REG - LSL Property ServPLC - Interim Results <Origin Href="QuoteRef">LSL.L</Origin> - Part 2
01/08/2017 07:06
- Part 2: For the preceding part double click ID:nRSA6594Ma
assets, results and disclosures of the Group. The Group has not early
adopted any other standard, interpretation or amendment that has been issued
but is not yet effective.
Going concern
The Group meets its day to day working capital requirements through a
revolving credit facility. The Group currently has a £100m credit facility
which was extended in May 2016 and will now expire in May 2020. As shown in
Note 13, the Group had available £68.3m of undrawn committed borrowing
facilities in respect of which all conditions precedent had been met. The
Group's forecasts and projections, taking account of reasonably possible
changes in trading performance, show that the Group is expected to operate
within the terms of its current facilities and that therefore it is
appropriate to use the going concern basis of preparation for this financial
information.
2. Seasonality of operations
Due to the seasonal nature of the residential housing market, turnover and
operating profits are normally higher in the second half of the year.
However, as reported in the pre-interim results trading update issued on 17th
July 2017, the Board expects a more equal weighting between the first and
second half financial results compared to prior years.
3. Revenue
Six months ended Year Ended
30th June2017£'000 30th June2016£'000 31st December2016£'000
Revenue from services 151,520 151,367 307,750
Operating revenue 151,520 151,367 307,750
Rental income 278 346 673
Dividend income - 293 492
Other operating income 278 639 1,165
Total revenue 151,798 152,006 308,915
4. Segment analysis of revenue and operating profit
For management purposes, the Group is organised into business units based on
their products and services and has two reportable operating segments as
follows:
· The Estate Agency and Related Services segment provides services
related to the sale and letting of residential properties. It operates a
network of high street branches. As part of this process, the Estate Agency
Division also provides marketing and arranges conveyancing services. In
addition, it provides repossession asset management services to a range of
lenders. It also arranges mortgages for a number of lenders and arranges pure
protection and general insurance policies for a panel of insurance companies
via the estate agency branches, Pink Homes Loans, First Complete, Embrace
Mortgage Services, First2Protect, Mortgage First, Insurance Brokers First and
Linear Financial Services. The Financial Services revenue included within the
Estate Agency Division includes two mortgage and insurance distribution
networks providing products and services for sale via financial
intermediaries. A significant proportion of the results of the Financial
Services are inextricably linked to the Estate Agency business. They have
therefore been aggregated with those of Estate Agency and Related Service
segment.
· The Surveying and Valuation Services segment provides a valuations and
professional survey service of residential properties to various lenders and
individual customers.
Each segment has various products and services and the revenue from these
products and services are disclosed in the LSL's Annual Report and Accounts
2016 within the Business Review section of the Strategic Report.
The Management Team monitors the operating results of its business units
separately for the purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated based on operating
profit or loss which in certain respects, as explained in the table below, is
measured differently from operating profit or loss in the Group Financial
Statements. Head office costs, Group financing (including finance costs and
finance incomes) and income taxes are managed on a Group basis and are not
allocated to operating segments.
4. Segment analysis of revenue and operating profit (continued)
Operating segments
The following tables presents revenue and profit information regarding the
Group's operating segments for the six months ended 30th June 2017, for the
six months ended 30th June 2016 and for the year ended 31st December 2016.
Six months ended 30th June 2017
Income statement information Estate agency and related services£'000 Surveying and valuation services£'000 Unallocated £'000 Total£'000
Segmental revenue 118,424 33,096 - 151,520
Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments 9,428 9,390 (3,279) 15,539
- after exceptional costs, contingent 6,921 10,342 (2,936) 14,327
consideration, amortisation and share-based payments
Finance costs (1,176)
Profit before tax 13,151
Taxation (2,598)
Profit for the period 10,553
In the period ended 30th June 2017, there were no single customers that
accounted for 10% or more of the Group's total revenue.
Balance sheet information
Segment assets - intangible 170,528 12,558 - 183,086
Segment assets - other 61,392 7,896 1,828 71,116
Total Segment assets 231,920 20,454 1,828 254,202
Total Segment liabilities (48,149) (29,729) (41,836) (119,714)
Net assets/(liabilities) 183,771 (9,275) (40,008) 134,488
All of the joint venture interests of the Group are recorded in the Estate
Agency and Related Services segment. Unallocated net liabilities comprise
plant and equipment (£8,000), other assets (£1,820,000), accruals
(£1,350,000), financial liabilities (£2,000,000), deferred and current tax
liabilities (£6,810,000), overdraft (£6,176,000) and revolving credit facility
overdraft (£25,500,000).
4. Segment analysis of revenue and operating profit (continued)
Operating segments
Six months ended 30th June 2016
Income statement information Estate agency and related services£'000 Surveying and valuation services£'000 Unallocated £'000 Total£'000
Segmental revenue 118,894 32,473 - 151,367
Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments 6,882 8,078 (3,645) 11,315
- after exceptional costs, contingent 4,714 7,749 (3,594) 8,869
consideration, amortisation and share-based payments
Finance income -
Finance costs (502)
Profit before tax 8,367
Taxation (1,931)
Profit for the period 6,436
In the period ended 30th June 2016, there were no single customers that
accounted for 10% or more of the Group's total revenue.
Balance sheet information
Segment assets - intangible 174,084 11,894 - 185,978
Segment assets - other 87,612 9,131 1,028 97,771
Total Segment assets 261,696 21,025 1,028 283,749
Total Segment liabilities (55,785) (38,403) (81,186) (175,374)
Net assets/(liabilities) 205,911 (17,378) (80,158) 108,375
All of the joint venture interests of the Group are recorded in the Estate
Agency and Related Services segment. Unallocated net liabilities comprise
plant and equipment (£9,000), other assets (£1,020,000), accruals (£923,000),
financial liabilities (£8,553,000), deferred and current tax liabilities
(£10,021,000), overdraft (£6,690,000) and revolving credit facility overdraft
(£55,000,000).
4. Segment analysis of revenue and operating profit (continued)
Operating segments
Year ended 31st December 2016
Income statement information Estate agency and related services£'000 Surveying and valuation services£'000 Unallocated £'000 Total£'000
Segmental revenue 243,036 64,714 - 307,750
Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments 24,500 17,508 (7,385) 34,623
- after exceptional costs, contingent
consideration, amortisation and share-based payments 22,344 18,030 25,047 65,421
Finance income -
Finance costs (1,896)
Profit before tax 63,525
Taxation (13,033)
Profit for the year 50,492
In the period ended 31st December 2016, there were no single customers that
accounted for 10% or more of the Group's total revenue.
Estate agency andrelated activities£'000 Surveying and valuationservices£'000 Unallocated£'000 Total£'000
Balance sheet information
Segment assets - intangible 172,736 12,414 - 185,150
Segment assets - other 56,574 6,873 1,023 64,470
Total Segment assets 229,310 19,287 1,023 249,620
Total Segment liabilities (53,997) (32,780) (34,077) (120,854)
Net assets/(liabilities) 175,313 (13,493) (33,054) 128,766
Unallocated net liabilities comprise plant and equipment (£8,000), other
assets (£1,015,000), accruals (£436,000), financial liabilities (£5,759,000),
deferred and current tax liabilities (£11,382,000), revolving credit facility
(£16,500,000).
5. 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 three adjusted measures reported by the
Group are:
· Group Underlying Operating Profit
· Adjusted Basic EPS
· Adjusted diluted EPS.
The Directors consider that these adjusted measures shown below 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
6 and a reconciliation of Group Underlying Operating Profit is shown below:
30th June 30th June 31st December
2017 2016 2016
Note £'000 £'000 £'000
Group operating profit 4 14,327 8,869 65,421
Share-based payments (145) 746 1,263
Amortisation of intangible assets 2,227 2,065 3,914
Exceptional gains 7 (1,100) - (34,531)
Exceptional costs 7 - - 2,341
Contingent consideration 7 230 (365) (3,785)
Group Underlying Operating Profit 15,539 11,315 34,623
6. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the period
attributable to ordinary equity holders of the parent by the weighted average
number of Ordinary Shares outstanding during the period.
Diluted EPS amounts are calculated by dividing the net profit attributable to
ordinary equity holders of the parent by the weighted average number of
ordinary shares outstanding during the period plus the weighted average number
of ordinary shares that would be issued on the conversion of all the dilutive
potential ordinary shares into ordinary shares.
Six months ended 30th June
Profit after tax£'000 Weighted average number of shares 2017Per share amountPence Profit after tax£'000 Weighted average number of shares 2016Per share amountPence
Basic EPS 10,555 102,636,868 10.3 6,439 102,658,362 6.3
Effect of dilutive share options - 741,376 - - 469,387 -
Diluted EPS 10,555 103,378,244 10.2 6,439 103,127,749 6.2
6. Earnings per share (EPS) (continued)
Year ended 31st December 2016 Profitafter tax£'000 Weighted average number of shares 2016Per shareamountPence
Basic EPS 50,493 102,575,484 49.2
Effect of dilutive share options - 519,565 -
Diluted EPS 50,493 103,095,049 49.0
Adjusted basic and diluted EPS
The Directors consider that the adjusted earnings shown below give a better
and more consistent indication of the Group's underlying performance:
Six months ended Year Ended
30th June2017£'000 30th June2016£'000 31st December2016£'000
Group operating profit before contingent consideration, exceptional items, share-based payments and amortisation 15,539 11,315 34,624
Add back non-controlling interest 2 3 1
Group operating profit before contingent consideration, exceptional items, share-based payments and amortisation (excluding non-controlling interest) 15,541 11,318 34,625
Net finance costs (excluding exceptional items and contingent consideration items) (931) (335) (1,410)
Normalised taxation (2,812) (2,197) (6,643)
Adjusted profit after tax1 before exceptional items, share-based payments and amortisation 11,798 8,786 26,572
Six months ended 30th June
Adjusted profit after tax1£'000 Weighted average number of shares 2017Per share amount Adjustedprofit after tax1£'000 Weighted average number of shares 2016Per share amount Pence
Pence
Adjusted basic EPS 11,798 102,636,868 11.5 8,786 102,658,362 8.6
Effect of dilutive share options 741,376 469,387
Adjusted diluted EPS 11,798 103,378,244 11.4 8,786 103,127,749 8.5
6. Earnings per share (EPS) (continued)
Year ended 31st December 2016
Adjustedprofit after tax1£'000 Weighted average number of shares 2016Per share amount Pence
Adjusted basic EPS 26,572 102,575,484 25.9
Effect of dilutive share options - 519,565 -
Adjusted diluted EPS 26,572 103,095,049 25.8
(1) This represents adjusted profit after tax attributable to equity holders
of the parent. Tax has been adjusted to exclude the prior year tax
adjustments, and the tax impact of exceptional items, amortisation and
share-based payments. The effective tax rate used is 19.25% (30th June 2016:
20.00%; 31st December 2016: 20.00%).
7. Exceptional items and contingent consideration
Six Months Ended Year Ended
30th June 2017 30th June 2016 31st December 2016
Exceptional costs: £'000 £'000 £'000
Branch/centre closure and restructuring costs including redundancy costs - - 2,341
Total operating exceptional costs - - 2,341
Deferred and contingent consideration on acquisitions 230 (365) (3,785)
230 (365) (1,444)
Exceptional gains:
Gain on disposal of Zoopla shares - - (32,931)
Provision for PI claims/notifications (PI Costs) (1,100) - (1,600)
(1,100) - (34,531)
Net exceptional (gain) and contingent consideration (870) (365) (35,975)
Contingent consideration on acquisitions
The contingent consideration recognised in the period relates to a charge of
£129,000 in LSLi and a charge of £101,000 in Group First (31st December 2016 a
credit of £3,785,000 and 30th June 2016: credit of £365,000).
Professional Indemnity
Positive progress in addressing historic PI Costs has resulted in a £1,100,000
release of the provision (31st December 2016: release of £1,600,000; 30th June
2016: nil)
8. Dividends paid and proposed
Dividends per share
A final dividend in respect of the year ended 31st December 2016, of 6.3 pence
per share (December 2015: 8.6 pence per share), amounting to £6.5m was paid in
the period ended 30th June 2017. An interim dividend has been announced
amounting to 4.0 pence per share (June 2016: 4.0 pence).
Interim dividends are recognised when paid.
9. Taxation
The major components of income tax charge in the interim Group income
statements are:
Six Months Ended Year Ended
30th June 2017 30th June 2016 31st December 2016
£'000 £'000 £'000
UK corporation tax:
- current year 2,851 1,881 12,703
- adjustment in respect of prior years (2) 162 1,009
2,849 2,043 13,712
Deferred tax:
Origination and reversal of temporary differences (221) (85) (500)
Adjustment in respect of prior year (30) (27) (179)
(251) (112) (679)
Total tax charge in the income statement 2,598 1,931 13,033
Income tax charged directly to other comprehensive income is £365,000 (31st
December 2016: £3,899,000 credit; 30th June 2016: £469,000 charge) and relates
to the revaluation of financial assets. Income tax credited directly to the
share based payment reserve is £29,000 (and 31st December 2016: £65,000 and
30th June 2016: £96,000).
The headline rate of corporation tax has decreased from 20% to 19%, effective
from 1st April 2017 resulting in an expected effective corporation tax rate of
19.25% for the year ended 31st December 2017. A further decrease in the
corporation tax rate to 17% will be effective from 1st April 2020, and this is
the rate at which deferred tax has been provided.
10. Financial assets
Six Months Ended Year Ended
Available-for-sale financial assets 30th June 2017 30th June 2016 31st December 2016
£'000 £'000 £'000
Unquoted shares at fair value 6,653 1,774 4,603
Quoted shares at fair value 820 30,095 -
7,473 31,869 4,603
Opening balance 4,603 28,871 28,871
Acquisitions 724 - -
Disposals - - (36,083)
Fair value adjustment recorded through other comprehensive income 2,146 2,998 11,815
Closing balance 7,473 31,869 4,603
10. Financial assets (continued)
The financial assets include unlisted equity instruments which are carried at
fair value. Fair value is judgemental given the assumptions required and have
been valued using a level 3 valuation techniques (see Note 15).
Zoopla
Financial assets also include warrants in ZPG Plc (Zoopla). These were issued
in accordance with the 2016 services agreement with Zoopla. Zoopla's share
price at 30th June 2017 was £3.62 per share. The Directors consider the best
estimate of the fair value of LSL's warrants to be the share price which
values the Group's stake in Zoopla at £820,000. These warrants are therefore
valued using a level 1 valuation technique.
Other investments
The carrying value of the Group's investment in Vibrant Energy Matter (VEM) at
30th June 2017 has been assessed as £912,000 (31st December 2016: £912,000).
The carrying value of the Group's investment in GPEA Limited (GPEA) at 30th
June 2017 has been assessed as £5,741,000 (31st December 2016: £3,691,000),
reflecting the proposed consideration for the sale of the investment Note
17).
11. Financial liabilities
Six Months Ended Year Ended
30th June 2017 30th June 2016 31st December 2016
£'000 £'000 £'000
Current
Overdraft 6,176 6,690 3,756
2% unsecured loan notes 2,000 5,569 -
Deferred consideration 38 5,081 4,790
Contingent consideration 287 3,069 2,193
8,501 20,409 10,739
Non-current
Bank loans - revolving credit facility (RCF) 25,500 55,000 16,500
2% unsecured loan notes - 2,000 2,000
Deferred consideration 58 - 66
Contingent consideration 8,204 11,219 7,903
33,762 68,219 26,469
Contingent consideration -
Six Months Ended Year Ended
30th June 2017 30th June 2016 31st December 2016
£'000 £'000 £'000
Marsh & Parsons Growth Shares - 1,746 -
LSLi contingent consideration 1,517 5,002 3,419
LMS 1 530 1
Group First Limited 6,636 6,581 6,339
Other 337 429 337
8,491 14,288 10,096
Opening balance 10,096 9,886 9,886
Cash paid (2,088) (2,352) (3,537)
Acquisition - 6,581 6,598
Amounts recorded though income statement 483 173 (2,851)
Closing balance 8,491 14,288 10,096
11. Financial liabilities (continued)
The £2,000,000 unsecured loan notes, payable to a former Marsh & Parsons
director are due in March 2018, subject to certain conditions being satisfied.
The contingent consideration relating to the Marsh & Parsons growth shares is
nil (31st December 2016: nil and 30th June 2016: £1,746,000).
£1,517,000 (31st December 2016: £3,419,000 and 30th June 2016: £5,002,000) of
contingent consideration relates to payments to third parties in relation to
the acquisition of LSLi and certain of its subsidiaries between 2012 and 2016.
This is typically payable between three and five years after the acquisition
dates depending on the profitability of those subsidiaries in the relevant
years.
£1,000 (31st December 2016: £1,000 and 30th June 2016: £530,000) of contingent
consideration relates to payments to third parties in relation to the
acquisition of LMS in September 2014.
£6,636,000 of contingent consideration relates to Group First (31st December
2016: £6,339,000; 30th June 2016: £6,581,000). The additional consideration
will be calculated on an earnings multiple of between five and six times EBITA
(plus excess cash in the business) and has been capped at a maximum of £25
million.
The table below shows the allocation of the contingent consideration balance
and income charge between the various categories:
Six Months Ended Year Ended
Contingent consideration balances relating to amounts accounted for as: 30th June 2017 30th June 2016 31st December 2016
£'000 £'000 £'000
Remuneration - 3,800 2,076
Put options over non-controlling interests 1 530 1
Arrangement under IFRS 3 8,490 9,958 8,019
Closing balance 8,491 14,288 10,096
Contingent consideration profit and loss impact in the period relating to amounts accounted for as:
Remuneration 13 379 (1,412)
Put options over non-controlling interests - (268) (268)
Arrangement under IFRS 3 225 (105) (1,657)
Unwinding of discount on contingent consideration 245 167 486
Charge/(credit) 483 173 (2,851)
12. Provisions for liabilities
Six months ended 30th June:
2017 2016
Professional indemnity claim provision Onerousleases Total Professional indemnity claim provision Onerousleases Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1st January 20,686 678 21,364 29,672 53 29,725
Acquired in the period - - - - 17 17
Amount utilised (2,045) (148) (2,293) (3,954) - (3,954)
Amount released (1,100) (82) (1,182) - (40) (40)
Unwinding of discount 100 - 100 100 - 100
Provided in the period 270 2 372 370 - 370
Balance at 30th June 17,911 450 18,361 26,188 30 26,218
Current 4,098 122 4,220 10,871 16 10,887
Non-current 13,813 328 14,141 15,317 14 15,331
17,911 450 18,361 26,188 30 26,218
Year ended 31st December 2016
Professional indemnity claim provision Onerousleases Total
£'000 £'000 £'000
Balance at 1st January 29,672 53 29,725
Amount utilised (8,126) (137) (8,263)
Amount released (1,600) (6) (1,606)
Unwinding of discount 200 - 200
Provided in the period (including exceptional costs) 540 768 1,308
Balance at 31st December 20,686 678 21,364
Current 5,385 357 5,742
Non-current 15,301 321 15,622
20,686 678 21,364
The PI Cost provision is to cover the costs of claims relating to valuation
services for clients which are not covered by PI insurance. The PI Costs
provision includes amounts for claims already received from clients, claims
yet to be received and any other amounts which may be payable as a result of
legal disputes associated with provision of valuation services.
The provision is the Directors' best estimate of the likely outcome of such
claims, taking account of the incidence of such claims and the size of the
loss that may be borne by the claimant, after taking account of actions that
can be taken to mitigate losses. The provision will be utilised as individual
claims are settled and the settlement amount may vary from the amount provided
depending on the outcome of each claim. It is not possible to estimate the
timing of payment of all claims and therefore a significant proportion of the
provision has been classified as non-current.
At 30th June 2017 the total provision for PI Costs was £17.9m. The Directors
have considered the sensitivity analysis on the key risks and uncertainties
discussed above.
12. Provisions for liabilities (continued)
Cost per claim
A substantial element of the provision relates to specific claims where
disputes are on-going. These specific cases have been separately assessed and
specific provisions have been made. The average cost per claim has been used
to calculate the IBNR. Should the costs to settle and resolve these claims and
future claims increase by 10%, an additional £1.4m would be required.
Rate of claim
The IBNR assumes that the rate of claim for the high risk lending period in
particular reduces over time. Should the rate of reduction be lower than
anticipated and the duration extend, further costs may arise. An increase of
30% in notifications in excess of that assumed in the IBNR calculations would
increase the required provision by £0.3m.
Notifications
The Group has received a number of notifications which have not deteriorated
into claims or loss. Should the rate of deterioration increase by 50%, an
additional provision of £0.1m would be required.
Onerous leases
The provision for lease obligations relates to obligations under leases on
vacant properties. The provision is expected to be fully utilised by January
2021. The final outcome depends upon the ability of the Group to sublet or
assign the lease over the related properties.
13. Analysis of Net Bank Debt
Six Months Ended Year Ended
30th June 2017 30th June 2016 31st December 2016
£'000 £'000 £'000
Interest bearing loans and borrowings
- Current 8,501 20,409 10,739
- Non-current 33,762 68,219 26,469
42,263 88,628 37,208
Less: 2% unsecured loan notes (2,000) (7,569) (2,000)
Less: deferred and contingent consideration (8,587) (19,369) (14,952)
Net Bank Debt at the end of the period 31,676 61,690 20,256
Net Bank Debt at 30th June 2017 was £31.7m.
14. Financial instruments - risk management
The financial risks the Group faces and the methods used to manage these risks
have not changed since 31st December 2016. Further details of the risk
management policies of the Group are disclosed in Note 30 of the Group's
Financial Statements for the year ended 31st December 2016.
The Group has a current ratio of net bank debt (excluding loan notes) to
EBITDA of 0.71 (31st December 2016: 0.51 and 30th June 2016: 1.26). The
business is cash generative with a low level of maintenance capital
expenditure requirement. The Group remains committed to its stated dividend
policy of 30% to 40% of adjusted operating profit after interest and tax. In
addition, the Group's other main priority is to generate cash to support its
operations and to fund any strategic acquisitions.
15. Fair values of financial assets and financial liabilities
There is no difference in the book amounts and fair values of all the Group's
financial instruments that are carried in these financial statements.
Fair value hierarchy
As at 30th June 2017, the Group held the following financial instruments
measured at fair value. The Group uses the following hierarchy for determining
and disclosing the fair value of the financial instruments by valuation
technique:
· Level 1: quoted (unadjusted) prices in active markets for identical
assets or liabilities;
· Level 2: other techniques for which all inputs which have a significant
effect on the recorded fair value are observable, either directly or
indirectly; and
· Level 3: techniques which use inputs which have a significant effect on
the recorded fair value that are not based on observable market data.
· 30th June 2017 Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Assets measured at fair value
Financial assets 7,473 820 - 6,653
Liabilities measured at fair value
Contingent consideration 8,491 - - 8,491
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings:Floating rate borrowings 25,500 - 25,500 -
2% unsecured loan notes 2,000 - 2,000 -
Deferred consideration 96 - - 96
30th June 2016 Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Assets measured at fair value
Financial assets 31,869 30,095 1,774
Liabilities measured at fair value
Contingent consideration 14,288 14,288
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings:Floating rate borrowings 55,000 - 55,000 -
12% unsecured loan notes 7,569 - 7,569 -
Deferred consideration 77 77
· 31st Dec 2016 Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Assets measured at fair value
Financial assets 4,603 - - 4,603
Liabilities measured at fair value
Contingent consideration 10,096 - - 10,096
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings:Floating rate borrowings 16,500 - 16,500 -
2% unsecured loan notes 2,000 - 2,000 -
Deferred consideration 4,856 4,856
15. Fair values of financial assets and financial liabilities (continued)
Of the investments totalling £7,473,000, £6,653,000 are valued using Level 3
valuation techniques. The Directors reviewed the fair value of the financial
assets at 30th June 2017. The underlying value of the investments will be
driven by the profitability of these businesses. If this was to drop by 10%,
the implied valuation is likely to also drop by around 10%, £0.7m.
The contingent consideration relates to amounts payable in the future on
acquisitions. The amounts payable are based on the amounts agreed in the
contracts and based on the future profitability of each entity acquired. In
valuing each provision, estimates have been made as to when the options are
likely to be exercised and the future profitability of the entity at this
date. Further details of these provisions are shown in Note 11.
Fair values of the Group's interest-bearing borrowings and loans are
determined by using DCF methodology using a discount rate that reflects the
issuer's borrowing rate as at the end of the reporting period. The own
non-performance risk as at 30th June 2017 was assessed to be insignificant.
16. Acquisitions
There have been no acquisitions in the six month period to 30th June 2017. The
following information relates to the comparative six month period ended 30th
June 2016:
During the comparative period the Group acquired nine lettings businesses for
a total consideration of £4.0m. The fair value of the identifiable assets and
liabilities of these businesses as at the date of acquisition were determined
as below:
Fair value recognised on acquisition
30th June 2016 31st December 2016
£'000 £'000
Intangible assets 3,834 3,825
Deferred tax liabilities - (688)
Total identifiable net assets acquired 3,834 3,137
Purchase consideration 3,975 3,825
Goodwill 141 688
In February 2016, the Group, through a wholly owned subsidiary, acquired 65%
interest in Group First, who provide mortgage and protection brokerage
services to the purchasers of new homes through its subsidiaries, Mortgages
First Limited and Insurance First Brokers Limited. The consideration for the
initial investment was £9.1m cash with 50% paid on completion, and a further
50% paid in the first half of 2017. The remaining 35% is subject to put and
call options which are exercisable between 2018 and 2020. The contingent
consideration was management's best estimation of the probable discounted
payout (using a rate of 6.5%), based upon current forecasts over the earn-out
period (£6,636,000 at 30th June 2017 - note 11). Due to the nature of the
payment terms, the contingent consideration is considered to be a capital
payment for accounting purposes. The fair value of the identifiable assets
and liabilities of as at the date of acquisition were determined as below:
16. Acquisitions (continued)
Fair value recognised on acquisition
30th June 2016 31st December 2016
£'000 £'000
Intangible assets 809 809
Property, plant and equipment 847 847
Trade and other receivables (No impairment identified) 127 127
Cash and cash equivalents 1,542 1,542
Trade and other payables (1,527) (1,501)
Current tax (216) (216)
Deferred tax liabilities (38) 160
Total identifiable net assets acquired 1,544 1,768
Purchase consideration 15,681 15,681
Goodwill 14,137 13,913
Purchase consideration discharged by:
Cash 4,550 4,550
Deferred consideration 4,550 4,550
Contingent consideration 6,581 6,581
15,681 15,681
The acquisition accounting above was considered provisional at 30th June 2016
as LSL was reviewing the estimates of the likely payments under the contract,
but the calculation above represented the Directors best estimate at 30th June
2016. In addition, work was on-going to identify acquired intangibles in the
Group. This work was finalised in the Group's Financial Statements for the
year ended 31st December 2016 and at that stage any deferred tax liability was
recognised. None of the goodwill was expected to be deductible for tax
purposes.
The goodwill of Group First comprises certain intangible assets that cannot be
individually separated and reliably measured from the acquiree due to their
nature. These items include an experienced management team with a good record
of delivering a quality service to customers, the expected value of synergies
and the potential
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