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REG - LSL Property ServPLC - Interim Results

LSL Property ServicesAnnouncement

31/07/2018 07:05

RNS Number : 2106W

LSL Property Services

31 July 2018

For Immediate Release

31^st July 2018

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

Interim Results For the six months ended 30^th june 2018

LSL Property Services plc, a leading provider of residential property services incorporating both estate agency and surveying businesses, announces its interim results for the six months ended 30^th June 2018.

	2018	2017	change
Group revenue - £m	152.9	151.5	+1%
Group Underlying Operating Profit¹ - £m	11.6	15.5	-25%
Group underlying operating margin - %	7.6	10.2
Group Adjusted EBITDA² - £m	14.4	18.2	-21%
Group operating profit - £m	7.4	14.3	-48%
Profit before tax - £m	6.4	13.2	-51%
Exceptional gain - £m	1.2	1.1	+9%
Basic Earnings Per Share - pence	4.7	10.3	-54%
Adjusted Basic Earnings Per Share³ - pence	8.6	11.5	-25%
Net Bank Debt⁴ at 30^th June - £m	46.0	31.7	+45%
Interim dividend - pence	4.0	4.0	-

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 7)

2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation plant, property and equipment (as defined in Note 7)

3 Refer to Note 8 for the calculation

4 Refer to Note 15 for the calculation

Revenue growth delivered in challenging market conditions

§ Resilient revenue performance in the context of challenging residential property market conditions with Group revenue up 1%

§ Ongoing self-help measures continue to deliver organic revenue growth in the Estate Agency Division in both Lettings (+4%) and Financial Services (+5%)

§ Residential Sales exchange revenue was down by 11%, impacted by the market conditions and the closure of eight owned branches in the final quarter of 2017

§ Estate Agency Division profit was negatively impacted by a number of factors including the reduction in Residential Sales exchange revenue whilst in the previous period there was a one-off gain on the sale of a Marsh & Parsons leasehold property amounting to £0.7m

§ The Surveying Division was awarded a material five-year contract for the supply of surveying and valuation services to Lloyds Bank plc

§ Whilst Surveying Division revenue was down 6.2% impacted by market conditions and Lender mix, strong operating margins were delivered of 27.7% (2017: 28.4%) through strong cost control

§ Continued positive progress in addressing historic Professional Indemnity (PI) claims with a £1.2m exceptional provision release as claims were settled below previous expectations

Full year outlook

§ The LSL Board remains confident of delivering full year Group Underlying Operating Profit in line with expectations. As reported in the LSL AGM statement on 26^th April 2018, the 2018 Group Underlying Operating Profit performance is expected to be weighted more to H2 than in 2017 and more in line with LSL's historical average. This outlook takes into consideration:

o In Estate Agency, the Residential Sales pipelines are ahead of the Board's previous expectations

o In Surveying, current trading is positive and additional volumes will come on stream from the Lloyds Bank plc surveying and valuation services contract

o Contribution from Financial Services acquisitions made during the first half of the year

o Continued self-help initiatives across the business including strong cost control

§ Interim dividend of 4.0 pence (2017: 4.0 pence) reflecting the Board's confidence in the outlook for the second half of the year

Estate Agency Division Performance

§ Revenue increased by 3% year on year with the continued self-help measures driving 4% growth in Lettings income (organic 4%) and 20% growth in Financial Services income (5% organic), both of which combined to more than offset the 11% reduction in Residential Sales exchange income

§ Residential property market share maintained at broadly stable levels with residential average fees slightly up

§ Like for like expenditure¹ has been broadly maintained at the same level as prior year as costs are closely managed whilst continuing to invest in our growth businesses

§ Estate Agency Division Underlying Operating Profit² of £5.0m (2017: £9.4m) was negatively impacted by a number of factors including the reduction in Residential Sales exchange revenue whilst in the previous period there was a one-off gain on the sale of a Marsh & Parsons leasehold property amounting to £0.7m

§ Marsh & Parsons delivered a resilient revenue performance despite a challenging London market with total revenue down 3% as Lettings revenue continued to perform positively with growth of 6% largely offsetting the 15% fall in Residential Exchange revenue

§ Continued progress with the ways of working programme with the objective of delivering improvements to the Estate Agency operational performance and enhancing market competitiveness, including the evaluation of further growth opportunities in our Financial Services business

Surveying Division Performance

§ Revenue down by 6% impacted by market conditions and lender mix

§ Strong cost control with total expenditure down 5%

§ The Surveying Division continued to deliver strong operating margins of 27.7% (2017: 28.4%)

§ Continued positive progress in addressing historic PI claims with a £1.2m exceptional provision release as claims were settled below previous expectations

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

"The Group has delivered a resilient first half revenue performance in the context of challenging residential property market conditions. Whilst Residential Sales volumes remained suppressed, revenue trends in other parts of our business are more robust due to our ongoing self-help measures. Our Lettings and Financial Services businesses continue to perform positively and Financial Services income now represents 33% of total Estate Agency Division income.

During the first half, Lloyds Bank plc awarded LSL a material five-year contract to deliver surveying and valuation services which demonstrates the market leading proposition that we are able to offer our customers and reflects well on our technology investment.

Whilst market conditions in the first half of 2018 have been softer than the Board's expectations and the equivalent period in 2017, LSL's financial performance in the first half of 2018 was in line with the Board's expectations. Given Residential Sale pipelines are above previous expectations, current trading in Surveying is positive and the range of self-help initiatives in progress, the Board is confident of delivering a full year Group Underlying Operating Profit in line with expectations."

For further information, please contact:

Ian Crabb, Group Chief Executive Officer
Adam Castleton, Group Chief Financial Officer
LSL Property Services plc	0207 382 0360

David Rydell Sophie Wills Gemma Mostyn-Owen
Buchanan	0207 466 5000

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 and mortgage, pure protection and general insurance brokerage services. Services to mortgage lenders include: valuations and panel management services, asset management and property management services. For further information, please visit LSL's website: www.lslps.co.uk

Group Chief Executive's Review

Introduction

The Group delivered a resilient first half revenue performance with revenue up 1% to £152.9m despite challenging market conditions. Profit in both Divisions was broadly in line with Board expectations.

The UK residential housing market remained challenging in the first half of 2018 as consumer confidence continued to be impacted by uncertainty. Approvals for house purchases were 4.7% lower in the first five months of the year reported to date compared to the same period in 2017³.

Financial Results

Group revenue was ahead at £152.9m (2017: £151.5m). Group Underlying Operating Profit² was down 25% to £11.6m (2017: £15.5m) and Group Underlying Operating Profit Margin² was 7.6% (2017: 10.2%).

Group operating profit was down 48% to £7.4m (2017: £14.3m) reflecting the decrease in margin in both Divisions, an increase in contingent consideration relating to acquisitions and a charge of £0.6m to the share based payment reserve, in contrast to the credit booked in the first half of 2017.

During the first half of 2018 net finance costs were £1.0m, slightly lower than the same period in 2017. The effective tax rate for the period was 24.2% (2017: 19.8%), compared to the current headline rate of corporation tax rate of 19.0%. The effective tax rate has increased due to a number of factors including an increase in contingent consideration and non-qualifying depreciation, as well as reduction in profit after tax from joint venture interests which are all non-deductible expenses or non-taxable income. Group profit after tax was £4.9m (2017: £10.6m). Basic Earnings Per Share were 4.7p (2017: 10.3p) and Adjusted Earnings Per Share were 8.6p (2017: 11.5p).

Cash generated from operations was £1.1m (2017: £10.5m) impacted by lower Group Underlying Operating Profit compared to the same period last year and a seasonal movement in working capital. Operating cash flow included PI Costs settlements of £0.6m (2017: £2.0m). Capital expenditure, including intangibles, was £2.1m (2017: £1.8m), including one new Marsh & Parsons branch opened during the period, in Chiswick.

During the first half of 2018 the Group acquired the entire issued share capital of Personal Touch Financial Services Limited (PTFS) and its subsidiary company, Personal Touch Administration Services Limited (PTAS). The initial consideration for the acquisition was £2.8m. The Group also acquired 60% of the share capital of RSC New Homes Limited ("RSC") for an initial consideration of £2.5m. RSC is a Financial Services business specialising in new build mortgages. In addition, the Group has restarted its accretive lettings book acquisition programme during the period with two lettings books acquired during the period for a total consideration of £0.5m.

Net assets at 30^th June 2018 were £146.0m (2017: £134.5m). Net Bank Debt at 30^th June 2018 was £46.0m compared to £31.7m at 30^th June 2017, in part due to the £20m strategic acquisition of a 17.3% shareholding in Yopa Property Limited during September 2017. Compared to 31^st December 2017, Net Bank Debt has increased by £16m driven by the normal seasonality of the Estate Agency Division cash flows, the funding of the two strategic Financial Services acquisitions (PTFS and RSC), the repayment of unsecured loan notes, the recommencement of the lettings book acquisitions and the payment of the deferred and contingent consideration in relation to previous acquisitions as well as the payment of dividends, taxes and bonuses.

The Board remains confident in the underlying fundamentals and prospects of the Group's businesses and has declared an interim dividend payment amounting to 4.0 pence per share (2017: 4.0 pence). The ex-dividend date for the interim dividend is 9^th August 2018, with a record date of 10^th August 2018 and a payment date of 14^th September 2018. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan. The election date is 23^rd August 2018.

Estate Agency Division

The Estate Agency Division revenue was up 3% at £121.8m (2017: £118.4m) reflecting the growth in both Lettings income and Financial Services income offsetting a fall in Residential Sales exchange Income. The Estate Agency Division Underlying Operating Profit¹ decreased to £5.0m (2017: £9.4m). Organic revenue was 1% down on the same period in 2017.

Residential Sales income decreased by 11% to £32.9m (2017: £37.0m) as a result of lower exchange volumes (-11%) in the context of lower market activity during the period, reduced pipelines at the start of the first half following the subdued market in the fourth quarter of 2017 and the closure of eight owned branches in the fourth quarter of 2017. In a highly competitive market, the Estate Agency Division has broadly maintained residential market share and delivered a small increase in average residential fees per unit.

The Group's Lettings income delivered growth of 4% (organic growth 4%) compared to the same period in 2017 with total Lettings income of £37.3m (2017: £35.7m). The Group has recommenced the letting books acquisitions programme with two lettings books acquired during the period.

Marsh & Parsons total revenues were down 3% to £15.9m (2017: £16.4m). Marsh & Parsons Underlying Operating Profit² decreased to £0.7m (2017: £1.7m) with operating margins of 4.4% (2017: 10.4%). Residential Sales were down 15%, against an overall London market for sales transactions which LSL estimates was down c.20% in the first half. Lettings performance continued to deliver organic growth of 6% (total growth of 6%). One new Marsh & Parsons branch opened during the period, in Chiswick, which is trading in line with expectations. Despite the opening of two new branches since 30^th June 2017, with strong cost control, total expenditure fell by 1% year on year. The prior year benefited from the gain on the sale of a leasehold property amounting to £0.7m.

Financial Services revenue increased by 20% to £40.8m (2017: £34.1m) with organic growth of 5%. Financial Services income now represents 33% of total Estate Agency Division income. Growth has been delivered across the Estate Agency brands as well in the intermediary networks. The growth in the value of mortgage completions represents an increase in LSL's market share⁴ to 9.0% in 2018 (2017: 6.9%). LSL continues to operate as the second largest network nationwide, measured by combined number of appointed representative firms⁵.

The Financial Services business continues to display good organic growth across all products including mortgage products, pure protection products and general insurance products. PTFS, which was acquired in January 2018, and RSC New Homes Limited, acquired in March 2018, are both performing in line with expectations and have contributed to the strong performance in Financial Services in the first half of 2018.

Following LSL's strategic acquisition of a 17.3% shareholding in Yopa in September 2017, Yopa has continued to expand its business, invest in marketing and build its brand.

We have continued progress with the ways of working programme with the objective of delivering improvements to the Estate Agency operational performance and enhancing market competitiveness, including the evaluation of further growth opportunities in our Financial Services business.

In the second half of 2018, the Estate Agency Division will benefit from continued self-help measures to drive organic growth in Lettings income and Financial Services revenue, pipelines which were ahead of the Board's expectations at the beginning of the period, continued cost control and the contribution from the Financial Services acquisitions completed in the first half of the year. The prior year benefited from the one-off gain on the sale of a leasehold property in Marsh & Parsons amounting to £0.7m.

Surveying Division

On 16^th May 2018 LSL announced that e.surv Limited (e.surv), its residential surveying and valuation services operation was awarded a material contract to supply surveying and valuation services to Lloyds Bank plc. The initial contract period is for five years.

The contract is expected to enhance the Group's future earnings and provides a positive opportunity to leverage the LSL surveying assets to drive growth. It also demonstrates the market leading proposition that e.surv is able to offer its customers and reflects well on the technology investment which e.surv has made to enhance its proposition through the development of a market leading surveying IT platform.

Integration and transition is progressing well and includes the transfer to e.surv of the existing Lloyds Bank plc surveyors and back-office employees. The provision of valuation services by e.surv in relation to the Lloyds Bank plc contract is expected to commence in the third quarter of 2018.

Revenue in the Surveying Division in the first half was down by 6% impacted by market conditions and Lender mix. Strong cost control was maintained with total expenditure down 5%. The Surveying Division continued to deliver strong operating margins of 27.7% (2017: 28.4%). Underlying Operating Profit² was down 8.4%.

Surveyor headcount continues to be a focus for management and whilst overall Surveyor numbers fell slightly to 314 (2017: 320), e.surv's on-going graduate programme continues to be successful with an intake of graduates in March 2018, with more cohorts planned in the year.

At 30^th June 2018, the total provision for PI Costs was £14.6m (2017: £17.9m). In 2018 the Group continued to make positive progress in addressing historic claims and there has been an exceptional release of £1.2m.

So far trading in the second half in the Surveying Division has been positive and there will be a continued focus on cost control in the second half.

Strategy

LSL remains committed to delivering on its stated strategy and continues to invest for the future, positioning the Group for success across a range of market conditions:

Estate Agency

· Ambition to drive operating profit per branch to between £80,000 and £100,000 in the medium term

· 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 residential sales businesses and lettings books

· Progress the ways of working programme with the objective of delivering improvements to the Estate Agency operational performance and market competitiveness, including the evaluation of further growth opportunities in our Financial Services business

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 training programme

Outlook

Market conditions in the first half of 2018 were softer than the Board's expectations and the equivalent period in 2017, but despite this LSL's first half financial performance was in line with the Board's expectations.

As reported in the LSL AGM statement on 26^th April 2018, the Board expects LSL's financial performance to be more weighted to the second half in 2018 compared to the same period in 2017 and therefore more in line with historical averages, supported by a range of initiatives including the recent Financial Services acquisitions.

LSL continues to execute on its stated strategy and is well placed to deliver increased Shareholder value. The Board is positive regarding the outlook for the business with current Residential Sales pipelines above previous expectations, current positive trading in Surveying and continued progress with the range of ongoing self-help initiatives. The Board is confident of delivering a full year Group Underlying Operating Profit in line with expectations.

LSL expects to see a reduction in the volume of house purchase transactions compared to the prior year, with modest House Price Inflation. Mortgage costs continue to be low by historic standards and mortgage availability remains good. The medium to longer term fundamentals of the UK housing market remain solid.

The Group has a robust balance sheet with relatively low levels of gearing and is highly cash generative at an operational level. The business is well placed to capitalise on market conditions to increase Shareholder value.

Ian Crabb

Group Chief Executive

31^st July 2018

(1) The Estate Agency like for like expenditure comparative is after adjustments for acquisitions, share of profit/loss after tax from joint ventures and the one-off gain on sale of the leasehold property in Marsh & Parsons in H1 2017

(2) Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 7)

(3) Source: Bank of England House Purchase Approvals January-May 2017/2018

(4) Source: UK Finance new mortgages sold via intermediaries January-May 2017/2018, excluding product transfers

(5) Source: Which-Network - network performance figures for Q1 2018 showing the combined numbers for PRIMIS

Principal risks and uncertainties

The key risks and uncertainties relating to the Group's operations remain consistent with those disclosed in the Group's Annual Report and Accounts 2017 on pages 22 to 27. The Annual Report and Accounts 2017 can be accessed on the Group's website: www.lslps.co.uk. Having reconsidered these principal risks and uncertainties which are summarised below, the Board continues to consider them appropriate.

· UK housing market

· New UK housing market entrants

· Investment, acquisitions and growth initiatives

· Professional services

· Client contracts

· Information technology infrastructure

· Information security

· Regulatory and compliance

· Employees

The recent Group Risk Appetite Assessment exercise includes an evaluation of developing areas of key risks and the effectiveness of related business response plans. Recent notable examples include the capture of political and economic developments e.g. Brexit.

Other examples include investment activities to improve market share and economies of scale (e.g. acquisition of PTFS and the surveying and valuation services contract with Lloyds Bank plc; focus on market segments and harnessing new technology-based sales mediums; new regulatory changes (such as responses to the new General Data Protection Regulation and evolving tenant protection legislation); initiatives to address particular areas of staff attrition risk; and Board-level emphasis on the evaluation and promotion of a positive organisational culture.

The Board has concluded that such aspects are included in the principal risk and uncertainties noted above. Therefore the principal risks and uncertainties of the Group remain the same as those included within the Annual Report and Accounts 2017.

Forward-Looking Statements

This statement may contain forward looking statements with respect to certain plans and current goals and expectations relating to the future financial condition, business performance and results of LSL. By their nature, all forward looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of LSL including, amongst other things, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates, inflation, deflation, the impact of competition, changes in customer preferences, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the UK. As a result LSL's actual future condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward looking statements. Nothing in this statement should be construed as a profit forecast. Information about the management of the Principal Risks and Uncertainties facing LSL is set out within the Strategic Report in the Group's Annual Report and Accounts 2017 on pages 22 to 27.

Definitions

Definitions for words and expressions referred to and included in this statement which are not expressly defined within, can be found in LSL's Annual Report and Accounts 2017 (a copy of which is available on LSL's website at: www.lslps.co.uk). All references to 'note(s)' in this statement are, unless expressly stated otherwise, references to the 'Notes to the Interim Condensed Group Financial Statements' included in this statement.

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

We confirm that to the best of our knowledge:

· The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

· The interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

Ian Crabb

Director, Group Chief Executive Officer

31^st July 2018

Interim Group Income Statement

for the six months ended 30^th June 2018

		Unaudited Six Months Ended		Audited Year Ended
		30^th June 2018	30^th June 2017	31^st December 2017
	Note	£'000	£'000	£'000

Revenue	5,6	152,891	151,520	311,540

Operating expenses:
Employee and subcontractor costs		(96,705)	(91,778)	(186,307)
Establishment costs		(10,056)	(10,174)	(19,057)
Depreciation on property, plant and equipment		(2,772)	(2,629)	(5,216)
Other		(31,737)	(33,000)	(66,269)
		(141,270)	(137,581)	(276,849)

Other operating income		388	278	555
Gain on sale of property, plant and equipment		-	668	668
Income from joint ventures		(399)	654	1,583

Group Underlying Operating Profit	7	11,610	15,539	37,497

Share-based payments		(590)	145	(47)
Amortisation of intangible assets		(2,718)	(2,227)	(4,083)
Contingent consideration		(2,057)	(230)	(654)
Exceptional gains	9	1,189	1,100	9,337
Group operating profit		7,434	14,327	42,050

Finance costs		(1,018)	(1,176)	(1,952)
Net finance costs		(1,018)	(1,176)	(1,952)

Profit before tax		6,416	13,151	40,098

Taxation (charge)	11	(1,555)	(2,598)	(6,686)
		(1,555)	(2,598)	(6,686)

Profit for the period/year		4,861	10,553	33,412

Attributable to:
- Owners of the parent		4,861	10,555	33,414
- Non-controlling interest		-	(2)	(2)

Earnings per share expressed in pence per share:
Basic	8	4.7	10.3	32.6
Diluted	8	4.7	10.2	32.4

Interim Group Statement of Comprehensive Income

for the six months ended 30^th June 2018

	Unaudited Six Months Ended		Audited Year Ended
	30^th June 2018	30^th June 2017	31^st December 2017
	£'000	£'000	£'000

Profit for the period	4,861	10,553	33,412

Items to be reclassified to profit and loss in subsequent periods:
Reclassification adjustments for disposal of financial assets	-	-	(5,593)
Income tax effect	-	-	951
Revaluation of financial assets	-	2,146	1,885
Income tax effect	-	(365)	(320)
Net other comprehensive income to be reclassified to profit and loss in subsequent periods:	-	1,781	(3,077)

Total other comprehensive income, net of tax	-	1,781	(3,077)

Total comprehensive income, net of tax	4,861	12,334	30,335

Attributable to - Owners of the parent - Non-controlling interest	4,861 -	12,336 (2)	30,337 (2)

Interim Group Balance Sheet

as at 30^th June 2018

		Unaudited Six Months Ended		Audited Year Ended
		30^th June 2018	30^th June 2017	31^st December 2017
	Note	£'000	£'000	£'000

Non-current assets
Goodwill		159,226	151,901	151,901
Other intangible assets		32,296	31,185	29,729
Property, plant and equipment		16,971	17,052	17,763
Financial assets	12	26,032	7,473	25,282
Investments in joint ventures		8,448	8,627	9,556
Total non-current assets		242,973	216,238	234,231

Current assets
Trade and other receivables		40,006	37,964	31,357
Cash and cash equivalents		516	-	-
Total current assets		40,522	37,964	31,357
Total assets		283,495	254,202	265,588

Current liabilities
Financial liabilities	13	(10,226)	(8,501)	(6,454)
Trade and other payables		(55,359)	(52,280)	(53,418)
Current tax liabilities		(1,892)	(2,923)	(3,662)
Provisions for liabilities	14	(8,104)	(4,220)	(2,850)
Total current liabilities		(75,581)	(67,924)	(66,384)

Non-current liabilities
Financial liabilities	13	(52,803)	(33,762)	(34,654)
Deferred tax liability		(2,429)	(3,887)	(2,698)
Provisions for liabilities	14	(6,681)	(14,141)	(13,276)
Total non-current liabilities		(61,913)	(51,790)	(50,628)

Total Liabilities		(137,494)	(119,714)	(117,012)

Net assets		146,001	134,488	148,576

Equity
Share capital		208	208	208
Share premium account		5,629	5,629	5,629
Share-based payment reserve		4,382	4,124	3,802
Shares held by EBT		(5,304)	(5,331)	(5,317)
Fair value reserve		473	5,352	494
Retained earnings		140,431	124,324	143,578
Equity attributable to owners of parent		145,819	134,306	148,394
Non-controlling interests		182	182	182

Total equity		146,001	134,488	148,576

Interim Group Cash Flow Statement

for the six months ended 30^th June 2018

				Unaudited Six Months Ended			Audited Year Ended
			30^th June 2018		30^th June 2017	31^st December 2017
	Note	£'000			£'000	£'000
Profit before tax		6,416			13,151	40,098
Adjustments for:
Exceptional operating items and contingent consideration		866			(870)	(7,640)
Depreciation of tangible assets		2,772			2,629	5,216
Amortisation of intangible assets		2,718			2,227	4,083
Share-based payments		590			(145)	47
(Profit) on disposal of fixed assets		-			(668)	(668)
Loss/(profit) from joint ventures		399			(654)	(1,584)
Finance costs		1,018			1,176	1,952
Revaluation of financial asset	12	(737)
Dividend income/rebates received via non-cash consideration		-			-	(1,503)
Operating cash flows before movements in working capital		14,042			16,846	40,001

Movements in working capital
(Increase)/decrease in trade and other receivables		(5,388)			(5,637)	1,695
(Decrease)/increase in trade and other payables		(6,235)			1,280	5,262
Decrease in provisions		(1,363)			(2,003)	(5,440)
		(12,986)			(6,360)	1,517

Cash generated from operations		1,056			10,486	41,518
Interest paid		(720)			(831)	(1,268)
Income taxes paid		(3,662)			(7,504)	(11,113)
Net cash generated from operating activities		(3,326)			2,151	29,137

Cash flows used in investing activities
Cash acquired on purchase of subsidiary undertaking	18	6,944			-	-
Acquisitions of subsidiaries and other businesses	18	(6,507)			-	-
Payment of contingent consideration	13	(1,306)			(2,088)	(2,175)
Investment in financial assets	12	(13)			-	(20,315)
Cash received on sale of financial assets		-			-	3,024
Purchase of property, plant and equipment and intangible assets		(2,055)			(1,765)	(5,489)
Proceeds from sale of property, plant and equipment		-			1,500	1,457
Net cash (expended)/generated on investing activities		(2,937)			(2,353)	(23,498)

Cash flows used in financing activities
Drawdown of loans	13	16,521			11,420	9,723
Repayment of loan notes	13	(2,000)			-	-
Payment of deferred consideration	13	-			(4,752)	(4,790)
Proceeds from exercise of share options		1			-	-
Refinance costs		(250)			-	-
Dividends paid		(7,493)			(6,466)	(10,572)
Net cash generated / (expended) in financing activities		6,779			202	(5,639)
Net increase/(decrease) in cash and cash equivalents		516			-	-
Cash and cash equivalents at the end of the period/ year		516			-	-

Interim Group Statement of changes in equity

for the six months ended 30^th June 2018

Unaudited six months ended 30^th June 2018

	Share capital	Share premium account	Share- based payment reserve	Shares held by EBT*	Fair value Reserve	Retained earnings	Total equity	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1^st January 2018	208	5,629	3,802	(5,317)	494	143,578	148,394	182	148,576
Adjustment on initial application of IFRS 15	-	-	-	-	-	(534)	(534)	-	(534)
Adjustment on initial application of IFRS 9	-	-	-	-	(21)	21	-	-	-
Revised opening balance	208	5,629	3,802	(5,317)	473	143,065	147,860	182	148,042
Other comprehensive income for the period	-	-	-	-	-	-	-	-	-
Profit for the period	-	-	-	-	-	4,861	4,861	-	4,861
Total comprehensive income for the period	-	-	-	-	-	4,861	4,861	-	4,861
Exercise of options	-	-	(10)	13	-	(2)	1	-	1
Share-based payments	-	-	590	-	-	-	590	-	590
Dividend payment	-	-	-	-	-	(7,493)	(7,493)	-	(7,493)
At 30^th June 2018	208	5,629	4,382	(5,304)	473	140,431	145,819	182	146,001

During the six month period to 30^th June 2018 a total of 3,661 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the

Trust. LSL received £1,000 on exercise of these options.

*Treasury shares have been renamed to Shares held by EBT.

Unaudited six months ended 30^th June 2017

	Share capital	Share premium account	Share- based payment reserve	Share held by EBT	Fair value Reserve	Retained earnings	Total equity	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1^st January 2017	208	5,629	4,303	(5,368)	3,571	120,239	128,582	184	128,766
Revaluation of financial assets (net of tax)	-	-	-	-	1,781	-	1,781	-	1,781
Other comprehensive income for the period	-	-	-	-	1,781	-	1,781	-	1,781
Profit for the period	-	-	-	-	-	10,555	10,555	(2)	10,553
Total comprehensive income for the period	-	-	-	-	1,781	10,555	12,336	(2)	12,334
Exercise of options	-	-	(34)	37	-	(4)	(1)	-	(1)
Share-based payments	-	-	(145)	-	-	-	(145)	-	(145)
Dividend payment	-	-	-	-	-	(6,466)	(6,466)		(6,466)
At 30^th June 2017	208	5,629	4,124	(5,331)	5,352	124,324	134,306	182	134,488

During the six month period to 30^th June 2017 a total of 10,689 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the

Trust. LSL received nil on exercise of these options.

Audited year ended 31^st December 2017

	Share capital	Share premium account	Share- based payment reserve	Shares held by EBT	Fair value Reserve	Retained earnings	Total equity	Non-controlling interests	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1^stJanuary 2017	208	5,629	4,303	(5,368)	3,571	120,239	128,582	184	128,766
Disposal of financial assets (net of tax)	-	-	-	-	(4,642)	-	(4,642)	-	(4,642)
Revaluation of financial assets (net of tax)	-	-	-	-	1,565	-	1,565	-	1,565
Other comprehensive income for the year	-	-	-	-	(3,077)	-	(3,077)	-	(3,077)
Profit for the year	-	-	-	-	-	33,414	33,414	(2)	33,412
Total comprehensive income for the year	-	-	-	-	(3,077)	33,414	30,337	(2)	30,335
Exercise of options	-	-	(46)	51	-	(5)	-	-	-
Share-based payments	-	-	(455)	-	-	502	47	-	47
Dividend payment	-	-	-	-	-	(10,572)	(10,572)	-	(10,572)
At 31^stDecember 2017	208	5,629	3,802	(5,317)	494	143,578	148,394	182	148,576

During the year ended 31^st December 2017, the Trust acquired nil LSL Shares. During the period 14,661 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the Trust. LSL received nil on exercise of these options.

Notes to the Interim Condensed Group Financial Statements

The Interim Condensed Group Financial Statements for the period ended 30^th June 2018 were approved by the LSL Board on 31^st July 2018. The interim financial statements are not the statutory accounts. The financial information for the year ended 31^st December 2017 is extracted from the audited statutory accounts for the year ended 31^st December 2017, which have been filed with the Registrar of Companies. The auditor's report was unqualified and did not contain an emphasis of matter paragraph, and did not make a statement under section 498 (2) or (3) of the Companies Act 2006.

1. Basis of preparation

The interim condensed consolidated group financial statements for the period ended 30^th June 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Group's annual financial statements as at 31^st December 2017 which are included in LSL's Annual Report and Accounts 2017.

The interim condensed consolidated group financial statements do not include all the information and disclosures required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual financial statements.

This is the first set of the Group's financial statements where IFRS 15 (Revenue from Contracts with Customers) and IFRS 9 have been applied. Changes to significant accounting policies are disclosed in Note 2 to these Financial Statements.

2. Changes in significant accounting policies

Except as described below, the accounting policies adopted in the preparation of the interim condensed consolidated group financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31^st December 2017.

The changes in the accounting policies are also expected to be reflected in the Group's consolidated financial statement as at and for the year ending 31^st December 2018.

The Group has initially adopted IFRS 15 Revenue from Contracts with Customers (see A) and IFRS 9 Financial Instruments (See B) from 1^st January 2018.

The impact of IFRS 9 does not have a material impact to the interim condensed consolidated group financial statements.

A. IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.

The Group has adopted IFRS 15 using the cumulative catch up method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (i.e. 1^st January 2018) for all contracts. Accordingly, the information presented for 2017 has not been restated - i.e. it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations.

The following table summarises the impact of transition to IFRS 15 on retained earnings and NCI at 1 January 2018.

	Impact of adopting IFRS 15 at 1^st January 2018
	£'000
Retained earnings
Management services	388
Rent collection	146
Impact at 1^st January 2018	534

The Management team have identified revenue relating to management services and rent collection have been affected by the timing difference on revenue recognition.

Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of transfer of control - at a point in time or over time - requires judgement.

The impact of adopting IFRS 15 on the Group's interim statement of financial position as at 30^th June 2018 and its interim statement of profit or loss and Other Comprehensive Income for the six months ended for each of the line items affected is a reduction in revenue of £232,000.

B. IFRS 9 Financial Instruments

i. Classification of financial assets

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.

The Group has adopted the modified transition approach and chosen not to restate comparatives. In relation to investments in equity instruments the Group has not made an election to recognise the change in the value of financial assets relating to ZPG plc through other comprehensive income.

ii. Impairment of financial assets

IFRS 9 replaces the "incurred loss" model in IAS 39 with the "expected credit loss" model that applies to trade and receivables. The impact of this model does not have a material impact to the interim condensed consolidated group financial statements.

IFRS 16: Leases

IFRS 16, 'Leases', is effective for periods beginning on or after 1^st January 2019 and replaces IAS 17, 'Leases'. The new standard requires lessees to recognise a right-of-use asset and a lease liability based on discounted future lease payments leased assets with some exemptions available for short-term or low value leases.

The impact of this standard on Group will be to replace the current straight-line operating lease expense currently recognised under IAS 17, with the right-of-use assets, lease liabilities, depreciation and interest charges.

The Group is currently assessing the impact of this standard. The standard permits either a full retrospective or a modified retrospective approach for the adoption. Group intends to adopt the standard using the modified retrospective approach which means the cumulative impact of the adoption will be recognised in retained earnings as of 1^st January 2019 and the comparatives will not be restated.

3. Judgements and estimates

The preparation of financial information in conformity with IFRS as adopted by European Union requires management to make judgements, estimates and assumptions that affect the application of policies and reporting amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next six months are largely the same as those as at 31^st December 2017. These assumptions are discussed in detail in the Group's Annual Report and Accounts 2017. The assumptions discussed are as follows:

Judgements

Areas of judgment that have the most significant effect on the amounts recognised in the consolidated financial statements are:

· Revenue Recognition

· Exceptional Items

· Assessment of the useful life of an intangible asset

· Valuation of financial assets

· Intangible assets

· Deferred tax

Estimates

The key assumptions affected by future uncertainty that have significant risks of causing material adjustment to the carrying value of assets and liabilities within the next financial year are:

· Professional indemnity (PI) claims

· Valuations in acquisitions

· Impairment of intangible assets

· Contingent consideration

· Income tax

Going concern

The Group meets its day to day working capital requirements through a revolving credit facility. The Group currently has a £100 million credit facility which was extended in January 2018 and will now expire in May 2022. As shown in Note 13 to these interim condensed consolidated group financial statements, the Group had available £54.0 million 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.

4. 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. As reported in the AGM statement issued on 26^th April 2018, the Board expects this to continue and anticipates that 2018 financial performance will be more weighted to H2 than in 2017.

5. Revenue

The Group's operations and main revenue streams are those described in the latest annual financial statements.

The nature and effect of initially applying IFRS 15 on the Group's interim financial statements are disclosed in Note 2 to these Financial Statements.

Disaggregation of Revenue

Set out below is the disaggregation of the Group's revenue from contracts with customers:

Six Months ended 30 June 2018
	Residential Sales exchange	Lettings	Financial Services	Asset Management	Surveying and valuation services	Other	Total
Timing of revenue recognition
Services transferred at a point in time	32,873	19,756	40,798	2,784	31,060	8,012	135,283
Services transferred over time	-	17,503	-	105	-	-	17,608
Total revenue from contracts with customers	32,873	37,259	40,798	2,889	31,060	8,012	152,891

	*30^th June 2017 £'000	31^st December 2017 £'000
Revenue from services	151,520	311,540
Operating revenue	151,520	311,540
Rental income	278	555
Other operating income	278	555
Total revenue	151,798	312,095

*The Group has initially applied IFRS 15 as at 1^st January 2018. Under the transition methods chosen, comparative information is not restated.

6. 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, PRIMIS, Embrace Mortgage Services, First2Protect, Mortgage First, Insurance Brokers First and Linear Financial Services, Personal Touch Financial Services and RSC. 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 2017 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.

Operating segments

The following tables presents revenue and profit information regarding the Group's operating segments for the six months ended 30^th June 2018, for the six months ended 30^th June 2017 and for the year ended 31^st December 2017.

Six months ended 30^th June 2018

Income statement information	Estate agency and related services £'000	Surveying and valuation services £'000	Unallocated £'000	Total £'000

Segmental revenue	121,831	31,060	-	152,891

Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments	5,004	8,604	(1,998)	11,610
- after exceptional costs, contingent	158	9,496	(2,220)	7,434
consideration, amortisation and share-based payments

Finance costs				(1,018)
Profit before tax				6,416
Taxation				(1,555)
Profit for the period				4,861

In the period ended 30^th June 2018, there were no single customers that accounted for 10% or more of the Group's total revenue.

Balance sheet information
Segment assets - intangible	179,199	12,323	-	191,522
Segment assets - other	81,004	9,194	1,775	91,973
Total Segment assets	260,203	21,517	1,775	283,495
Total Segment liabilities	(61,707)	(24,165)	(51,622)	(137,494)

Net assets/(liabilities)	198,496	(2,648)	(49,847)	146,001

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 (£6,000), other assets (£1,746,000), accruals (£307,000), financial liabilities (£471,000), deferred and current tax liabilities (£4,321,000), and revolving credit facility overdraft (£46,500,000)

Six months ended 30^th 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 30^th 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).

Operating segments

Year ended 31^st December 2017

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

Segmental revenue	247,410	64,130		311,540
Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments	26,942	18,877	(8,322)	37,497
- after exceptional costs, contingent
consideration, amortisation and share-based payments	22,124	22,466	(2,540)	42,050

Finance costs				(1,952)
Profit before tax				40,098

Taxation				(6,686)
Profit for the year				33,412

	Estate Agency and Related Services	Surveying and Valuation Services	Unallocated	Total
Balance sheet information	£'000	£'000	£'000	£'000

Segment assets - intangible	169,113	12,517	-	181,630
Segment assets - other	75,453	7,306	1,200	83,959
Total Segment assets	244,566	19,823	1,200	265,589
Total Segment liabilities	(49,851)	(25,793)	(41,367)	(117,011)

Net assets/(liabilities)	194,715	(5,970)	(40,167)	148,578

Other segment items
Capital expenditure including intangible assets	5,178	312	-	5,490
Depreciation	(5,036)	(180)	-	(5,216)
Amortisation of intangible assets	(4,013)	(70)	-	(4,083)
Share of results of joint venture	1,583	-	-	1,583
PI Costs provision	-	(15,916)	-	(15,916)
Onerous leases provision	(210)	-	-	(210)
Share based payment	(152)	(85)	190	(47)

Unallocated net liabilities comprise plant and equipment (£9,000), other assets (£1,191,000), accruals (£3,032,000), financial liabilities (£4,979,000), deferred and current tax liabilities (£6,360,000), RCF (£27,000,000).

7. 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 8 to these interim condensed consolidated group financial statements and a reconciliation of Group Underlying Operating Profit is shown below:

	30^th June 2018	30^th June 2017	31st December 2017
	£'000	£'000	£'000
Group operating profit	7,434	14,327	42,050
Share-based payments	590	(145)	47
Amortisation of intangible assets	2,718	2,227	4,083
Exceptional gains	(1,189)	(1,100)	(9,337)
Contingent consideration charge	2,057	230	654
Group Underlying Operating Profit	11,610	15,539	37,497
Depreciation on property, plant and equipment	2,772	2,629	5,216
Group Adjusted EBITDA	14,382	18,168	42,713

8. Earnings per share (EPS)

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

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

Six months ended 30^th June

	Profit after tax £'000	Weighted average number of shares	2018 Per share amount Pence	Profit after tax £'000	Weighted average number of shares	2017 Per share amount Pence

Basic EPS	4,861	102,646,794	4.7	10,555	102,636,868	10.3
Effect of dilutive share options		1,038,545		-	741,376	-
Diluted EPS	4,861	103,685,339	4.7	10,555	103,378,244	10.2

Year ended 31^st December 2017	Profit after tax £'000	Weighted average number of shares	2017 Per share amount Pence

Basic EPS	33,414	102,640,363	32.6
Effect of dilutive share options		635,058
Diluted EPS	33,414	103,275,421	32.4

Adjusted basic and diluted EPS

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

	Six months ended		Year Ended
	30^th June 2018 £'000	30^th June 2017 £'000	31^st December 2017 £'000
Group operating profit before contingent consideration, exceptional items, share-based payments and amortisation (excluding non-controlling interest)	11,610	15,541	37,497
Net finance costs (excluding exceptional items and contingent consideration items)	(741)	(931)	(1,468)
Normalised taxation	(2,065)	(2,812)	(6,936)
Adjusted profit after tax¹ before exceptional items, share-based payments and amortisation	8,804	11,798	29,093

Six months ended 30^th June

	Adjusted profit after tax¹ £'000	Weighted average number of shares	2018 Per share amount Pence	Adjusted profit after tax¹ £'000	Weighted average number of shares	2017 Per share amount Pence

Adjusted basic EPS	8,804	102,646,794	8.6	11,798	102,636,868	11.5
Effect of dilutive share options		1,038,545			741,376
Adjusted diluted EPS	8,804	103,685,339	8.5	11,798	103,378,244	11.4

Year ended 31^st December 2017

	Adjusted profit after tax¹ £'000	Weighted average number of shares	2017 Per share amount Pence

Adjusted basic EPS	29,093	102,640,363	28.3
Effect of dilutive share options		635,058
Adjusted diluted EPS	29,093	103,275,421	28.2

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 19.0 % (30^th June 2017: 19.25%; 31^st December 2017: 19.25%

9. Exceptional items


	30th June 2018	30th June 2017	31st December 2017
	£'000	£'000	£'000
Exceptional gains:
Gain on disposal of Financial Assets	-	-	5,593
Exceptional gain in relation to historic PI costs	1,189	1,100	3,744
	1,189	1,100	9,337

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

The Group continue to make positive progress in addressing the historic PI claims resulting in a release of £1,189,000 (31st December 2017: release of £2,700,000 and £1,000,000 settlement).

10. Dividends paid and proposed

Dividends per share

A final dividend in respect of the year ended 31^st December 2017, of 7.3 pence per share (December 2016: 6.3 pence per share), amounting to £7.5 million was paid in the period ended 30^th June 2017. An interim dividend has been announced amounting to 4.0 pence per share (June 2017: 4.0 pence).

Interim dividends are recognised when paid.

11. Taxation

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

	Six Months Ended		Year Ended
	30^th June 2018	30^th June 2017	31^st December 2017
	£'000	£'000	£'000
UK corporation tax:
- current year	1,689	2,851	7,537
- adjustment in respect of prior years	-	(2)	(345)
	1,689	2,849	7,192
Deferred tax:
Origination and reversal of temporary differences	(134)	(221)	(442)
Adjustment in respect of prior year	-	(30)	(64)
	(134)	(251)	(506)
Total tax charge in the income statement	1,555	2,598	6,686

Income tax charged directly to other comprehensive income is £nil. In the six months ended 30^th June 2017, £365k was charged directly to other comprehensive income (31^st December 2017: £631k credit) relating to the revaluation of financial assets. Income tax credited directly to the share based payment reserve is £1,000 (31^st December 2017: charge of £32,000 and 30th June 2017: credit of £29,000)

The headline rate of corporation tax decreased from 20% to 19%, effective from 1^st April 2017 resulting in an effective corporation tax rate of 19% for the year ended 31^st December 2018. A further decrease in the corporation tax rate to 17% will be effective from 1^st April 2020, and this is the rate at which deferred tax has been provided.

12. Financial assets

	Six Months Ended		Year Ended
Investment in equity instruments	30^th June 2018	30^th June 2017	31^st December 2017
	£'000	£'000	£'000
Unquoted shares at fair value	23,766	6,653	23,753
Quoted shares at fair value	2,266	820	1,529
	26,032	7,473	25,282

Opening balance	25,282	4,603	4,603
Acquisitions	13	724	24,534
Disposals	-	-	(5,740)
Fair value adjustment recorded through profit and loss	737	-	-
Fair value adjustment recorded through reserves	-	2,146	1,885
Closing balance	26,032	7,473	25,282

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 17 to these interim condensed consolidated group financial statements).

ZPG plc

Financial assets include warrants in ZPG plc. These warrants have been issued pursuant to terms agreed with ZPG plc relating to the provision of portal services to LSL's Estate Agency businesses. The Directors consider the best estimate of the fair value of LSL's warrants to be the share price and therefore valued using level 1 valuation techniques. ZPG plc's share price at 30th June 2018 was £4.90. These warrants were revalued to £2,266,191.

NBC Property Master Limited

In June 2018, LSL subscribed for a further 1,230 ordinary shares in NBC Property Master Limited for a consideration of £13,013.40.

Vibrant Energy Matter (VEM)

The carrying value of the Group's investment in Vibrant Energy Matter (VEM) at 30th June 2018 has been assessed as £722,000 (31st December 2017: £722,000).

Global Property Ventures Limited

The carrying value of the Group's investment in Global Property Ventures Limited at 30th June 2018 has been assessed as £250,000 (31st December 2017: £250,000).

E Property Services plc

The carrying value of the Group's investment in E Property Services plc at 30th June 2018 has been assessed as £2,716,000 (31st December 2017: £2,716,000).

Yopa

The carrying value of the Group's investment in Yopa at 30th June 2018 has been assessed as £20,000,000 (31st December 2017: £20,000,000).

13. Financial liabilities

	Six Months Ended		Year Ended
	30^th June 2018	30^th June 2017	31^st December 2017
	£'000	£'000	£'000
Current
Overdraft	-	6,176	2,978
2% unsecured loan notes	-	2,000	2,000
Deferred consideration	1,929	38	71
Contingent consideration	8,297	287	1,405
	10,226	8,501	6,454
Non-current
Bank loans - revolving credit facility (RCF)	46,500	25,500	27,000
Deferred consideration	71	58	-
Contingent consideration	6,232	8,204	7,654
	52,803	33,762	34,654

Unsecured loan notes

A variation of the 2011 loan notes, was issued as part satisfaction of the consideration of Marsh & Parsons. The first instalment was paid in July 2016, and a final payment of £2.0 million was paid in March 2018.

Contingent consideration -

	Six Months Ended		Year Ended
	30^th June 2018	30^th June 2017	31^st December 2017
	£'000	£'000	£'000

LSLi contingent consideration	449	1,517	1,710
LMS	1	1	1
Group First Limited	9,384	6,636	7,098
RSC	4,395	-	-
Other	300	337	250
	14,529	8,491	9,059

Opening balance	9,059	10,096	10,096
Cash paid	(1,306)	(2,088)	(2,175)
Acquisition	4,445	-	-
Amounts recorded though income statement	2,331	483	1,138
Closing balance	14,529	8,491	9,059

£449,000 (31^st December 2017: £1,710,000 and 30^th 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 (31^st December 2017: £1,000 and 30^th June 2017: £1,000) of contingent consideration relates to payments to third parties in relation to the acquisition of LMS in September 2014.

£9,384,000 of contingent consideration relates to Group First (31^st December 2017: £7,098,000; 30^th June 2017: £6,636,000). 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.

£4,395,000 of contingent consideration relates to RSC. 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 £7,500,000.

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:	30^th June 2018	30^th June 2017	31^st December 2017
	£'000	£'000	£'000

Put options over non-controlling interests	1	1	1
Arrangement under IFRS 3	14,528	8,490	9,058
Closing balance	14,529	8,491	9,059

Contingent consideration profit and loss impact in the period relating to amounts accounted for as:

Remuneration	-	13	13
Arrangement under IFRS 3	2,055	225	641
Unwinding of discount on contingent consideration	277	245	484
Charge/(credit)	2,332	483	1,138

14. Provisions for liabilities

Six months ended 30^th June:

	2018			2017
	Professional indemnity claim provision	Onerous leases	Total	Professional indemnity claim provision	Onerous leases	Total
	£'000	£'000	£'000	£'000	£'000	£'000

Balance at 1^st January	15,916	210	16,126	20,686	678	21,364
Amount utilised	(482)	(3)	(485)	(2,045)	(148)	(2,193)
Amount released	(1,189)	(70)	(1,259)	(1,100)	(82)	(1,182)
Unwinding of discount	21	-	21	100	-	100
Provided in the period	382	-	382	270	2	272
Balance at 30^th June	14,648	137	14,785	17,911	450	18,361

Current	8,061	43	8,104	4,098	122	4,220
Non-current	6,587	94	6,681	13,813	328	14,141
	14,648	137	14,785	17,911	450	18,361

Year ended 31^st December 2017


	Professional indemnity claim provision	Onerous leases	Total
	£'000	£'000	£'000

Balance at 1^st January	20,686	678	21,364
Amount utilised	(3,342)	(263)	(3,605)
Amount released	(2,714)	(229)	(2,943)
Unwinding of discount	200	-	200
Reallocated from provisions	290	-	290
Provided in the period	796	24	820
Balance at 31^st December	15,916	210	16,126

Current	2,740	110	2,850
Non-current	13,176	100	13,276
	15,916	210	16,126

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 30^th June 2018 the total provision for PI Costs was £14.6 million. The Directors have considered the sensitivity analysis on the key risks and uncertainties discussed above.

Cost per claim

A substantial element of the PI Cost 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 £1.1m 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 £0.2m.

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 less than £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.

15. Analysis of Net Bank Debt

	Six Months Ended		Year Ended
	30^th June 2018	30^th June 2017	31^st December 2017
	£'000	£'000	£'000
Interest bearing loans and borrowings
- Current	10,226	8,501	6,454
- Non-current	52,803	33,762	34,654
	63,029	42,263	41,108
Less: 2% unsecured loan notes	-	(2,000)	(2,000)
Less: cash and short-term deposits	(516)
Less: deferred and contingent consideration	(16,529)	(8,587)	(9,129)
Net Bank Debt at the end of the period	45,984	31,676	29,979

Net Bank Debt at 30^th June 2018 was £46.0 million

16. Financial instruments - risk management

The financial risks the Group faces and the methods used to manage these risks have not changed since 31^st December 2017. 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 31^st December 2017.

The Group has a current ratio of net bank debt (excluding loan notes) to EBITDA of 1.18 (31^st December 2017: 0.70 and 30^th June 2017: 0.71). 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.

17. 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 interim condensed consolidated group financial statements

Fair value hierarchy

As at 30^th June 2018, 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.

	30^th June 2018	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
Assets measured at fair value
Financial assets	26,032	2,266	-	23,766
Liabilities measured at fair value
Contingent consideration	14,529	-	-	14,529

	30^th 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

	31^st Dec 2017	Level 1	Level 2	Level 3
	£'000	£'000	£'000	£'000
Assets measured at fair value
Financial assets	25,282	1,529	-	23,753
Liabilities measured at fair value
Contingent consideration	9,059	-	-	9,059

Of the investments totalling £26,032,000, £23,766,000 are valued using Level 3 valuation techniques. The Directors reviewed the fair value of the financial assets at 30^th June 2018. 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%, £2.6m.

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 13.

18. Acquisitions

Six months to 30th June 2018

The Group acquired the following businesses during the period to 30^th June 2018:

· Lettings books

During the period the Group acquired two Lettings books for a total consideration of £495,000. 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	495
Cash and cash equivalents	-
Deferred tax liabilities	(84)
Total identifiable net liabilities acquired	411
Purchase consideration	495
Goodwill	84

Purchase consideration discharged by:	£'000
Cash	445
Contingent consideration	50
	495

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)	495
Net cash outflow on acquisition	495

· Personal Touch Financial Services

In January 2018, the Group acquired the entire issued share capital of Personal Touch Financial Services Limited (PTFS) and its subsidiary company, Personal Touch Administration Services Limited (PTAS) from Personal Touch Holdings Limited. PTFS is a financial services business specialising in the provision of mortgage and other financial services products via its network of intermediaries. PTFS is authorised by the Financial Conduct Authority with 200 appointed representative firms and 474 advisers

The consideration for the investment was £5.4 million with £3.6 million paid on completion and a fair value consideration of £1.8 million payable in January 2019. The fair value of the identifiable assets and liabilities as at the date of acquisition have been determined below

	Fair value recognised on acquisition
	£'000
Intangible assets	4,305
Property, plant and equipment	121
Trade and other receivables	3,617
Cash and cash equivalents	6,795
Deferred tax asset	921
Trade and other payables	(7,974)
Provision for liabilities	(2,034)
Deferred tax liability	(657)
Total identifiable net assets acquired	5,094
Purchase consideration	5,440
Goodwill	346

Purchase consideration discharged by:	£'000
Cash	3,562
Present value of deferred consideration	1,878
	5,440

Analysis of cash flow on acquisition	£'000
Transaction costs (included in cash flows from operating activities)	518
Net cash acquired with the subsidiaries and other businesses	(6,795)
Purchase consideration discharged in cash (included in cash flows from investing activities)	3,562
Net cash outflow on acquisition	(2,716)

From the date of acquisition, PTFS has contributed £3.8 million of revenue and £0.07 million to the profit before tax from the continuing operations of the Group. If the acquisition had taken place at the beginning of the year, revenue from continuing operations would have been £4.7 million and the profit from continuing operations for the period would have been £0.1 million.

· RSC

In March 2018, the Group, through wholly owned subsidiary, acquired 60% interest in RSC, who provide mortgage and protection brokerage services to the purchases of new homes. The consideration for the investment is £6.9 million cash, with £2.5 million paid on completion and the remaining subject to put and call options which are exercisable between 2022 and 2023. All of the remaining 40% interest in RSC is subject to put and call options and therefore are considered to represent a present ownership interest and therefore nil non-controlling interest is recognised. The contingent consideration is Management Team's best estimation of the probable discounted payout (using a rate of 6.5%), based upon current forecasts over the earn-out period. 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 as at the date of acquisition have been determined below

	Fair value recognised on acquisition
	£'000
Intangible assets	271
Property, plant and equipment	19
Trade and other receivables	181
Cash and cash equivalents	149
Trade and other payables	(370)
Current tax liability	(202)
Deferred tax liability	(47)
Total identifiable net assets acquired	1
Purchase consideration	6,895
Goodwill	6,894

Purchase consideration discharged by:	£'000
Cash	2,500
Contingent consideration	4,395
	6,895

Analysis of cash flow on acquisition	£'000
Transaction costs (included in cash flows from operating activities)	29
Net cash acquired with the subsidiaries and other businesses	(149)
Purchase consideration discharged in cash (included in cash flows from investing activities)	2,500
Net cash outflow on acquisition	2,380

As defined in IFRS 3 the Group has recognised, separately from goodwill, the identifiable intangible assets acquired in the business combination. The assets identified include the RSC brand and the pipeline of work acquired. As disclosed to the market on acquisition, there are strong customer relationships between RSC and key house builders, however, these relationships do not qualify as an intangible asset given they do not fulfil either the separability criterion or the contractual-legal criterion. This has been fully explored by the Management Team who are confident that given that no economic benefit passes between the two parties in this relationship (the housebuilder and RSC) there is no asset that can be "separated or divided" and "sold, transferred, licensed, rented or exchanged".

From the date of acquisition, RSC has contributed £1.1 million of revenue and £0.2 million to the net profit before tax from the continuing operations of the Group. If the acquisition had taken place at the beginning of the year, revenue from continuing operations would have been £2.0 million and the profit from continuing operations for the period would have been £0.1 million

19. Post Balance Sheet event

Mortgage Gym Limited

Subsequent to the period end the Company has acquired a 33.85% holding in Mortgage Gym Limited, a digital mortgage business, for cash consideration of £4 million.

INDEPENDENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the Interim Group Income Statement, the Interim Group Statement of Comprehensive Income, the Group Balance Sheet, the Interim Group Cash Flow Statement, the Interim Group Statement of Changes in Equity and the related Notes 1 to 19. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

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

Directors' Responsibilities

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

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

Our Responsibility

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

Scope of Review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

Leeds

31^st July 2018

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.

END

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