 23% to £11.6m (2018: £9.5m) reflecting growth in core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018. The Financial Services Division continues to display positive progress across its breadth of products including mortgage products, pure protection products and general insurance products. The integration of PTFS, which was acquired in January 2018, is delivering cost synergy benefits in line with expectations.

In 2019, the roll out of the Toolbox operating system was completed in line with expectations, to the full network of over 2,300 brokers and 500 administrators (part of rationale for acquiring PTFS).

Business Review - Surveying Division

Financial	2019 £m	2018 £m	% change
Revenue	86.4	69.8	+24
Operating expenditure	(70.0)	(49.4)	-42
Underlying Operating Profit¹	16.3	20.4	-20

KPIs	2019	2018	% Change
Underlying Operating Margin (%)	18.9	29.3
Jobs performed (000s)	508	366	+39
Revenue from private surveys (£m)	1.8	2.1	-16
Income per job (£)	170	191	-11
Historic PI Costs provision (balance sheet) at 31^st December (£m)	8.2	12.4	-34
Number of operational surveyors at 31^st December (FTE)²	514	503	+2

Total mortgage approvals (000s)³	1,549	1,535	+1

Notes:

1 Refer to Note 4 to the Financial Statements for the calculation

2 Full Time Equivalent (FTE)

3 Bank of England for House Purchase Approvals and Total Mortgage Approvals

Surveying Division performance

Surveying Division Revenue increased by 24% to £86.4m (2018: £69.8m), which included a material contribution from the successful commencement of the Lloyds Bank plc surveying and valuation services contract, awarded in May 2018. Total number of jobs performed during the year were 508,061 (2018: 365,504).

Revenue in H1 2019 was up by 37% year-on-year, which included a material contribution from the successful commencement of the Lloyds Bank plc surveying and valuation services relationship awarded in May 2018 and which commenced in the second half of September 2018. Revenue in H2 2019 was up 13% on the same period in 2018, reflecting the commencement of the Lloyds Bank plc contract from September 2018.

The total number of operational surveyors at 31^st December 2019 was 514 (2018: 503). In 2020 the Surveying Division will continue to focus on its successful graduate programme, which assists in alleviating the impact of capacity constraints in the market.

During the first half of 2019, the Surveying Division was pleased to be awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank.

Work is ongoing to leverage the scale benefits of the Surveying Division with the aim of improving cost efficiency.

The technology roll-out continued during 2019 with further functionality releases designed to enhance quality and drive efficiencies e.g. updated surveyor software application to improve the user experience and surveyor efficiency.

At 31^st December 2019 the total provision for PI Costs was £8.2m (2018: £12.4m). In 2019, the Group continued to make positive progress in addressing historic claims and there has been a net £2.5m exceptional gain in the year.

Financial Review

Income Statement

Group Revenue

Revenue decreased by 4.2% to £311.1m in the year ended 31^st December 2019 (2018: £324.6m).

Other operating income

Other income of £887,000 (2018: £557,000) for the year ended 31^st December 2019 increased 59.2% and comprised of rental income. The increase is a result of new leases on properties no longer occupied by the Group.

Gain on sale of property, plant and equipment

There was a gain of £148,000 (2018: £34,000) in the year ended 31^st December 2019 resulting from the disposal of commercial property.

Income from joint ventures and associates

Income from joint ventures and associates was £441,000 (2018: £259,000).

Total operating expenses

Total operating expenses decreased by 4.9% to £275.5m (2018: £289.6m). The decrease is largely driven by the reshaping of the Your Move and Reeds Rains branch networks, announced on 5^th February 2019, which was partly offset by an increase in Surveying operating expenses with the full year impact of the transfer to e.surv of the existing Lloyds Bank plc surveyors and back-office employees as part of the contract awarded to e.surv during May 2018, which commenced in September 2018.

Group Underlying Operating Profit

Group Underlying Operating Profit¹ increased by 3.2% to £37.0m (2018: £35.9m) with an Underlying Operating Margin of 11.9% (2018: 11.1%). Excluding the impact of IFRS 16, Group Underlying Operating Profit of £36.2m was 1% ahead of prior year (2018: £35.9m).

On a statutory basis, Group operating profit decreased to £19.7m (2018: £25.4m). This decrease is largely driven by exceptional costs resulting from the reshaping of the Your Move and Reeds Rains branch networks. In 2019 there were net exceptional cost of £13.2m compared to the 2018 financial results which included a net exceptional cost of £3.0m. Group operating profit was positively impacted in the year by a £2m credit relating to contingent consideration, compared to a £1.8m cost in 2018.

Group Adjusted EBITDA

Group Adjusted EBITDA² increased by 24.8% to £51.9m (2018: £41.6m), following the adoption by LSL from 1^st January 2019 of IFRS 16 Leases. Depreciation of £10.0m has been recognised in the 2019 financial year against the right of use assets created by leasing contracts. Excluding the impact of IFRS 16 Group Adjusted EBITDA was down 2% to £40.9m (2018: £41.6m).

Share-based payments

The share-based payment charge of £312,000 (2018: £349,000) consists of a charge in the period of £1.6m offset by the lapse of the 2017 LTIP scheme as well as adjustments for leavers in the period.

Amortisation of intangible assets

The amortisation charge for 2019 was £5.8m (2018: £5.3m). The increase in 2019 is the result of amortisation on lettings books purchased in the year and software amortised across the Group.

Exceptional items

Total 2019 net exceptional cost of £13.2m including a £2.5m PI Costs exceptional provision release (H119: £0.6m, H219 £1.9m) as claims were settled below previous expectations, and £15.7m of exceptional costs. The majority of which were in relation to the restructuring of the Estate Agency Division, announced on 5^th February 2019.

Net financial costs

Net financial costs amounted to £3.7m (2018: £2.3m). The finance costs related principally to interest and fees on the RCF and the unwinding of discounts on provisions and contingent consideration. Additional finance costs of £1.6m in the current year relate to the unwinding of the IFRS 16 lease liability.

Taxation

The UK corporation tax rate reduced to 19% with effect from 1^st April 2017. A future UK corporation tax of 17% has been enacted and is effective from 1^st April 2020, and this is the rate at which deferred tax has been provided (2018: 17%). Corporation tax is recognised at the headline UK corporation tax rate of 19% (2018: 19%).

The effective rate of tax for the year was 19.0% (2018: 22.5%). The effective tax rate for 2019 is equal to the headline UK tax rate for a number of reasons, but the most significant is the depreciation of assets which do not qualify for capital allowances, which are offset by non-taxable income in relation to contingent consideration.

Deferred tax credited directly to other comprehensive income is £0.1m (2018: £0.0m). Income tax credited directly to the share-based payment reserve is £0.0m (2018: £0.0m).

In 2019 corporation tax payments of £5.5m (2018: £6.9m) were made which is greater than the current year corporation tax charge of £4.0m (2018: £5.9m). This is a result of two quarterly payments being made in the year in respect of the year ended 31^st December 2018 liability, which is higher than the corporation tax charge for the year ended 31^st December 2019.

Basic Earnings Per Share

The Basic Earnings Per Share was 12.6 pence (2018: 17.4 pence). The Adjusted Basic Earnings Per Share³ is 28.0 pence (2018: 27.2 pence), an increase of 2.9% which is in line with the increase in Group Underlying Operating Profit¹.

The Group seeks to present a measure of underlying performance, which is not impacted by the unevenness in profile of exceptional gains and exceptional costs, contingent consideration, amortisation and share-based payments. The Directors consider that the adjustments made to exclude the after tax effect of exceptional items, contingent acquisition consideration and amortisation provides a better and more consistent indicator of the Group's underlying performance.

Balance Sheet

Goodwill

There has been no impairment in 2019 in respect of the carrying amount of goodwill or brand (an indefinite useful life asset) held on the balance sheet. In 2019 goodwill has increased by £140k to £159.9m (2018: £159.7m). The increase is due to lettings book acquisitions in the year.

Other intangible assets and Property, plant and equipment

Total capital expenditure in the year amounted to £4.9m (2018: £6.0m) which includes expenditure of £1.3m (2018: £1.1m) for new software which has been treated as an intangible asset. The Group recognised £43.2m of lease liabilities on the balance sheet at transition to IFRS 16 on 1^st January 2019, with corresponding Right of use assets of £43.8m. At the year-end the group had £37.2m lease liabilities on the balance sheet and £36.2m corresponding right of use assets. IFRS 16 lease liabilities are excluded from the Group's Net Bank Debt calculation.

Financial assets

LSL holds financial assets of £9.3m (2018: £11.6m). The decrease in the year is in part, as a result of the revaluation of LSL's shareholding in Yopa at the half-year, as already reported in the Interim Results for the six months ended 30^th June 2019. There has been additional downward revaluation at the year-end in Vibrant Energy Matters and as a result of the disposal of LSL's share holdings in eProp Services plc, which were offset in part by the issuance of loan notes to an associate company and the addition of sublease assets on transition to IFRS 16.

LSL has a 8.8% minority shareholding in Yopa. LSL recognised a fair value impairment of £1.3m at the half-year 2019 through the Statement of Other Comprehensive Income. The carrying value of the Group's investment in Yopa remains unchanged from the half year and has been assessed as £6.5m (June 2019: £6.5m and December 2018: £7.8m).

Joint ventures, investments and associates

The Group has two joint ventures and one associate: a 33.3% (2018: 33.3%) interest in TM Group, whose principal activity is to provide property searches, a 50% (2018: 50%) interest in LMS whose principal activity is to provide conveyancing panel management services. LMS and TM Group are held in the balance sheet at £8.8m and £1.5m respectively (2018: £8.2m and £1.5m).

During 2018, LSL acquired a 34.69% interest in Mortgage Gym, a digital mortgage marketplace, for cash consideration of £4.1m. Mortgage Gym is held in the balance sheet at a value of £2.7m as at 31^st December 2019 (2018: £3.6m) reflecting the opening carrying amount less losses of £0.9m in the period.

Financial Liabilities

Net Bank Debt

As at 31^st December 2019 Net Bank Debt⁴ was £41.9m (2018: £32.1m) and Shareholders' funds amounted to £141.2m (2018: £142.6m) with a balance sheet gearing of 29.7% (2018: 22.5%). The increase in Net Debt incorporated total exceptional cash expenditure of £8.8m (the majority of which related to the reshaping of the Your Move and Reeds Rains branch networks), £9.9m in respect of deferred and contingent for Group First andPTFS and seven lettings books acquisitions during the year. The 2019 gearing level was 0.8 times⁵ Group Adjusted EBITDA (2018: 0.8 times). Adjusting for the impact of IFRS16 Leases, 2019 gearing was 1.0 times.

Bank facilities

In January 2018, LSL extended its bank facility until May 2022. The facility includes a £100m RCF (2018: £100m). During the period under review, the Group complied with all of the financial covenants contained within the facility.

Deferred and contingent consideration

Within financial liabilities, LSL has £0.1m (2018: £2.1m) of deferred consideration and £5.8m (2018: £15.0m) of contingent consideration. The contingent consideration relates primarily to Group First (£1.5m) and RSC (£3.6m).

Provisions for liabilities:

Professional indemnity (PI) claim provision

At 31^st December 2019, the total provision for historic PI Costs was £8.2m (2018: £12.4m). In 2019, the Group continued to make positive progress in addressing historic claims and there has been a net £2.5m exceptional gain.

Onerous lease

As at 31^st December 2019 LSL held onerous lease provisions of £440,000 (2018: £130,000).

Net assets

The Group's net assets as at 31^st December 2019 were £141.2m (2018: £142.6m).

Statement of Cash-flows

The Group generated strong cash from operations of £38.8m (2018: £36.9m) converting 105% of Group Underlying Operating Profit to cash-flow from operations (pre PI and exceptionals) (2018: 103%). The small increase in conversion from 2018 is primarily related to the decrease in trade and other receivables of £5.4m (2018: increase of £3.8m) offset in part by the decrease in trade and other payables of £6.2m (2018: decrease of £0.1m, resulting in part from normalised Surveying revenues levels in Q4 2019 in comparison to Q4 2018. Provisions also decreased by £3.9m (2018: decrease of £3.6m) due to the positive progress in addressing historic PI claims.

Treasury and Risk Management

LSL has an active debt management policy. LSL does not hold or issue derivatives or other financial instruments for trading purposes. Further details on the Group's financial commitments as well as the Group's treasury and risk management policies are set out in the Annual Report and Accounts 2019.

International Financial Reporting Standards (IFRS)

The Financial Statements have been prepared under IFRS as adopted by the European Union.

Notes:

2. Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation on property, plant and equipment (as defined in Note 4 to the Financial Statements)

3. Refer to Note 6 to the Financial Statements

4. Refer to Note 10 to the Financial Statements for the calculation

5. Operational gearing is defined as Net Bank Debt divided by Group Adjusted EBITDA²

Principal Risks and Uncertainties

LSL has an overall framework for the management of risks and internal controls to mitigate the risks. Through this framework, the Board (which has overall accountability and responsibility for the management of risk and is supported by the Audit & Risk Committee in discharging this role) on a regular basis identifies, evaluates and manages the principal risks and uncertainties faced by the Group; as well as factors which could adversely affect its business, operating results and financial condition.

This part of the Report describes LSL's risk management and internal controls arrangements during 2019 and includes a summary of the principal risks and uncertainties faced by the Group during 2019.

Management of risk appetite

During 2019, in line with the FRC's Guidance on 'Risk Management, Internal Control and Related Financial and Business Reporting', the Board continued to manage the Group's risk appetite through the risk appetite framework to ensure continued compliance with the Code and related FRC guidance. The Board through its established culture and underlying processes, expresses and reviews the types and level of risk which it is willing to take or accept to achieve LSL's strategy and business plans; and to support consistent, risk-informed decision making across the Group.

LSL's risk appetite framework has developed in accordance with the Board's risk framework policy. This policy defines individual risk appetite statements for LSL's principal risks and uncertainties and for key decisions made by the Board. These statements provide parameters within which the Board typically expects LSL's businesses to operate, facilitating structured consideration of the risk and reward trade-off for the decisions made around how the Group conducts business. This includes monitoring risk measures and the identification of actions needed to bring any specific outlying areas of risk within target levels.

During 2019, the Group has continued to promote and support the enhancement of risk frameworks within each of the Group's subsidiary businesses, including the maintenance of risk appetite measures by each subsidiary. Each year, each subsidiary business quantifies their highest ranked risk areas and routinely provide the Audit & Risk Committee with graphical management information to facilitate the tracking of risk status versus tolerance by the subsidiary boards and governance committees which operate within each of the three Divisions. The framework continues to improve the visibility of action plans to address any core risk areas considered outside tolerance.

Risk management activities in 2019 included the development of more formalised linkages between subsidiary risk metrics and Group level risk appetite statements, furthermore the Group Risk and Internal Audit team conducted a comprehensive mapping exercise to assess the ownership and effectiveness of second-line oversight across risk-related activities, spread across the three operating Divisions and Group Finance, with actions agreed to strengthen oversight routines where required.

The framework covers a wide range of risks, which reflect the nature of LSL's businesses and acknowledges that there is not a 'one size fits all' approach to establishing risk parameters. During 2020, LSL will continue to review the framework to ensure it remains in line with emerging best practice and continues to foster the maturity of risk appetite routines at both LSL and its subsidiary businesses. Enhancements will be made where improvements which will improve the Group's risk management arrangements are identified.

The Board has established clear risk parameters, whilst at the same time fostering an environment within which innovation and entrepreneurial activities can thrive. Where there is any proposal to shift the Group significantly closer to or outside agreed risk parameters, it is discussed and is subject to Board approval before the commencement of any activities, to ensure that appropriate mitigation controls measures are put into place.

On-going evolution of the risk management framework is carried out as part of an on-going cycle of continual improvement, and remains a key priority for the Audit & Risk Committee and the Board in 2020. Further, the Audit & Risk Committee and the Board will periodically conduct reviews of the Group's risk management framework to ensure it reflects the requirements of the Code and any related guidance (as amended or replaced from time to time).

Developing the financial viability statement

Assessment of prospects

The Group's business model and strategy are central to an understanding of its prospects, and details are included in the Strategy and Business Model sections of the Annual Report & Accounts 2019.

Through organic growth, selective acquisitions and delivery of high quality services to customers, the Group's key objective is to build market leading positions and ultimately deliver long-term Shareholder value.

Prospects of the Group are assessed by the Board throughout the year at its meetings, including a particular focus during the strategic planning process. This process includes an annual review of the on-going plan, led by the Group Chief Executive Officer and Group Chief Financial Officer in addition to the relevant business functions involved.

The Directors participate fully in the annual planning process by means of a Board meeting and part of the Board's role is to consider whether the plan continues to take appropriate account of the changing external environment including macroeconomic, political, regulatory and technical changes.

This process allows the Board to produce strategic objectives and detailed financial forecasts over a three year period. The latest updates to the on-going plan were finalised in December 2019. This considered the Group's current position and its prospect of operating over the three-year period ending 31^st December 2022, and reaffirmed the Group's stated strategy. The Group's future prospects have been further strengthened with the extension of the RCF which was renewed in January 2018 for a period up to May 2022.

Brexit

Since the 2016 EU referendum result, LSL has been monitoring Brexit developments to assess the impact on LSL. 'Brexit' is a subset entry within the Group's risk appetite framework and in addition LSL has conducted a specific impact assessment in relation to Brexit which was completed in line with FRC guidance.

The impact assessment considered whether LSL will be impacted directly by the eventual outcome of the negotiations between the UK and the EU, for example due to regulatory changes or due to changes that may impact our Group employees or whether the impact would be indirect, i.e. resulting from the broader economic uncertainties. The Group concluded that whilst LSL is not directly impacted by the Brexit trade negotiations, due mainly to its UK based business model, it is indirectly impacted by the impact that the continued economic uncertainty has on the housing market.

This approach has ensured that Brexit developments are being formally monitored, and the risk status regularly reassessed with reactive action plans identified to respond to any market effects of uncertainty that may be caused by the outcome of the negotiations between the UK Government and the EU.

These practices will continue throughout 2020 as the UK's Brexit transition continues and enters the transitional arrangement period involving negotiation of trade terms, along with wider consideration of the likely impacts of other major economic and political events, and their influence on viability assessment modelling.

The Group's principal risks and uncertainties are set out below. The Board reviewed LSL's principal risks and uncertainties when assessing the Group's prospects, and noted that none of these individual risks would, in isolation, compromise the Group's prospects. See the Directors' Report in the Annual Report and Accounts 2019 for details of how Brexit was taken into account in completing the going concern assessment.

COVID-19

Risks relating to COVID-19 and the impact are being assessed and the Group will take into account any guidance issued by the FRC in relation to its assessment and its reporting on the impact of the virus.

The Group's approach will ensure that as COVID-19 develops it will be closely monitored, and the risk status regularly reassessed with action plans identified in response.

Further, the description of the Group's principal risks and uncertainties which are set out below have been reviewed and updated to take into account COVID-19.

Assessment of viability

Although the strategic plan reflects the Directors' best estimate of the prospects of the Group in accordance with provision 31 of the 2018 Code, the Directors have assessed the viability of the Company over a longer period than the 12 months required by the 'going concern' provision.

For the purposes of assessing the viability of the Group, it was determined that a three year period ending on 31^st December 2022 should be used, as this corresponds with the Board's strategic planning cycle. This assessment has been made with reference to the Group's current position and prospects, the Board's risk appetite and the Group's principal risks and uncertainties.

A number of severe but plausible scenarios were considered and two of these were modelled in detail with input from across a functional group of senior managers, including representatives from the finance teams.

The following scenarios were modelled:

a. severe downturn in the UK housing market close to the level seen in 2008 during the last recession caused by either, or a combination of, Brexit and/or political , economic, or other uncertainties; and

b. combination stress test including a loss of a major contract, a downturn in housing market, a Surveying PI risk event and a one-off regulatory fine following a data breach.

Detailed assumptions for each scenario were built up and modelled by month across the three year period. The models measured the downside impact on revenue and the management action which would be taken to retain cash reserves and maintain the operating capacity of the business as a result of the stress scenarios.

Assumptions were also made for the potential growth of LSL's recurring income and counter-cyclical businesses, notably Lettings and Asset Management, and the extent to which some activities, such as Lettings, tend to be less affected through the cycle. The modelling and assumptions took account of the broad range of services across a wide geography which allows some protection from the impact of stress scenarios.

The results from the stress testing indicated that the Group would be able to withstand the financial impact of each scenario and therefore continue to operate and meet its liabilities, as they fall due, over the three year period ending 31^st December 2022.

Furthermore the Board also considered it appropriate to prepare the Financial Statements on the going concern basis, as explained in the Basis of Accounting paragraph in the Principal Accounting Policies section contained within the Financial Statements of the Annual Report and Accounts 2019.

The Audit & Risk Committee oversaw the process by which the Directors reviewed and discussed the assessment undertaken by the Management Team in proposing the viability statement.

The Directors' financial viability statement is contained in the Report of the Directors section of the Annual Report and Accounts 2019.

Risk management and internal controls framework

LSL's risk management and internal controls framework for 2019 included:

a. ownership of the risk management and internal controls framework by the Board, including a risk framework policy, supported by the Group Chief Financial Officer, the Company Secretary, the Head of Risk and Internal Audit and the Group Financial Controller;

b. a network of risk owners in each of LSL's businesses with specific responsibilities relating to risk management and internal controls, including maintenance of detailed risk analyses;

c. the documentation and monitoring of risks are recorded and managed through risk appetite measures which undergo regular reviews and scrutiny by subsidiary boards, divisional governance committees and the Head of Risk and Internal Audit;

d. the Board routinely 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 are identified, monitored and mitigated in addition to carrying out specific risk assessments as part of its decision-making processes;

e. the development and application of LSL's risk appetite statement and associated framework (for further details on steps taken during the year, see the Audit & Risk Committee Report included in the Annual Report and Accounts 2019); and

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

The risk framework includes the following:

a. a risk framework policy;

b. a boardroom culture which promotes risk assessment and management in decision-making;

c. determination of risk appetite, with management and mitigation of risks in line with risk appetite tolerances;

d. assessment of prospects and viability;

e. review of the effectiveness of the risk management and internal control systems; and

f. going concern confirmation (for LSL's going concern disclosure see the Report of the Directors included in the Annual Report and Accounts 2019).

During 2020 areas of focus will include:

a. Further maturing of subsidiary risk measures, with continued ranking of risks and evidential tracking of action plans (for areas outside tolerance) at relevant management and governance committees;

b. Ongoing development of subsidiary data protection and information security related risks as part of established routines at relevant governance committees;

c. A revisit by the Group Risk and Internal Audit team of second-line risk management routines.

During 2019, the Directors carried out a robust assessment of the principal risks and uncertainties facing the Group, including those that threaten the Group's business model, future performance, solvency or liquidity. The Directors believe that the assessment which has been completed is appropriate to the complexity, size and circumstances of the Group, which is a matter of judgement of the Board and has been supported by the Management Team.

The Directors also carried out a risk appetite assessment exercise which involved the evaluation of continually evolving aspects of risk management. During 2019, this assessment included the consideration of the following:

a. the implementation of new IT systems across the Group's Divisions;

b. the rationalisation of the estate agency branch network and associated cost base;

c. the re-branding the Group's Financial Services network activities as PRIMIS in addition to commencing a process of consolidating and harmonising the networks management and business support operations in addition to planning and implementing the new FCA Senior Managers Certification Regime;

d. responding to an evolving regulatory environment which reflects the priority of the housing sector on the Government's agenda and consideration of major scenarios of further external political and economic change on the UK housing market including the impact of Brexit; and

e. consideration of acquisitions to ensure that they remain in line with the Group's strategies and risk appetite.

The identified risks may change over time due to changes in business models, performance, strategy, operational processes and the stage of development of the Group in its business cycle as well as with changes in the external environment. This robust assessment is focused on the principal risks and uncertainties and it differs from the review of the effectiveness of the systems of risk management and internal controls.

In accordance with the requirements of the Codes, this Preliminary Results Announcement includes descriptions of principal risks and uncertainties together with a high level explanation of how they are being managed or mitigated. This includes clear descriptions of the risks together with an evaluation of the likelihood of a typical risk event crystallising and its possible impact. Mitigating steps and any significant changes to specific areas of risk are also referred to within the tabular summary.

As noted above, this robust analysis of principal risks and uncertainties has also contributed to the Group's financial viability statement which is included within the Report of the Directors section of the Annual Report and Accounts 2019. The Directors have also considered the impact if risks coincide, namely a combination of non-principal risks and uncertainties could potentially represent a single compound principal risk or uncertainty.

The Group also faces other risks which, although important and subject to regular review, have been assessed as less significant and are not listed in this Preliminary Results Announcement or the Annual Report and Accounts 2019. 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 as 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 2019 is set out in the Audit & Risk Committee Report (Internal Controls) of the Annual Report and Accounts 2019.

Principal Risks and Uncertainties

	Risk	Description		Monitoring and mitigation
Strategic:
1	COVID-19 virus	Consumer behaviour and confidence may be materially impacted by the COVID-19 virus, which may as a result have a material impact on the residential housing market. Risk of infection to LSL employees. There is a risk that LSL offices / branches may be shut in the case of local COVID-19 infection and customer-facing activities would need to switch to less efficient remote working arrangements. If IT staff were not able to maintain and access key systems, due to an inability to access key locations, business critical infrastructure and IT systems may be disrupted		• Daily management calls to monitor business arrangements and implement regulatory advice, respond to any immediate business concerns or emerging situation, assess readiness of plans and any new responses required, with coordination of the distribution of clear communications to employees. • Daily monitoring of key trading data. • Implementation of responsive measures to reduce costs and conserve cash. • Business continuity plansupdated for COVID-19 including escalation procedures and communications. Specific BCP pandemic training arranged for Senior Management Team. Contingency plans put in place with defined levels of escalation leading ultimately to deep-cleaning at affected sites and extensive remote working. • Local representatives appointed, for example in Estate Agency branches, to act both as key contacts for communications, and also to support employees on the ground in observing and applying required processes and routines.
				• Daily monitoring of any COVID 19 incidents with Group employees and/or customers. Reviewing all site specific business continuity plans, with a particular focus on curtailing non-essential events such as conferences and strengthening home working arrangements across the business, with testing of home working arrangements to build resilience. • Implementing business continuity and disaster recovery solutions (encompassing IT, premises, transportation and employees), for example, plans to split key teams across sites including home working to reduce risk of intra- staff transmission and consequential impact on customer service. • Inclusion of significant market changes in stress testing scenarios.
2	UK housing market	Groupperformanceisintrinsicallylinkedtothe overallperformanceoftheUKhousingmarket (includingsubsets - e.g. primeCentralLondon). The housing market is also impacted by changes in national and global political and economic environments (e.g. Brexit). The housing market is also impacted by domestic or international incidents (including force majeure events) which may impact LSL's stakeholders (including employees, customers and suppliers) such as COVID-19, which may have a significant impact on the housing market. The impact of this risk can be direct (such as changes in Government policy or legislation arising from a change in Government) or indirect (such as changes in consumer behaviour or sentiment arising from changes in Government policy or legislation).		• Daily, weekly andmonthlymonitoringof tradingandmarket performancedata, as appropriate. • Initiatives to profitably maintain or increase market share, enhance productmixand optimisesegmentation. • Development of counter-cyclical and recurring revenue income streams, including ones less correlated with the number of housing transactions. • Responsive investment and cost control measures during the housing market cycle. • Budgetary planning and stress test modelling carried out on a number of market activity scenarios, together with the development of mitigation plans. • Investment to deliver strategic projects. • BalancedUK-widegeographicalspread to avoid over-exposure to local market factors. • Monitoringofwidermacroeconomic and political developments (including domestic and international developments). • Multi base-case scenarios and 'break-it' modelling for budget setting. • Monitoring of wider macroeconomic events and political developments (including both domestic and international), with responsive business plans and business continuity arrangements.
3	New UK housing market entrants	Traditionalbusinessmodels and pricing structuresfor residentialproperty servicesmay be exposedto new businessmodelsandtechnological advancements(e.g.online/hybrid estate agents,automatedvaluationmodels and automated financial services operating models).		• Competitor and industrybenchmarking, including regular view of market developments. • Development of strategies in response to market disruptors, including options to capitalise on digital opportunities. • Continued infrastructure investment, including investment in innovation and technology, with upgrading, consolidating and replacing core or legacy operating systems to increase functionality, improve customer experience, reduce costs and deliver efficiencies. • Servicedeliveryenhancements, product/services differentiationandtest and learn initiatives. • Engagement of specialist externalconsultativesupportasnecessary. • Monitoring of acquisition, investment, associate and joint venture opportunities. • Marketinginitiatives. • Operation of staffincentiveschemes to mitigate staff attrition. • Inclusion of significant market changes in stress testing scenarios.
4	Investment, acquisitions and growth initiatives	Realisation of business case in relation to investment, acquisitionand majorprojectinitiatives,includingdevelopment of business cases,duediligenceand integration/implementationrequirements, in line with LSL's strategy to complete selective acquisitions.		• Monitoring of opportunities which support delivery of Group strategy. • Engagement of professional advisers to support identification and evaluation of strategic investment and acquisition opportunities. • Definedpreand post-acquisition reportingto theBoard and Audit & Risk Committee. • Establishment of authoritylevels for expenditure. • Use of risk appetite to reflect approach during different stages of the housing market cycle. • Defined due diligence processes completed ahead of all investments and acquisitions. • Due diligence is undertaken by in house teams with support from subject specialists as required. • Completion of risk assessments including RCF leverage stress testing ahead of all significant investments and acquisitions. • Maintenance of resource pool to deliver integration/implementation activities following completion of acquisitions. • Establishedintegration/implementationplanningmethodology in place. • Promotion of Group-wide relationships in business arrangements. • Post-acquisitionandpost-integration/implementationreview programmes, including detailed presentations to the Board. • Incorporation in Risk and Internal Audit plans, including additional engagements where required. • Documentation of clear business strategy and risk appetite by the Board, to ensure alignment of new initiatives.
Sales/distribution:
5	Professional services	Exposureto PI claimsarising from lapsesin professional services, including surveyingandvaluation practices, financial services advice, and estate agency services.		Surveying and Valuation Services Division • Robustframeworkandmonitoringroutinestomaintain valuationaccuracy. • Dedicatedsurveyingriskteam, providing 2^nd line assurance on the operation of the framework. • Additional controls in place for potentially higher risk valuations. • Timelydatacaptureofall potential claimsandassociatedtrends with regular scenario modelling undertaken. • Utilisationoftechnologytomonitorvaluationtrends,triggeralerts and 'real time' checks. • Board-levelauthoritiesforPIclaimssettlementpayments andgovernanceofunderlyingclaimshandlingand accountingprocesses. • Integration of new business products into existing valuation controls framework. • Lender on-boarding policy with Board oversight to ensure instructions are within risk appetite. Financial Services Division • Defined responsibilities for claims management and operation of PI insurance together with management of underlying risk areas. • RiskandInternal Auditengagements. • Governance arrangements relating to the inclusion of products included within the Financial Services Division panel distribution arrangements made available for network/club members and their customers. • Experiencedclaimshandlingpersonnelsupportedbylegal and compliance experts. • Development of dedicated conduct risk MI to ensure fair treatment of consumers. • Culturepromotingeffectivesalesconductandopenlinesof communicationwithclients with a focus on customer outcomes. Group-wide • Robust reporting processes to centralised risk team to ensure timely and compliant notifications are made to insurers. • PLC Board review of PI insurance arrangements
6	Client contracts	Theperformanceofthe Estate Agency, Financial Services and Surveyingbusinesses are dependent on entering into appropriate agreements and retaining contracts with key clients/customers (e.g. lenders, portfolio landlords and house builders).		• Customeroutcomesfocusedforumsandinitiatives. • Designatedseniormembersofstaffwithresponsibilityfor relationshipmanagement at subsidiary and Group levels. • On-going investment in resources, innovation, technology and service standardsto ensure LSL has the capacitytomeetserviceleveldemands. • Development of new products to meet market needs. • Proactive management of third party suppliers to ensure continued compliance with client contract commitments/requirements. • Oversight of third party providers to maintain overall service quality. • Targetedmarketing and training events for corporate clients. • Monitoring of client dependency, service delivery, risk and compliance with contractual requirements. • Robust control framework supporting the risk profiling of prospective clients, contract renewals (including contract terms) and the quality of professional services. • Process to ensure learnings from bids/instructions are identified and actioned. • In-house legal services and compliance teams, with specialist external legal and compliance support engagement whennecessary, together with dedicated claims/customer complaints management teams within business areas. • Riskand InternalAudit reviews.
Operations:
7	Business infrastructure (including IT)	The failure of business critical business infrastructure and business critical IT systems could result in breakdown in operational processes, loss of data, and IT outages, impacting customers and business performance. Groupoperationsrequire robust internal controls, resilient infrastructures and business continuity arrangements (including in relation to IT). The controlsenvironment needstoremainadaptabletosupportgrowth initiatives,harnesstechnologicaladvancements andcounterbusinesscontinuity/resiliencethreats, including in relation to IT systems, maliciousandcyber-relatedattacks. LSL's strategy recognises the importance of investing in the Group's infrastructure (including IT) to maintain both competitive advantages and deliver controls and system security - all within the context of changing business models within the residential property services markets.	• Group-wide internal controls processes and policies which are subject to regular review to ensure they are in line with best practice. • Group IT governance,policies, base standardsandinitiatives supported by the Group IT Director and with oversight from the Data and Information Security Committee. • Focus on investment and development of innovation and systems within the Group's strategies. • Combination of dedicatedin-houseITteams and engagement with external IT specialist suppliers to deliver efficiencies and market leading service. • Maintenanceof business infrastructuretoensure effectiveservice delivery with appropriate controls. • On-going infrastructure investment and phased development programmes. • Identifying, securing and supporting innovation and technology opportunities through the Group's investment and acquisition strategies. • Implementing business continuity and disaster recovery solutions (encompassing IT premises, transportation and employees). • Monitoring of compliance with relevant contractual and regulatoryrequirements. • Externalconsultativesupportasnecessary. • RiskandInternal Auditengagements. • Oversight by the Data and Information Security Committee, the Audit & Risk Committee and the LSL Board.
8	Information security (including data protection)	Groupoperationsinvolvetheprocessing and retentionofhigh volumesofpersonaldata,withpotentialfor unintended data lossand exposureto increasing levelsofexternalcyber crime, including Phishing attacks and identify theft.	• LSL Data and InformationSecurityCommittee established with policy implementation and oversight responsibilities. • Defined Group-wide base policy standards. • Dedicated information security and data protection personnel (including DPOs). • Regular staff training programmes and awareness assessments undertaken. • Group cyber insurance cover in place. Data protection • Groupdata protectionpolicies andtraining in place supported by in-house legal and compliance teams. • Trackingofdataassets/datasharing and any breach incidents,inlinewithauthority levels, including monitoring of the storage of sensitive data. • Remedial steps taken to address any identified control weaknesses and ensure reporting in-line with regulatory requirements. • Implementation of regulatory changes, with post-launch oversight routines embedded as 'business as usual' - (e.g. General Data Protection Regulation). Systems security • Penetrationtesting, intrusion scanning programme, and secure back-ups and encryption of key data • Other controls such as password protected computers, clean desk policy, alerts on external emails and automatic password locking of computers left idle • Benchmarking against and accreditation by best practice standards - e.g. ISO27001 accreditation for e.surv. • Secondandthird-linerisk-based thematic reviews.
9	Regulatory and compliance	The Group is required to comply with various legal and regulatory requirements, whether as an employer or as providers of services. Any compliance breaches could result in sanctions and reputational damage (e.g. prosecutions or fines). This includes compliance with existing regulations and implementing new regulations such as The Senior Managers Certification Regime. Regulatory and compliance risk extends to the Group requiring through its contracts regulatory compliance by its businesspartners (e.g.franchises, appointed representatives,joint ventures, minority investments, associates and suppliers). The market and business operations are also impacted by a number of proposed regulatory reforms (e.g. Government reviews relating to the housing market, including reforms of lettings fees and conveyancing referral fees) which impact on Group revenue and expenditure. Regulatory costs, fees and charges continue to grow due to the growth of LSL's Financial Services businesses and the funding requirements of the Financial Services Compensation Scheme (FSCS).	• Top-down management culture focused on fairness, transparency and delivery of good customeroutcomes. • Opendialoguewithregulatorsandmonitoringofemerging developments and regulatory reforms. • Groupriskframeworkpolicyincorporatingwhere appropriate'threelinesof defence'model totrackcompliancewithregulations. • Grouppolicies including ethics (i.e.whistleblowingstructures,anti-fraud and anti-bribery policies) and employee welfare. • Subsidiary businesses have in place health and safety arrangements with an associated Group reporting framework which covers the welfare of employees and visitors to Group premises. • Group-wide forumswithregulatoryfocus and oversight (e.g. Financial Services Management Committee, Financial Services Risk Committee, Estate Agency regulatory risk steering groupand Data and Information Security Committee). • Dedicated second-line compliance teams in higher risk/regulated functions. • Investment in recruitment of expertise within the divisional compliance teams to ensure the Group is able to maintain appropriate procedures and risk measures for regulatory compliance. • Harmonisation of best practice compliance standards following acquisitions. • Dedicated Group Tax Manager monitors compliance with new tax legislation, e.g. IR 35 and Making Tax Digital. • Evolution and development ofIT systemsto strengthenoversightroutines. • Monitoring of franchise oversight obligations continuing. • Responsivecomplaintstrackingofanyemergingthemes. • In-house legal, with access to specialist external legalwhennecessary. • GroupRiskandInternal Audit engagements including assessments of the effectiveness of second-line oversight routines. • Membership of industry trade bodies and participation in Government and regulatory consultations. • Responsive business model changes to mitigate and address the impact of any regulatory changes.
People:
10	Employees	There is a risk that LSL may not be able to recruit or retain sufficient staff to achieve its operational objectives. This may result for example, in an inability to service customers adequately, develop new products or execute the LSL Strategic Plan. If staff are recruited into roles without the requisite experience or training , the risk of operational errors increases, which may impact business performance To address this risk, it is important for LSL to secureandretainkeystrategicstaff and control attrition in key business critical areas, for example, through e.surv's graduate recruitment programme; as well as ensuring the effective management of personnel standards and policy frameworksacrossvariedGroup businesses.		• OversightbyLSLRemunerationandNominations Committees supported by the Company Secretary and Group HR Director as well as a nominated LSL Non-Executive Director for workforce engagement. • Establishment of Employee Forum with regular engagement with the workforce engagement designated Non Executive Director. • Groupremunerationpoliciesandincentiveschemesto retainkeystrategicpopulations. • Regular benchmarkingandappraisalsof Executive Directors and Senior Management. • Successionplanningreviews and targeted development programmes for high achievers. • Dedicatedin-house talent acquisition teams within Group HR. • Targeted retention and recruitment initiatives. • Employee surveysandGroupHRinitiativesto monitor culture, attrition,morale,and any areasofpressure. • Group-wideHRITsystems. • Monitoringofstatutory reporting requirementsanddevelopments (e.g. gender and ethnic pay reporting) and impact of new tax regulations, e.g. IR35. • Employee policies and monitoring frameworks in place (e.g. health and safety and lone working arrangements to ensure employee welfare). • Monitoring subsidiary culture, values and ethics and the development of LSL's culture, values and ethics. • Implementation of workforce engagement measures to ensure employee considerations are included in decision making. • Adoption of reporting arrangements to demonstrate consideration of key stakeholders, including employees in decision making. • ClearGrouppoliciesand whistleblowingprocedures to enableemployees to confidentiallyraise or report concerns.

Group Income Statement

for the year ended 31^st December 2019

	Note	2019	2018
		£'000	£'000


Group Revenue		311,073	324,640

Employee and subcontractor costs		(194,207)	(203,095)
Establishment costs		(10,367)	(20,614)
Depreciation on property, plant and equipment		(14,842)	(5,674)
Other operating costs		(56,098)	(60,211)
Total operating expenses		(275,514)	(289,594)

Other operating income		887	557
Gain on sale of property, plant and equipment		148	34
Income from joint ventures and associates		441	259

Group Underlying Operating Profit	4	37,035	35,896

Share-based payments		(312)	(349)
Amortisation of intangible assets		(5,786)	(5,301)
Exceptional gains	5	2,487	2,188
Exceptional costs	5	(15,730)	(5,234)
Contingent consideration		2,054	(1,783)
Group operating profit		19,748	25,417

Finance costs		(3,744)	(2,333)
Finance Income		10	-
Net financial costs		(3,734)	(2,333)

Profit before tax		16,014	23,084

Taxation charge	8	(3,045)	(5,201)

Profit for the year		12,969	17,883

Earnings per share expressed in pence per share:
Basic	6	12.6	17.4
Diluted	6	12.6	17.3

Group Statement of Comprehensive Income

for the year ended 31^st December 2019

		2019	2018
	Note	£'000	£'000

Profit for the year		12,969	17,883

Items not to be reclassified to profit and loss in subsequent periods:
Revaluation of financial assets not recycled through income statement	8	(3,558)	(12,200)
		(3,558)	(12,200)

Total other comprehensive (loss) for the year, net of tax		(3,558)	(12,200)

Total comprehensive income for the year, net of tax		9,411	5,683

Group balance sheet Company No. 05114014

as at 31^st December 2019

	2019	2018
	£'000	£'000
Non-current assets
Goodwill	159,863	159,723
Other intangible assets	30,906	31,960
Property, plant and equipment	49,570	16,866
Financial assets	9,326	11,566
Investments in joint ventures and associates	12,958	13,230
Contract assets	686	959
Total non-current assets	263,309	234,304

Current assets
Trade and other receivables	34,391	38,650
Contract assets	253	262
Cash and cash equivalents	-	2,405
Total current assets	34,644	41,317

Total assets	297,953	275,621

Current liabilities
Financial liabilities	( 11,113 )	(10,455)
Trade and other payables	(60,007)	(63,980)
Current tax liabilities	(1,209)	(2,688)
Provisions for liabilities	(3,575)	(6,616)
Total current liabilities	( 75,904 )	(83,739)

Non-current liabilities
Financial liabilities	(73,951)	(41,156)
Deferred tax liability	(1,805)	(2,189)
Provisions for liabilities	(5,077)	(5,944)
Total non-current liabilities	(80,833)	(49,289)

Total Liabilities	(156,737)	(133,028)

Net assets	141,216	142,593

Equity
Share capital	208	208
Share premium account	5,629	5,629
Share-based payment reserve	4,429	4,129
Shares held by EBT	(5,224)	(5,261)
Fair value reserve	(13,584)	(11,727)
Retained earnings	149,758	149,615
Total equity	141,216	142,593

The Financial Statements were approved by and signed on behalf of the Board by:

Ian Crabb Adam Castleton

Group Chief Executive Officer Group Chief Financial Officer

10^th March 2020 10^th March 2020

Group Statement of Cash-Flows

for the year ended 31^st December 2019

	2019 £'000	2018 £'000

Profit before tax	16,014	23,084
Adjustments for:
Exceptional operating items and contingent consideration	11,189	4,829
Depreciation of tangible assets	14,842	5,674
Amortisation of intangible assets	5,786	5,301
Share-based payments	312	349
(Profit) on disposal of fixed assets	(148)	(34)
(Profit) from joint ventures	(441)	(259)
Finance income	(10)	-
Finance costs	3,744	2,333
Proceeds received via cash consideration	-	1,529
Operating cash-flows before movements in working capital	51,288	42,806

Movements in working capital
Decrease/ (increase) in trade and other receivables	5,462	(3,815)
(Decrease) in trade and other payables	(6,181)	(111)
(Decrease) in provisions	(3,908)	(3,608)
	(4,627)	(7,534)

Cash generated from operations	46,661	35,272

Interest paid	(3,289)	(1,359)
Income taxes paid	(5,355)	(6,875)
Exceptional costs paid	(8,799)	(3,310)
Net cash generated from operating activities	29,218	23,728

Cash-flows used in investing activities
Cash acquired on purchase of subsidiary undertaking	-	6,944
Acquisitions of subsidiaries and other businesses	(2,711)	(7,732)
Payment of contingent consideration	(7,890)	(1,392)
Investment in joint ventures and associates	-	(4,100)
Investment in financial assets	(2,783)	(13)
Cash received on sale of financial assets	1,765	-
Purchase of property, plant and equipment and intangible assets	(4,892)	(5,877)
Proceeds from sale of property, plant and equipment	367	156
Net cash (expended) on investing activities	(16,144)	(12,014)

Cash-flows used in financing activities
Drawdown of loans	7,383	4,521
Refinance costs	-	(250)
Repayment of loan notes	-	(2,000)
Payment of deferred consideration	(2,009)	-
Payments made for leases	(9,761)	-
Receipt of lease income	76	-
Proceeds from exercise of share options	26	20
Dividends paid	(11,194)	(11,600)
Net cash expended in financing activities	(15,479)	(9,309)

Net (decrease)/increase in cash and cash equivalents	(2,405)	2,405

Cash and cash equivalents at the end of the year	-	2,405

Group Statement of Changes in Equity

Year Ended 31^st December 2019

	Share capital £'000	Share premium account £'000	Share-based payments reserve £'000	Shares held by EBT £'000	Fair value reserve £'000	Retained earnings £'000	Total £'000
At 1^st January 2019	208	5,629	4,129	(5,261)	(11,727)	149,615	142,593
Adjustment on Initial application of IFRS 16	-	-	-	-	-	68	68
Revised opening balance at 1^st January 2019	208	5,629	4,129	(5,261)	(11,727)	149,683	142,661

Revaluation of financial assets	-	-	-	-	(3,558)	-	(3,558)
Disposal of financial assets	-	-	-	-	1,701	(1,701)	-
Profit for the year						12,969	12,969
Total comprehensive income for the year	-	-	-	-	(1,857)	11,268	9,411

Exercise of options	-	-	(12)	37	-	1	26
Share - based payments	-	-	312	-	-	-	312
Dividend payment	-	-	-	-	-	(11,194)	(11,194)
At 31^st December 2019	208	5,629	4,429	(5,224)	(13,584)	149,758	141,216

During the year ended 31^st December 2019, the EBT acquired nil LSL Shares. During the period 10,672 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the EBT. LSL received £24,000 on exercise of these options

Group Statement of Changes in Equity

Year Ended 31^st December 2018

	Share capital £'000	Share premium account £'000	Share-based payments reserve '000	Shares held by EBT £'000	Fair value reserve £'000	Retained earnings £'000	Total equity £'000	Non-controlling interest £'000	Total £'000
At 1^st January 2019	208	5,629	3,802	(5,317)	494	143,578	148,394	182	148,576
Adjustment on Initial application of IFRS 15	-	-	-	-	-	(434)	(434)	-	(434)
Adjustment on Initial application of IFRS 9	-	-	-	-	(21)	21	-	-	-
Revised opening balance at 1^st January 2019	208	5,629	3,802	(5,317)	473	143,165	147,960	182	148,142

Revaluation of financial assets	-	-	-	-	(12,200)	-	(12,200)	-	(12,200)
Profit for the year	-	-	-	-	-	17,883	17,883	-	17,883
Total comprehensive income for the year	-	-	-	-	(12,200)	17,883	5,683	-	5,683

Exercise of options	-	-	(22)	56	-	(15)	19	-	19
Share - based payments	-	-	349	-	-	-	349	-	349
Acquisition of minority interest	-	-	-	-	-	182	182	(182)	-
Dividend payment	-	-	-	-	-	(11,600)	(11,600)	-	(11,600)
At 31^st December 2019	208	5,629	4,129	(5,261)	(11,727)	149,615	142,593	-	142,593

During the year ended 31^st December 2018, the EBT acquired nil LSL Shares. During the period 15,966 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the EBT. LSL received £20,000 on exercise of these options

Notes to the Preliminary Results Announcement

The financial information in this Preliminary Results Announcement does not constitute LSL's statutory financial statements for the year ended 31^st December 2019 but has been extracted from the Financial Statements included in Annual Report and Accounts 2019 and as such, does not contain all information required to be disclosed in the financial statements prepared in accordance with IFRS.

Statutory financial statements for this year will be filed following the 2020 AGM. The auditors have reported on these Financial Statements. Their report was unqualified and did not contain a statement under section 498 (2), (3) or (4) of the Companies Act 2006.

1. Directors responsibility statement

Each of the current Directors confirms that, to the best of their knowledge, the Financial Statements, prepared in accordance with IFRS as adopted by EU standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidation taken as a whole; and the Directors' Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

2. Basis of preparation of financial information

The Group Financial Statements have been prepared on a going concern basis and on a historical cost basis, except for certain debt and equity financial assets that have been measured at fair value. The accounting policies applied by the Group in these consolidated preliminary results are the same as those applied by the Group in the LSL annual Financial Statements for the year ended 31^st December 2018 with the exception of IFRS 16 Leases adopted in the current period. The Group's Financial Statements are presented in pound sterling and all values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.

3. Segment analysis of revenue and operating profit

To reflect the increased importance of LSL's Financial Services Division, the LSL Board has updated the Group segmental reporting effective from 1^st January 2019. For the year ended 31^st December 2019, LSL has reported three segments: Estate Agency; Financial Services; and Surveying and Valuation Services:

Ø The Estate Agency 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 and asset management services to a range of lenders. Following the change to LSL's segment reporting, the Estate Agency Division receives a commercially agreed commission payment from the Financial Services Division (from Embrace Financial Services and First2Protect). This arrangement reflects Financial Services income generated by the Estate Agency Division;

Ø The Financial Services Segment 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, PRIMIS, Embrace Financial Services, First2Protect, Mortgages First, Insurance First Brokers and Linear Financial Services, Personal Touch Financial Services and RSC New Homes. Following the change to LSL's segment reporting, the Financial Services Division makes a commercially agreed commission payment to the Estate Agency Division (from Embrace Financial Services and First2Protect). This arrangement reflects Financial Services income generated by the Estate Agency Division; and

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

Each reportable segment has various products and services and the revenue from these products and services are disclosed in the Business Review sections of the Strategic Report of the Annual Report and Accounts 2019.

The Financial Services segment incorporates all LSL's Financial Services businesses. The Estate Agency segment primarily incorporates the results from the Estate Agency branch networks (Your Move, Reeds Rains, LSLi and Marsh & Parsons) and Asset Management. The Surveying and Valuation Services segment is unchanged from the previous segment reporting.

Operating segments

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.

Reportable segments

The following table presents revenue and profit information regarding the Group's reportable segments for the financial year ended 31^st December 2019 and financial year ended 31^st December 2018 respectively.

Year ended 31^st December 2019

	Estate Agency	Financial Services	Surveying and Valuation Services	Unallocated	Total
Income Statement information	£'000	£'000	£'000	£'000	£'000

Revenue from external customers	141,362	83,353	86,358	-	311,073
Intersegment revenue	13,552	(13,552)	-	-	-
Total revenue	154,914	69,801	86,358	-	311,073

Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments	14,453	11,642	16,343	(5,403)	37,035
- after exceptional costs, contingent consideration, amortisation and share-based payments	(2,206)	10,022	17,450	(5,518)	19,748

Finance Income					10
Finance costs					(3,744)
Profit before tax					16,014
Taxation					(3,045)
Profit for the year					12,969

Balance sheet information

Segment assets - intangible	160,942	18,088	11,739	-	190,769
Segment assets - other	81,934	9,078	14,822	1,350	107,184
Total Segment assets	242,876	27,166	26,561	1,350	297,953
Total Segment liabilities	(58,771)	(25,895)	(25,020)	(47,051)	(156,737)

Net assets / (liabilities)	184,105	1,271	1,541	(45,701)	141,216

The joint venture interests of the Group are recorded in the Estate Agency segment, with the associate interest recorded in the Financial Services.

Unallocated net liabilities comprise plant and equipment £50,000, other assets £1,300,000, lease liabilities £(34,000), 12% loan notes £(66,000), Bank overdraft £(883,000), accruals £(1,914,000), deferred and current tax liabilities £(3,152,000), and revolving credit facility overdraft £(41,000,000).

Year ended 31^st December 2018

	Estate Agency (Restated)¹	Financial Services (Restated)¹	Surveying and Valuation Services	Unallocated	Total
Income Statement information	£'000	£'000	£'000	£'000	£'000

Revenue from external customers	167,415	87,427	69,798	-	324,640
Intersegment revenue	16,424	(16,424)	-	-	-
Total revenue	183,839	71,003	69,798	-	324,640

Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments	11,107	9,461	20,426	(5,098)	35,896
- after exceptional costs, contingent consideration, amortisation and share-based payments	3,605	7,996	19,022	(5,206)	25,417

Finance costs					(2,333)
Profit before tax					23,084
Taxation					(5,201)
Profit for the year					17,883

Balance sheet information

Segment assets - intangible	160,944	18,568	12,171	-	191,683
Segment assets - other	59,014	9,429	11,659	3,836	83,938
Total Segment assets	219,958	27,997	23,830	3,836	275,621
Total Segment liabilities	(40,100)	(24,789)	(27,828)	(40,311)	(133,028)

Net assets / (liabilities)	179,858	3,208	(3,998)	(36,475)	142,593

¹ The prior period has been restated to reflect the current segmental reporting which adjusts the previous Estate Agency and Related Services segment to remove all of LSL's Financial Services businesses to create the current Financial Services segment.

The joint venture interests of the Group are recorded in the Estate Agency segment, with the associate interest recorded in the Financial Services.

Unallocated net liabilities comprise plant and equipment £15,000, other assets £3,821,000, accruals £(921,000), deferred and current tax liabilities £(4,890,000), and revolving credit facility overdraft £(34,500,000).

4. APMs (adjusted performance measures)

In addition to the various performance measures defined under IFRS, the Group reports a number of alternative performance measures that are designed to assist with the understanding of the underlying performance of the Group. The Group seeks to present a measure of underlying performance which is not impacted by the inconsistency in profile of exceptional gains and exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments. Share-based payments are excluded from the underlying performance due to the fluctuations that can impact the charge, such as lapses and the level of annual grants. The four adjusted measures reported by the Group are:

· Group Underlying Operating Profit

· Adjusted Basic EPS

· Adjusted Diluted EPS

· Group Adjusted EBITDA

The amortisation of intangibles assets is not representative of the underlying costs of the business, and is therefore excluded from adjusted earnings.

The Directors consider that these adjusted measures shown above give a better and more consistent indication of the Group's underlying performance. These measures form part of management's internal financial review and are contained within the monthly management information reports reviewed by the Board.

The calculations of adjusted basic and adjusted diluted EPS are given in Note 10 to these interim condensed consolidated Group Financial Statements and a reconciliation of Group Underlying Operating Profit is shown below:

	2019	2018
	£'000	£'000
Group operating profit	19,748	25,417
Share-based payments	312	349
Amortisation of intangible assets	5,786	5,301
Exceptional gains	(2,487)	(2,188)
Exceptional costs	15,730	5,234
Contingent consideration charge	(2,054)	1,783
Group Underlying Operating Profit	37,035	35,896
Depreciation on property, plant and equipment	14,482	5,674
Group Adjusted EBITDA	51,877	41,570

5. Exceptional items

	2019	2018
	£'000	£'000
Exceptional costs:
Branch / centre closures and restructuring costs including redundancy costs	14,645	1,993
Transition costs relating to surveying contracts	516	3,241
Other project costs	569	-
	15,730	5,234

Exceptional gains:
Exceptional gain in relation to historic PI Costs	(2,487)	(2,188)
	(2,487)	(2,188)

Exceptional costs

There were £15.7m of exceptional costs in the year (2018: £5.2m), of which, £0.5m (20 18: £3.2m) relate to initial non-recurring transition and integration costs for the contract to supply surveying and valuation services to Lloyds Bank plc.

In the Estate Agency Division there were £14.6m (December 2018: £2.0m) of non-recurring and material exceptional costs relating to the planned Estate Agency branch/centre closures and restructuring costs. The most significant costs incurred are redundancy costs (£4.5m) and leasehold property costs (£7.3m) with the balance including non-cash fixed asset write-offs (£2.6m). It is expected that further costs will be incurred for leasehold property costs.

Exceptional Gains

Provision for professional indemnity (PI) claims and insurance claim notification

In 2019 the Group has continued to make positive progress in settling historic PI claims resulting in a release of the provision of £2.5m (December 2018: £2.2m)

6. Earnings per share (EPS)

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

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

	Profit after tax £'000	Weighted average number of shares	2019 Per share amount Pence	Profit after tax £'000	Weighted average number of shares	2018 Per share amount Pence
Basic EPS	12,969	102,669,719	12.6	17,883	102,653,447	17.4
Effect of dilutive share options	-	425,152		-	839,935
Diluted EPS	12,969	103,094,871	12.6	17,883	103,493,382	17.3

There have been no other transactions involving Ordinary Shares or potential Ordinary Shares between the reporting date and the date of completion of these Financial Statements.

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

	2019 £'000	2018 £'000

Group operating profit before contingent consideration, exceptional items, share-based payments and amortisation (excluding non-controlling interest):	37,035	35,896

Net finance costs (excluding IFRS 16, exceptional and contingent consideration items)	(1,600)	(1,401)
Normalised taxation	(6,733)	(6,554)
Adjusted profit after tax¹ before exceptional items, share-based payments and amortisation	28,702	27,941

Adjusted basic and diluted EPS

	Adjusted profit after tax¹ £'000	Weighted average number of shares	2019 Per share amount Pence	Adjusted profit after tax¹ £'000	Weighted average number of shares	2018 Per share amount Pence

Adjusted Basic EPS	28,702	102,669,719	28.0	27,941	102,653,447	27.2
Effect of dilutive share options	-	425,152		-	839,935
Adjusted Diluted EPS	28,702	103,094,871	27.8	27,941	103,493,382	27.0

Note

¹ This represents adjusted profit after tax attributable to equity holders of the parent. The normalised tax rate in 2019 is 19% (2018: 19%).

7. Dividends paid and proposed

	2019	2018
	£'000	£'000
Declared and paid during the year:
Equity dividends on Ordinary Shares:

2017 Final: 7.3 pence per share		7,493
2018 Interim: 4.0 pence per share		4,107
2018 Final: 6.9 pence per share	7,086
2019 Interim: 4.0 pence per share	4,108
	11,194	11,600
Dividends on Ordinary Shares proposed (not recognised as a liability as at 31^st December):
Equity dividends on Ordinary Shares:
Dividend: 7.2 pence per share (2018: 6.9 pence per share)	7,392	7,086

8. Taxation

(a) Tax on profit on ordinary activities

The major components of income tax charge in the Group Income Statements are:

	2019	2018
	£'000	£'000

UK corporation tax - current year	3,993	5,931
- adjustment in respect of prior years	(56)	(205)
	3,937	5,726
Deferred tax:
Origination and reversal of temporary differences	(588)	(322)
Adjustment in respect of prior year	(304)	(203)
Total deferred tax (credit)	(892)	(525)

Total tax charge in the Income Statement	3,045	5,201

The UK corporation tax rate reduced to 20% with effect from 1^st April 2015 and 19% with effect from 1^st April 2017. A future UK corporation tax of 17% has been enacted and is effective from 1^st April 2020, and this is the rate at which deferred tax has been provided (2018: 17%). Corporation tax is recognised at the headline UK corporation tax rate of 19% (2018: 19%).

Deferred tax credited directly to other comprehensive income is £0.1m (2018: £0.0m). Income tax credited directly to the share based payment reserve is £0.0m (2018: £0.0m).

(b) Factors affecting tax charge for the year

The tax assessed in the profit and loss account is equal to (2018: higher than) the standard UK corporation tax rate, because of the following factors:

	2019	2018
	£'000	£'000

Profit on ordinary activities before tax	16,014	23,084

Tax calculated at UK standard rate of corporation tax rate of 19% (2018 - 19%)	3,043	4,386
Non-deductible expenditure / (non-taxable income) from joint ventures and associates	52	56
Other disallowable expenses	644	550
Impact of movement in contingent consideration charged/( credited) to the Income Statement	(313)	494
Share-based payment relief	(37)	73
Brought forward losses not previously recognised	(53)	-
Impact of rate change on deferred tax	69	50
Prior period adjustments - current tax	(56)	(205)
Prior period adjustment - deferred tax	(304)	(203)
Total taxation charge	3,045	5,201

A major component of the disallowable expenditure is a permanent disallowance of depreciation on assets which do not qualify for capital allowances. This is a recurring adjustment and the tax impact in the year is £321,000. Another significant adjustment is the impact of exceptional expenditure which is not deductible for tax purposes. The impact of this non-deductible expenditure is £508,000.

9. Acquisitions during the year

Year ended 31^st December 2019

The Group acquired the following businesses during the period to 31^st December 2019:

· Lettings books

During the period the Group acquired seven lettings books for a total consideration of £3,011,000. The fair value of the identifiable assets and liabilities of these businesses as at the date of acquisition have been provisionally determined as below:

	Fair value recognised on acquisition
	£'000
Intangible Assets	3,459
Deferred tax liabilities	(588)
Total identifiable net liabilities acquired	2,871
Purchase consideration	(3,011)
Goodwill	(140)

Purchase consideration discharged by:	£'000
Cash	2,711
Contingent consideration	300
	3,011

Analysis of cash-flow on acquisition	£'000
Transaction costs (included in cash-flows from operating activities)	-
Net cash acquired with the subsidiaries and other businesses	-
Purchase consideration discharged in cash (included in cash-flows from investing activities)	2,711
Net cash outflow on acquisition	2,711

10. Analysis of Net Bank Debt

Net Bank Debt is defined as follows:	2019	2018
	£'000	£'000
Interest-bearing loans and borrowings (including loan notes, overdraft, contingent and deferred consideration)
- Current	11,113	10,456
- Non - current	73,951	41,156
	85,064	51,612
Less: unsecured loan notes	(65)	-
Less: cash and short-term deposits	-	(2,405)
Less: IFRS16 lessee financial liabilities	(37,232)	-
Less: deferred and contingent consideration	(5,884)	(17,112)
Net Bank Debt (excluding loan notes)	41,883	32,095

Forward Looking Statement

This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, LSL undertakes no obligation to update or revise these forward-looking statements. Nothing in this document should be construed as a profit forecast. LSL and its Directors accept no liability to third parties in respect of this document save as would arise under English law. This presentation contains brands that are trademarks and are registered and/or otherwise protected in accordance with applicable law.

Any forward-looking statements in this document speak only at the date of this document and LSL undertakes no obligation to update publicly or review any forward-looking statement to reflect new information or events, circumstances or developments after the date of this document.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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