REG - LSL Property ServPLC - PRELIMINARY ANNOUNCEMENT <Origin Href="QuoteRef">LSL.L</Origin> - Part 1

LSL Property ServicesAnnouncement

07/03/2017 07:06

RNS Number : 6739Y
LSL Property Services
07 March 2017
For Immediate Release
7th March 2017
LSL Property Services plc ("LSL" or "The Group")
PRELIMINARY ANNOUNCEMENT
LSL Property Services plc, a leading provider of residential property services incorporating both estate agency and surveying businesses, announces preliminary results for the year ended 31st December 2016.
2016
2015
% change
Group revenue - m
307.8
300.6
+2
Group Underlying Operating Profit1 - m
34.6
42.9
-19
Group Underlying Operating Margin - %
11.3
14.3
Group operating profit - m
65.4
41.4
+58
Profit before tax - m
63.5
38.6
+65
Exceptional gain / (costs) - m
32.2
(0.3)
Basic Earnings Per Share - pence
49.2
29.7
+66
Adjusted Basic Earnings Per Share - pence2
25.9
31.5
-18
Net Bank Debt3 at 31st December - m
20.3
39.9
Final proposed dividend per share - pence
6.3
8.6
Full year dividend per share - pence
10.3
12.6
-18
1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4)
2 Refer to Note 6 for the calculation
3 Refer to Note 9 for the calculation
 Group operating profit growth of 58% at 65.4m (2015: 41.4m)
 Solid performance in a changing market with full year Group Underlying Operating Profit1 of 34.6m (2015: 42.9m)
 Continued momentum in the Estate Agency Division with 3% overall revenue growth 
 Lettings income growth of 9%, delivered through organic growth and selective acquisitions 
 Growth in Financial Services income of 27% delivered through strong organic growth (13%) and the acquisition of Group First 
 Marsh & Parsons delivered a resilient performance despite a challenging London market with total revenue down 5% whilst Lettings revenue performed strongly with growth of 6% 
 The Surveying Division delivered overall revenue growth of 1%, as the mix of volume and income per job was optimised, with an EBIT margin of 27.1% (2015: 28.3%)
 Improving PI Costs outlook with 1.6m exceptional provision release
 Exceptional gain of 32.9m on sale of Zoopla shares
 Exceptional restructuring costs of 2.3m 
 Strong operational cash flow and low level of gearing 
Commenting on today's announcement, Simon Embley, Chairman, said:
"Following a strong first half performance, the Group delivered a resilient second half performance given the changing market conditions. I am pleased that we maintained revenue growth in both the Estate Agency and Surveying Divisions.
The Group reacted decisively to the changing market conditions in the second half by taking selective cost measures and strengthening the balance sheet. The Group has relatively low levels of gearing and is very cash generative at an operational level. The business is well positioned to capitalise on market conditions to increase shareholder value."
For further information, please contact:
Ian Crabb, Group Chief Executive Officer 
Adam Castleton, Group Chief Financial Officer
LSL Property Services plc 
0207 382 0360 
Richard Darby, Sophie Cowles
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
Chairman's Statement
Introduction
Following a strong first half performance, the Group delivered a resilient second half performance given the changing market conditions, with 2016 Group Underlying Operating Profit1 of 34.6m (2015: 42.9m). Group Operating Profit was 65.4m (2015: 41.4m). Group revenue grew by 2.4% to 307.8m (2015: 300.6m) with growth in both the Estate Agency and Surveying Divisions. Profit before tax grew by 64.6% to 63.5m (2015: 38.6m). 
Performance
After a strong overall first half performance in the Estate Agency Division, with a notable first quarter acceleration of transactions in the run up to the change in stamp duty regulations on 1st April 2016, we reacted decisively to the changing market conditions in the second half of the year with selective cost reduction measures and branch closures and protected the balance sheet by disposing of the Group's shareholding in Zoopla and pausing acquisition activity. We continued to invest in Lettings and Financial Services headcount during the second half of 2016. As a result, in 2016 we delivered full year growth of 9% in the Lettings business and delivered Financial Services revenue growth of 27%.
The Surveying Division delivered a robust performance with 1% revenue growth and a strong operating profit margin of 27.1%.
Dividend
Due to the Board's positive view of the future prospects for the business, the proposed dividend payment is at the upper end of our previously stated policy of applying a dividend pay-out ratio of between 30% to 40% of Group Underlying Operating Profit after interest and tax. The Board has reviewed the policy while considering the risks and capital management decisions facing the Group.
A final dividend of 6.3 pence per share (2015: 8.6 pence per share) will be proposed to Shareholders at the forthcoming AGM, giving a total dividend for 2016 of 10.3 pence per share (2015: 12.6 pence per share). 
The ex-dividend date for the final dividend is 30th March 2017, with a record date of 31st March 2017 and a payment date of 2nd May 2017. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan.
Our market position
LSL holds a market leading position in its core Estate Agency business comprising 12 Estate Agency brands, including Your Move, which is the largest UK single brand estate agent measured by the number of branches with 267 branches nationwide. The businesses are organised to deliver integrated Residential Sales, Lettings and Financial Services, as well as a range of additional property related services. 
We continued to invest in our brands in 2016 to drive future growth, with a national media campaign to support the Your Move brand during the first half of 2016 and by increasing dedicated headcount to support our successful Lettings and Financial Services businesses and growing our Land and New Homes businesses. During 2016 we opened two new Marsh & Parsons branches. 
We continue to hold a leading market position in Surveying, maintaining strong relationships with many of the major lenders. LSL's Surveying Division is one of the country's largest providers of residential valuation services nationwide and is one of the largest employers of surveyors in the UK2.
We operate in a highly competitive residential property market, which is characterised by on-going new entrants and evolving business models. We continue to proactively develop and evolve our offering to ensure our competitiveness in this changing marketplace. We will also take selective cost action as required to underpin our competitiveness, as we did in the second half of 2016. 
During the second half of 2016 we completed extensive consumer and market research. In 2017 we will progress the next phase of our strategy by exploring and evaluating LSL's digital opportunities and a further update will be provided to Shareholders during 2017.
We continue to selectively acquire businesses. To drive recurring income growth, we acquired nine lettings books in 2016 for 4.1m (2015: 30 lettings books for 9.6m), with internal disciplines in place to ensure successful integration into the Group.
In February 2016 we acquired a 65% interest in Group First which provides mortgage and protection brokerage services to the purchasers of new homes. This acquisition supports LSL's strategy to grow long term profitability in the UK residential property services sector. 
In Financial Services, the Group arranged total mortgage lending of 17.4bn (2015: 14.5bn), representing 7.1% of the overall market3. Measured by the number of appointed representatives, LSL's overall combined network is the second largest in the UK4. 
LSL notes the publication of the Housing White Paper in January 2017 which confirmed the Government's intent (as announced in the Autumn Statement in November 2016) to bring forward legislation (as soon as Parliamentary time allows) to ban letting agent fees to tenants. LSL will continue to monitor the review and contribute to the consultation as appropriate during the year.
Corporate Governance and Board
The Board remains committed to high levels of corporate governance and during 2016, LSL has complied in all respects with the UK Corporate Governance Code (September 2014 edition). We have also considered the amendments included in the April 2016 edition of the Code to ensure we continue to comply during 2017 and are monitoring the Government's review of corporate governance, which is set out in the Green Paper published in November 2016.
There were a number of changes to the Board during the year. At the 2016 AGM, Mark Morris, who had been a Non Executive Director and Chairman of the Audit Committee since LSL's IPO in 2006, retired from the Board and its Committees. David Stewart, who joined the Board as a Non Executive Director in May 2015, was appointed Chairman of the Audit Committee. David is also a member of LSL's Remuneration and Nominations Committees. In January 2017, Adrian Gill stepped down from the Board and on 2nd February 2017 we announced the appointment of Helen Buck as Executive Director - Estate Agency. Helen had been a Non Executive Director of LSL since December 2011 and has excellent knowledge of the business. Her appointment followed a comprehensive selection process.
The Nominations Committee has during the year reviewed the Board's composition, which at the date of this Report includes three independent Non Executive Directors and three Executive Directors and myself as Chairman. The Board has expertise in strategy, technology, estate agency, surveying, financial services, the residential housing sector, commercial property, retail and marketing, operations, business services, entrepreneurial private and public companies, finance, consumer and employee matters and corporate governance.
The Board continues to recognise the benefits of diversity in the boardroom, including gender and racial diversity and the current Board composition includes two female Directors, Helen Buck (Executive Director - Estate Agency) and Kumsal Bayazit Besson (Independent Non Executive Director). Whilst we continue to remain of the view that the setting of targets for the number of female directors on the Board is not necessary and that we will continue to appoint on merit, I will continue to ensure that our searches for any new directors take into account diversity, including gender and race.
In respect of 2016, the Board has conducted an annual review of its effectiveness and that of its Committees, taking into account the balance of skills, experience, independence and knowledge of our businesses. Following this exercise, we concluded that the Board and its Committees are effective and are able to discharge their respective duties and responsibilities appropriately. The appraisal produced a number of recommendations to further improve the effectiveness of the Board, which will be implemented during 2017. These include reviewing Board meeting planning and reporting arrangements, the development of Executive Director and senior management succession plans, the provision of Director training and an evaluation of the Group's cultures, values and ethics. 
In addition, and taking into consideration the revised Code published in April 2016, the Board reviewed the composition of the Audit Committee and confirmed that the Audit Committee as a whole has the competence relevant to the sectors in which LSL operates. Further details relating to the Audit Committee are contained in the Audit Committee Report or the Annual Report and Accounts 2016.
As Chairman, with the responsibility for leadership of the Board, I review its effectiveness on all aspects of its role and encourage feedback. 
Our people
Ultimately the success of our business model has always been underpinned by our strong brands and excellence in delivery by our knowledgeable local colleagues. The number of Group employees as at 31st December 2016 was 4,990 (2015: 5,181). Our success is attributable to the high levels of customer service provided by our staff in all parts of our business across the entire UK and I would like to thank all of our staff for the continued hard work and commitment which they have demonstrated throughout 2016.
Current trading and outlook
We have started the year positively in both the Estate Agency and Surveying Divisions. 
In the Estate Agency Division, trading is encouraging and in-line with expectations, with quality buyers and good availability of mortgages. Whilst there remains a shortage of stock, our sales conversion remains strong. 
In our Surveying Division, trading is in line with expectations and the second phase of the technology refresh is progressing well. 
Whilst it is difficult to accurately predict housing market transaction volumes and consumer confidence for the remainder of the year, 2017 is expected to see a reduced volume of house purchase transactions compared to the prior year, with modest house price inflation outside prime Central London. However, mortgage costs and availability remain positive and the medium to longer term fundamentals of the UK housing market remain robust. 
Underpinned by a series of strategic initiatives, the business is well placed to deliver a solid performance in 2017. We are positive regarding the outlook for the business, committed to driving profitable organic growth across the business, and will continue to evaluate selective acquisitions. 
The Group has a robust balance sheet with relatively low levels of gearing and is very cash generative at an operational level. The business is well placed to capitalise on market conditions to increase Shareholder value.
Simon Embley
Chairman
7th March 2017
Note 1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4)
Note 2 Source: LSL estimates
Note 3 Source: Council of Mortgage Lenders - January 2017
Note 4 Source: Which Network? January 2017 
Group Chief Executive's Review
2016 Overview
As reported in the Interims Results announcement in August 2016, the Group delivered a strong first half performance, with the notable acceleration of transactions in the first quarter in the lead up to the change in stamp duty on 1st April 2016. The Group reacted decisively to the changed market conditions in the second half of the year following the EU referendum result. 
Selective cost measures were taken across the Group and the balance sheet has been strengthened with our operational gearing ratio1 reduced to 0.51 at the end of 2016 (2015: 0.83). We continued to invest in the growing parts of our businesses and delivered strong year-on-year revenue growth in Lettings (up 9%) and Financial Services (up 27%).
Group revenue increased by 2.4% to 307.8m (2015: 300.6m). Group Underlying Operating Profit2 was 34.6m (2015: 42.9m) and Group Operating Profit was 65.4m (2015: 41.4m). After strong first half revenue growth of 8% and profit growth of 10%, second half revenue fell by 2.5%, impacted by residential property market trends following the EU referendum, with a subsequent fall in second half profits. 
I would like to take this opportunity to thank all my colleagues across our business for their professionalism and dedication. The efforts of my colleagues delivered revenue growth in both Estate Agency and Surveying, which was especially pleasing given the degree of change during the year.
The Market in 2016
The UK residential property services market in 2016 was impacted by two main events; the lead up to the stamp duty changes on 1st April 2016 and the EU referendum outcome on 23rd June 2016; and the subsequent impact on consumer confidence and residential property transactions during the second half of the year. 
Approvals for house purchases3 were ahead 16.5% in the first quarter of the year compared to the same period in 2015 as increases in stamp duty effective from 1st April 2016 led to an acceleration in market activity in the period up to this change. Volumes3 slowed in the second quarter being 1.5% ahead of the comparative period in 2015 as completions slowed following the stamp duty change and ahead of the EU referendum on 23rd June 2016.
Following the EU referendum on 23rd June 2016 consumer confidence was impacted and volumes3 fell by 12.4% in the third quarter compared to the same period in 2015. Volumes3 fell again by 4.8% in the fourth quarter of 2016 compared to the same period in 2015.
The second half impact on market transactions was more pronounced in London and the South East. Market transactions are estimated to have fallen in prime Central London areas by between 20% to 40% in the third quarter 2016, dependent on the postcode4.
Total Mortgage Approvals3 increased by 5.7% in 2016. This reflected an increase in remortgage approvals in the first and second half of 2016 compared to the same periods in 2015 reflecting low interest rates and the availability of remortgage products. 
Average house prices5 in England and Wales grew 3.1% (2015: 6.6%) to 298,000 annually as stock shortages continued to have an impact. Excluding London and the South East, the average increase was 4.4%. 
Residential property values in Greater London increased by 0.2%. Prime Central London (5 prime boroughs) prices fell while outer prime Central London experienced an increase in year-on-year house prices5. 
The proportion of new sales instructions given to online/hybrid estate agents continued to grow, increasing from 3% of the market in the second half of 2015 to 6% in the second half of 20166. While traditional estate agents continue to represent the vast majority of the market (95% of residential sales instructions in 20166), we continue to closely monitor market developments.
The proportion of mortgage lending in the market placed through intermediaries continued to increase during the year7.
Following market declines in the repossessions market in the past few years, market repossession volumes again declined in 2016, reducing by 25% to 7,7008 total repossessions as interest rates remained low and was the lowest number since 1982.
Strategy
We remain committed to delivering on our stated strategy:
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 by 2019, particularly outside prime Central London
 Grow recurring and where market conditions permit counter-cyclical income streams
 Complete selective acquisitions of both residential sales businesses and lettings books
In addition to delivering on our stated strategy, we are also exploring options to capitalise on digital opportunities created by the growth in consumer acceptance of online/hybrid agency business models. During the second half of 2016 we completed extensive consumer and market research and in 2017 we are progressing to the next phase by exploring and evaluating LSL's digital opportunities. We will provide a further update to Shareholders during 2017. 
Surveying 
 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
LSL performance in 2016
Estate Agency Division 
Total Estate Agency income of 243.1m (2015: 236.5m) increased by 3%. This increase resulted from the consistent execution of our strategy with strong growth in both Lettings and in Financial Services income, where we continued to invest in additional people to support growth. 
During the second half of the year following the EU referendum we implemented selective cost reduction measures to adapt the Group's costs base and ensure we remain competitive. We closed 21 branches in the second half with little disruption to our business, which is testament to the professionalism and experience of our staff. 
Residential Sales exchange income 
Residential Sales exchange income decreased by 10% to 83.8m (2015: 92.9m) with average fees per unit down 2%. Exchange volumes fell by 8%, with a strong first quarter followed by a slowdown in subsequent quarters following the stamp duty changes and the EU referendum. The fall in fees reflected increased competitive pressure in the second half as volumes reduced. 
Lettings income
We remain committed to our strategy of increasing recurring Lettings income. In 2016 we delivered growth in Lettings income of 9%. Lettings Income increased as a proportion of the Estate Agency business and represented 29% of total Estate Agency Division income in 2016 (2015: 28%).
We delivered organic Lettings growth of 4% with growth across all our brands. In line with our strategy, we continued to invest in lettings book acquisitions, acquiring nine lettings books in 2016 for a total consideration of 4.1m9. The lettings books have been successfully integrated into our networks. Lettings book acquisitions were paused during the second half of the year following the EU referendum. 
Financial Services
Total Financial Services income grew strongly again with 27% year-on-year growth in 2016. Adjusting for the acquisition of Group First, we delivered organic growth of 13% as we continued to roll out our model across the Estate Agency business and delivered growth from our intermediary networks.
In February 2016 we acquired a 65% interest in Group First which provides mortgage and protection brokerage services to the purchasers of new homes. This acquisition supports LSL's strategy to grow long term profitability in the UK residential property services sector.
Marsh & Parsons
Given the overall challenging prime Central London market, compounded by the result of the EU referendum which caused transaction levels to drop significantly, Marsh & Parsons revenue fell by 5% in 2016 to 33.5m (2015: 35.3m) and profit fell by 36% to 4.4m (2015: 6.9m).
Whilst Residential Sales fell by 12% we believe this to be a solid performance in light of the overall London market conditions. We were pleased with the Lettings performance with Lettings income up 6% against 2015, accounting for more than half of Marsh & Parson's total revenue. 
We continued with our branch expansion strategy in 2016, opening two new branches during the year in the outer prime Central London locations of Tooting and Tufnell Park. We have continued with our strategy in 2017 and since the year-end have opened a branch in Brixton. We are pleased with the performance of these new branches. This takes our total number of Marsh & Parsons branches to 26.
Our ambition remains to expand to 36 branches by 2019. Outer prime Central London has not been as negatively impacted as prime Central London and Marsh & Parsons is looking to expand its new office footprint in outer prime Central London locations. 
Estate Agency profit per branch (Your Move, Reeds Rains and LSLi)
The reduction in operating profit per owned branch in 2016 to 30,500 (2015: 42,500) reflects the challenging residential sales market conditions following the EU referendum. 
LSL has increased operating profit per owned branch from 20,100 in 2012 to 30,500 in 2016. Our medium term ambition is to drive operating profit per owned branch to between 80,000 and 100,000 on the expectation of longer term stability in the UK residential property sector. Our Lettings growth and Financial Services growth across the network continues to underpin this ambition and we will also focus on Land and New Homes. We will also consider further opportunities to re-engineer the cost base.
Surveying Division 
During 2016 we continued to focus on optimising the profitability of our Surveying business with particular emphasis on delivering a market leading IT system. Total Surveying Division income in 2016 of 64.7m (2015: 64.1m) was 1% higher than 2015, reflecting a good performance in a changing market.
During the first half of 2016, implementation started of a new market leading IT system to deliver modern and scalable technology for LSL that provides an improved platform to deliver services to our clients. Phase one is complete and a roadmap of further developments will be rolled out in 2017. This system will enable our Surveying Division to continue to improve efficiency, operational performance and hence the quality of service to our end customers.
Following on from the significant improvements in 2014 and 2015, capacity optimisation has been maintained helping to underpin profit margins of 27.1% (2015: 28.3%). Income per job increased by 4% to 203 (2015: 196) and we performed in total 318,077 jobs in 2016 (2015: 327,267) as we optimised the mix of our business. We have continued with our graduate training programme which continues to be successful.
Our customers
Our continued focus on providing the best service to our customers has been recognised in 2016 with numerous industry awards including:
 Marsh & Parsons: Estate Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Overall Winner of the Estate Agency of the Year Award and Best Large UK Estate Agency - Gold Award. 
 Your Move: Lettings Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Best Property Management (1001+ properties) Lettings Agency - Gold Award. 
 Davis Tate: Estate Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Best Medium Estate Agency, South East - Gold Award. The 2016 all Agents Awards: Best Estate Agent - Overall Winner in Reading, Best Estate Agent - Gold Awards in 10 UK postcode regions: Best Letting Agent - Gold Award in 8 UK postcode regions.
 Frost's Estate Agent: Estate Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Best Small Estate Agency, East of England - Gold Award.
 Intercounty: Estate Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Best Medium Estate Agency, East of England - Gold Award. Lettings Agency of the Year Awards 2016, in association with The Times and The Sunday Times: Best Medium Lettings Agency, East of England - Gold Award.
 Thomas Morris: The Negotiator Awards 2016: East of England Agency of the Year - Gold Award. Relocation Agent Network Awards 2016: Best Agent, East Anglia and Essex - Winner, Customer Relocation Award - Winner. The 2016 all Agents Awards: Best Estate Agent, East of England - Gold Award. Agents Giving: Best Innovative and Creative Fundraising Award - Winner. Agency Mentors: Inspirational Agent 2016 - Winner (Sue Gipson St.Neots). 
 Pink Home Loans: Financial Adviser Service Awards 2016 : 5 star award.
 Pink Home Loans and First Complete Financial Services: Precise Mortgages Awards 2016: Best Distributor Group. 
 e.surv Chartered Surveyors: Equity Release Awards 2016: Best Surveyor Award - Winner. Mortgage Strategy Awards 2016: Best Surveyor Award, Individual Firms - Winner. Your Mortgage Awards 2016: Best Surveyor Award - Winner. 
Balance Sheet and Exceptionals
The Group has a strong balance sheet with closing Net Bank Debt at 31 December 2016 of 20.3m (2015: 39.9m) and a gearing level at 0.51 times 2016 adjusted EBITDA (2015: 0.83 times)1. 
Between 20th July 2016 and 31st October 2016, we sold our entire holding of 11.3m ordinary shares in Zoopla for total proceeds of 36.1m at an average price per share of 3.19. The proceeds of the disposal were used to reduce corporate indebtedness.
As set out in our 2016 Interim Results announcement, during the second half of 2016, a cost saving programme across the Group and the technological refresh in the Surveying Division resulted in exceptional costs of 2.3m.
In relation to the PI Costs provision, the Group continued to make positive progress in addressing historic claims and there has been a net 1.6m exceptional release.
Outlook
We have started 2017 in line with our expectations across the Group and are well placed to deliver a solid performance during the year. We continue to consistently execute on our strategy and are well placed to deliver increased Shareholder value. 
I look forward to working with my colleagues to deliver a successful year in 2017.
Ian Crabb
Group Chief Executive Officer
7th March 2017
Note 1- Operational gearing is defined as net debt divided by adjusted EBITDA (Adjusted EBITDA is Group Underlying Profit (note 4) plus depreciation on property plant and equipment)
Note 2- Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 4)
Note 3- Source: Bank of England for "House Purchase Approvals" and "Total Mortgage Approvals" - December 2016 released January 2017
Note 4- Source LSL estimates
Note 5-Source December 2016 LSL Property Services/ACADATA HPI
Note 6- LSL sources/data analysis
Note 7-CML, new mortgages sold by intermediaries - February 2017
Note 8-Source Council of Mortgage Lenders - January 2017, released February 2017
Note 9- Total consideration of up to 4.1m includes contingent consideration 
Business Review - Estate Agency Division 
Financial
2016
m
2015
m
%
change
Residential Sales exchange income
83.8
92.9
-10%
Lettings income
71.4
65.4
+9%
Asset Management income
6.6
7.8
-15%
Financial Services income
64.1
50.5
+27%
Other income1
17.2
19.9
-14%
Total income
243.1
236.5
+3%
Operating expenditure
(218.6)
(205.2)
-6%
Underlying Operating Profit2
24.5
31.3
-22%
KPIs
Exchange units
27,029
29,311
-8%
Underlying Operating Margin (%)
10.1%
13.2%
Fees per unit 
3,102
3,170
-2%
Market data
House purchase approvals (000s)3
799
806
-1%
Total Mortgage approvals (000s)3
1,467
1,388
6%
UK Housing Transactions (000s)4
1,235
1,230
1%
Repossessions5
7,700
10,200
-25%
1 'Other income' includes franchising income, conveyancing services, EPCs, Home Reports, utilities and other products and services to clients of the branch network.
2 Refer to Note 3 for the calculation
3 Source: Bank of England, "Mortgage approvals for house purchases" and "Total mortgage approvals" - December 2016, released January 2017.
4 Source: HMRC Stats, "Monthly property transactions completed in the UK with value of 40,000 or above" - December 2016, released January 2017
5 Source: Council of Mortgage Lenders - January 2017, released February 2017
Estate Agency Division Performance
Year-on-year income growth in the Estate Agency Division was 3%. Lettings income and Financial Services income showed positive growth with Residential Sales impacted by lower transaction volumes in the second half. First half total income increased by 9% compared to the comparative period in 2015 whilst second half income fell by 3%.
Residential Sales exchange income
Residential Sales exchange income decreased by 10% to 83.8m (2015: 92.9m) with average fees per unit decreased by 2%. Residential Sales exchange volumes fell by 8%. The trend mirrored the general market with a strong first quarter followed by a slowdown in subsequent quarters following the stamp duty changes and the EU referendum. The fall in fee reflected increased competitive pressure in the second half as volumes reduced. 
The second half reduction in transactions was more pronounced in LSL's London and the South East brands, reflecting the same trends as the general market. 
Lettings income
Lettings income grew in each quarter of the year and across all brands as LSL continued to focus on this growing revenue stream. Organic Lettings growth for the year was 4%. Combined with the Lettings acquisitions, overall growth was strong, at 9% for the full year. LSL continues to focus on this recurring revenue stream which represented 29% of total Estate Agency Division income in 2016 (2015: 28%).
Financial Servicesincome
Total Financial Services Income delivered through the Estate Agency Division's branches, Group First (acquired during the year) and the intermediary networks of First Complete and Pink Home Loans grew strongly again with 27% year-on-year growth in 2016. 
Adjusting for the acquisition of Group First, organic Financial Services income growth for 2016 was 13% and growth was achieved across all Estate Agency brands and also the intermediary network businesses. 
In total the Group arranged mortgage lending completions of 17.4bn during 2016 (2015: 14.5bn), with an estimated market share of 7.1%5. 
Other income 
Other income fell by 14% year-on-year as conveyancing income fell in line with lower residential transaction volumes. 
Marsh & Parsons 
Marsh & Parsons delivered a resilient performance in a challenging prime Central London market which was impacted by a number of factors including the 2016 stamp duty changes and the result of the EU referendum. Total revenue fell by 5% in 2016 to 33.5m (2015: 35.3m) and Underlying Operating Profit was 4.4m (2015: 6.9m).
Whilst Residential Sales income fell by 12% the Board believe this to be a highly robust performance in the light of the overall London market conditions. The Board is very pleased with Lettings performance with Lettings income up 6% against 2015, accounting for more than half of Marsh & Parson's total revenue. 
Asset Management 
Asset Management delivered a robust performance in a shrinking market with revenues lower by 15% compared to the 25% market fall in repossessions to 7,7005 in 2016. With a strong market share, the Asset Management business as a counter-cyclical business is well positioned to capitalise on any future increase in repossession volumes. Asset Management is developing its corporate property management service offering to further enhance recurring revenues in the Group.
Estate Agency Division operating margin 
The Estate Agency Division Underlying Operating Margin was 10.1% in 2016 (2015: 13.2%) which resulted from the reduction in Residential Sales volumes, a full year overhead charge for Thomas Morris (acquired during 2015), new Marsh & Parsons branches opened during the year and the national media campaign investment in the Your Move brand which was launched during the first half of 2016. Profits were slightly lower in Asset Management as cost measures taken did not fully offset the fall in repossession volumes. 
Regulation - Financial Services
First Complete and Pink Home Loans (the trading name of Advance Mortgage Funding) are both directly authorised by the FCA in relation to the sale of mortgage, pure protection and general insurance products. Your Move, Reeds Rains, First2Protect, Mortgages First and Embrace Mortgage Services along with the LSLi subsidiaries are all appointed representatives of First Complete. Linear Financial Solutions is an appointed representative of Advance Mortgage Funding for mortgage and insurance business and also an appointed representative of Openwork for investment business and Insurance First Insurance Brokers is an appointed representative of Sesame Limited. LSL's Financial Services business are also members of the Association of Mortgage Intermediaries (AMI) which is an industry representative and trade body and the Financial Services businesses are subject to the Financial Ombudsman Service and contribute to the funding of the Financial Services Compensation Scheme through regulatory fees and charges. LSL is participating in and monitoring the FCA's market study on competition in the mortgage sector which was launched in December 2016.
Regulation - Residential Sales and Lettings
The Estate Agency Division's branches adhere to the Codes of Practice issued by industry professional and regulatory bodies, The Property Ombudsman (TPO) and/or the Association of Residential Lettings Agents (ARLA). Membership of these bodies is in addition to observing compliance with relevant legislation, such as Data Protection, the Consumer Protection Regulations, the Consumer Rights Act, guidance material published by relevant regulators, including the Competition and Markets Authority (CMA) (and its predecessor the Office of Fair Trading (OFT)), the National Trading Standards Agency/Trading Standards Institute (TSI), HMRC and codes published by other relevant bodies, including the Advertising Standards Authority (ASA). LSL from time to time also enters into direct dialogue with the regulators and consumer groups. LSL has also on behalf of all its Estate Agency businesses entered into a primary authority agreement with York Trading Standards Office. LSL is monitoring the Government's review of the housing market, which is set out in the Housing White Paper published in January 2016 and is considering the impact of the reforms on LSL's businesses.
Branch numbers
Breakdown of LSL's Estate Agency branches as at 31st December 2016.
Owned
Franchised
Totals
Your Move 
202
65
267
Reeds Rains
117
40
157
LSLi
63
2
65
Marsh & Parsons
25
0
25
Total
407
107
514
Business Review-Surveying Division 
Financial
2016
m
2015
m
%
change
Revenue
64.7
64.1
+1%
Operating expenditure
(47.2)
(46.0)
-3%
Underlying Operating Profit1
17.5
18.1
-3%
KPIs
Underlying Operating Margin (%)
27.1%
28.3%
Jobs Performed (000's)
318
327
-3%
Revenue from private surveys (m)
2.3
2.4
-4%
Income per job ()
203
196
+4%
PI Costs provision (Balance Sheet) at 31st December (m)
20.7
29.7
-30%
Number of qualified surveyors at 31st December (FTE)2
323
347
-7%
Total Mortgage Approvals ('000s)3
1,467
1,388
6%
1 Refer to Note 3 for the calculation
2 Full Time Equivalent (FTE)
3 Source: Bank of England, "Mortgage approvals for house purchases" and "Total mortgage approvals" 2016.
Surveying Division Performance
Total mortgage approvals3 increased in the year by 5.7% to 1.467m (2015: 1.388m) with a strong first half followed by a decrease in the second half. This reflects a strong market for buy to let and second properties in the first quarter, prior to stamp duty changes, and a reduction in consumer confidence post the EU referendum in the second half.
Surveying turnover was 64.7m (2015: 64.1m), an increase of 1% on the previous year with the total number of jobs performed during the year of 318,077 (2015: 327,267) reflecting the overall management of the mix of jobs.
LSL continued to focus on optimising capacity management in 2016, driving an increase in income per job to 203, an improvement of 4% year-on-year. As a result LSL delivered another strong Underlying Operating Profit result at 17.5m (2015: 18.1m) with an Underlying Operating Margin of 27.1% (2015: 28.3%). 
The total number of qualified surveyors (FTE) at 31st December 2016 was 3233, a reduction of 7% year-on-year. LSL's on-going graduate training programme continues to be successful and assists in alleviating the impact of skill constraints in the market. In 2017 LSL will continue to focus on improving efficiency through optimising capacity management supported by use of the new technology.
At 31st December 2016 the total provision for PI Costs was 20.7m. In 2016 the Group continued to make positive progress in addressing historic claims and there has been a net 1.6m exceptional release.
Financial Review 
The key drivers of the financial performance of LSL in 2016 are summarised below:
Income statement
Revenue
Revenue increased by 2.4% to 307.8m in the year ended 31st December 2016 (2015: 300.6m). 
Operating Expenses 
Operating expenses increased by 5.6% to 275.3m (2015: 260.7m). Increases were primarily in the Estate Agency Division as a result of the acquisition of Group First, a full year charge for Thomas Morris (acquired during 2015), Marsh & Parsons branch openings and the national media campaign investment in the Your Move estate agency brand during the first half of 2016. 
The average number of full time equivalent employees during the year was 4,630 (2015: 4,677). 
Group Underlying Operating Profit
Group Underlying Operating Profit (as defined in Note 4 to the Financial Statements) decreased by 19.2% to 34.6m (2015: 42.9m) with the Underlying Operating Margin of 11.3% (2015: 14.3%). On a statutory basis, the Group operating profit increased by 58% to 65.4m (2015: 41.4m).
Exceptional Items
Total exceptional costs in 2016 were 2.3m (2015: 0.3m). The exceptional costs related to the closure and restructure of 21 branches and the costs relating to the technological refresh in the Surveying Division.In 2015, exceptional costs comprised the closure of an administration centre and the subsequent restructuring costs incurred which included redundancy costs.
Total exceptional gains in 2016 were 34.5m (2015: nil) comprising of 32.9m of gains relating to the sale of the Zoopla shares and a 1.6m exceptional release relating to the PI Costs provision.
PI Cost provision for PI claims and notifications
At 31st December 2016, the total provision for PI Costs was 20.7m. In 2016 the Group continued to make positive progress in addressing historic claims and there has been a net 1.6m exceptional release.
Contingent consideration
The contingent consideration relates primarily to the growth shares (C shares) acquired by the management of Marsh & Parsons subsequent to acquisition, and payments due to third parties in relation to the acquisition of LSLi and certain of its subsidiaries between 2007 and 2016. Payments are due between three and five years after the acquisition completion and depending on the profitability of those subsidiaries in the relevant calculation years. In 2016 contingent consideration in the Income Statement amounted to a credit of 3.8m (2015: 1.5m credit). This included a credit for consideration on the acquisition (in 2011) of Marsh & Parsons of 1,964,000 (2015: credit 3,002,000), a credit relating to LMS of 268,000 (2015: charge of 2,136,000) and a credit of 1,142,000 in LSLi (2015: credit of 611,000).
Amortisation
The amortisation charge was 3,900,000 (2015: 1,800,000). The increase was the result of the full year impact of the acquisition activity in 2015 and the first half 2016.
Net Financial Costs
Net financial costs amounted to 1.9m (2015: 2.8m). The finance costs related principally to interest and fees on the revolving credit facility. Additional costs relate to the unwinding of discounts on provisions and contingent consideration and interest on loan notes. The reduction in the net financial cost results from reduced interest charges in part due to the variation of the 2011 loan notes.
Taxation
Following the 2015 Summer Budget the headline rate of corporation tax in the UK was further reduced from the current rate of 20% to 19% effective from 1st April 2017 and further reduced to 18%, effective from 1st April 2020. The Budget announcement in March 2016 included a further reduction effective from 1st April 2020, when the proposed corporation tax rate will be lowered further still to 17%. 
Following the enactment of Finance Bill 2016 in September 2016, the applicable corporation tax rate is 17% and this is the rate at which deferred tax has been provided (2015: 18%). Corporation tax is recognised at the headline UK effective rate of 20% (2015: 20.25%).
The effective rate of tax for the year was 20.5% (2015: 21.1%). The effective tax rate for 2016 has decreased as a result of a number of factors, including reducing the rate at which deferred tax is provided resulting from the reduction in the headline rate of corporation tax. 
Deferred tax credited directly to other comprehensive income is 3.8m (2015: charge of 0.5m). This is comprised of a credit of 5.9m and a charge of 2.1m and relates to the disposal and revaluation of financial assets. Income tax credited directly to the share based payment reserve is 0.1m (2015: nil).
In 2016 corporation tax payments of 8,900,000 (2015: 5,600,000) were made which is lower than the current year corporation tax charge of 12,700,000 (2015: 7,800,000). This is a result of the timing of the settlement of the corporation tax liability on the disposal of Zoopla share-holding in the second half of 2016.
Basic Earnings per Share 
The Basic Earnings per Share was 49.2 pence (2015: 29.7 pence). The Adjusted Basic Earnings per Share (as calculated in Note 6 to the Financial Statements) is 25.9 pence (2015: 31.5 pence) a drop of 17.8% which is broadly in line with the decrease in Underlying Group Operating Profit. The Group seeks to present a measure of underlying performance which is not impacted by the unevenness in profile of exceptional gains and exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments. The Directors consider that the adjustments made to exclude the after tax effect of exceptional items, contingent acquisition consideration treated as remuneration, and amortisation of acquisition intangibles provides a better and more consistent indicator of the Group's underlying performance.
Balance Sheet
Joint ventures and other investments
The Group has two joint ventures; a 33.3% (2015: 33.33%) interest in TM Group, whose principal activity is to provide property searches, and a 50% (2015: 49.99%) interest in LMS whose principal activity is to provide conveyancing panel management services. 
In addition LSL owns an 18.1% (2015: 18.1%) share in the Guild of Professional Estate Agents (GPEA), which is a membership organisation with a national network of independently owned estate agents. The carrying value of GPEA was assessed as at 31st December 2016 and was revalued to 3.7m (2015: 0.9m).
Capital Expenditure
Total capital expenditure in the year amounted to 4.6m (2015: 4.8m) and an additional 1.4m (2015: 3.2m) has been spent internally on developing new software which has been treated as an intangible asset.
Bank Facilities
In May 2016, LSL extended its bank facility until May 2020. The facility includes a 100m revolving credit facility (2015: 100m) and incorporated more favourable terms for LSL. During the period under review, the Group complied with all of the financial covenants contained within the facility.
Net Bank Debt and Cashflow
As at 31st December 2016 Net Bank Debt was 20.3m (2015: 39.9m) and Shareholders' funds amounted to 128.8m (2015: 107.4m) providing a balance sheet gearing of 15.8% (2015: 37.1%). The decrease in Net Bank Debt was primarily the result of the sale of the Group's entire holding of Zoopla shares and the pause in acquisition activity in the second half of the year. The 2016 gearing level was 0.51 times adjusted EBITDA1 (2015: 0.83 times). The Group has a committed revolving credit facility until May 2020 and in 2016 the Group generated cash from operations of 32.7m (2015: 36.5m). 
Zoopla 
Between 20th July 2016 and 31st October 2016, LSL sold its entire holding of 11.3m ordinary shares in Zoopla for total proceeds of 36.1m at an average price per share of 3.19. The proceeds of the disposal were used to reduce corporate indebtedness.
In January 2017 Zoopla (now known as ZPG) issued the Group with 226,711 warrants in accordance with the 2016 service agreement.
Net Assets
The Group's net assets as at 31st December 2016 were 128.8m (2015: 107.4m). 
Treasury and Risk Management
LSL has an active debt management policy. LSL does not hold or issue derivatives or other financial instruments for trading purposes. Further details on the Group's financial commitments as well as the Group's treasury and risk management policies are set out in the Annual Report and Accounts 2016.
Post Balance Sheet Events
There have been no post balance sheet events to report.
International Financial Reporting Standards (IFRS)
The Financial Statements have been prepared under IFRS as adopted by the European Union.
Note 1- Adjusted EBITDA is Group Underlying Operating Profit as previously defined plus depreciation on property plant and equipment
PrincipalRisksandUncertainties
LSLhasanoverallframework formanagement of risksand internal controls tomitigatetherisks.Throughthisframework, theBoard,whichhasoverallaccountabilityandresponsibilityforthemanagementofrisk,onaregularbasisidentifies, evaluatesandmanagestheprincipalrisksanduncertaintiesfacedbyLSL,areaswhichcouldadverselyaffectitsbusiness, operating resultsandfinancialcondition.
Developmentofriskappetite
During 2016, in line with the FRC's Guidance on 'Risk Management, Internal Control and Related Financial and Business Report' which was published in 2014 and which integrated and replaced the FRCs previous guidance on risk management and internal controls, the Board has continued to develop LSL's approach to risk appetite to ensure continued compliance with the Code and FRC guidance. The Board has through this process expressed the types and level of risk which it is willing to take or accept to achieve LSL's plans and to support consistent, risk-informed decision making across the Group.

The development of the risk appetite began with the Directors approving a risk framework policy and defining individual risk appetite statements for LSL's principal risks and for key decisions made by the Board. These statements provide parameters within which the Board typically expects LSL's businesses to operate, facilitating structured consideration of the risk and reward trade-off for the decisions made around how the Group conducts business. This includes monitoring of risk measures and identification of actions needed to bring any specific outlying areas of risk within target levels. During 2016, exercises have been initiated for targeted analysis of emerging areas of risk and evaluation of components within individual principal risk areas where management adopt the lowest risk appetite tolerances.

Thediscussionscoveredawiderangeofrisks,whichreflectthenatureofLSL'sbusinessesandacknowledgesthatthereis notaonesizefitsallapproachtoestablishingriskparameters.During2017,LSLwillcontinuetodeveloptheframeworkin linewithemergingbestpractice,including broader developmentof risk key performance indicators within management information and triggers to be applied in specific areas to adjust levels of risk exposure. 
TheBoardwillseektoestablishclearparameters,whilstatthesametimefosteringanenvironmentwithinwhich innovationandentrepreneurialactivitiesthrive.WherethereisanyproposaltoshifttheGroupsignificantlyclosertoor outsideagreedriskparameters,thiswillbediscussedandsubjecttoBoardapprovalbeforecommencinganyactivitiesto ensurethatappropriatemitigation controlsare putintoplace.
On-going evolution of the risk management framework is carried out as part of an on-going cycle of continual improvement, and remains a key priority for the Board in 2017.
Developingthefinancialviabilitystatement
Indevelopingthefinancialviabilitystatement,itwasdeterminedthatathreeyearperiod, ending on 31st December 2019, shouldbeused, as this is consistentwith Group's budget and strategicplanning cycles and is supported by the Group's funding arrangements, which expire in May 2020.
TheExecutive Committee reviewedLSL's principalrisks,andconsideredwhichoftheserisksmightthreatentheGroup's viability. Each risk was assessed and ranked to differentiate between a critical risk that should be modeled and risks that were less critical and may be modeled as a conflating event.
Anumberofseverebutplausiblescenarioswereconsideredandmodelledindetailwithinputfromacrossfunctional groupofseniormanagers,includingrepresentativesfrom the finance teams.
The main focus of the scenario modelling related to the impact of a significant downturn in the property market as occurred in the 2008 to 2009 period. A significant downturn assumed Total Mortgage Approvals falling to 500,000; this compares to 799,000 approvals in 2016. Modelling included the plans LSL put in place during that recessionary period such as reducing dividends and costs in branches. The skills and many of the personnel with experience to manage through such a scenario remain within the business which has helped this process and gives a degree of confidence to manage through a similar future scenario.

The impact on consumer confidence following result of the EU referendum has already been factored into the budgets prepared by the Group which is also the first year of this model; any further uncertainty surrounding the Article 50 could impact the housing market but this is already factored into the heavily reduced number of housing approvals included within this model. 
The current low interest rate market has been considered, and discussed with senior management as to how this may impact the viability of the company. Given the low gearing of the Group and the absence of financial instruments this is not deemed a material variable.
Detailedassumptionsforeachscenariowerebuiltupandmodelledbymonthacrossthethreeyearperiod.Themodels measured thedownsideimpactonrevenueand themanagementaction whichwouldbe takentoretain cashreservesand maintaintheoperatingcapacity of thebusinessasaresultofthe stressscenarios.
Assumptions were also made for the potential growth of LSL's recurring revenue and counter-cyclical income businesses, notably Asset Management, and the extent to which recurring revenue activities, such as Lettings, tend to be less affected through the cycle. The modelling and assumptions took account of the broad range of services across a broad geography which allows some protection from the impact of stress scenarios.
As detailed intheAuditCommittee'sReport, the Directorsreviewedanddiscussed theprocessundertakenbythe ManagementTeaminproposingtheviabilitystatement and the Audit Committee oversaw the development of the statement. TheDirectors'financialviabilitystatementiscontainedintheDirectors'Report.
Riskmanagementandinternalcontrolsframework
LSL'sriskmanagementandinternalcontrolsframeworkfor2016included:
a. ownershipoftheriskmanagementandinternalcontrolsframeworkbytheBoard,includingariskframework policy,supportedbytheGroupChiefFinancialOfficer,theCompanySecretary,HeadofRiskandInternalAudit and the Group Financial Controller;
b. a network of risk ownersineach of LSL's businesseswithspecificresponsibilitiesrelatingtorisk managementand internalcontrols;
c. thedocumentationandmonitoringofrisksarerecordedandmanagedthroughstandardisedriskregisterswhich undergoregular reviewsandscrutiny bylocalboardsandtheHeadofRiskandInternalAudit;
d. theBoard regularly identifies,reviewsandevaluatestheprincipalriskswhichmayimpactthe Groupaspartofthe planningand reportingcycle toensurethat suchrisksareidentified,monitoredandmitigated;
e. the developmentandapplicationofLSL'sriskappetitestatementandassociatedframework(forfurther detailson stepstakenduringthe year,pleaseseetheAuditCommitteeReport);and
f. reporting by theChairmanof theAudit CommitteetotheBoardon any matterswhichhavearisenfrom the Audit Committee'sreviewofthewayinwhichtheriskmanagementandinternalcontrolframeworkhasbeenapplied togetherwithanybreakdownsin, orexceptionsto,theseprocedures.
Asstatedabove,LSL hasinplacea Group-wideriskappetitestatementand risk framework policy whichwillcontinue to be developed in2017.
This risk frameworkincludes thefollowing:
a. risk framework policy;
b. determination of risk appetite and managementormitigation of risks in line with risk appetite tolerances;
c. assessmentofprospectsandviability;
d. reviewofeffectivenessoftheriskmanagementandinternalcontrolsystems;and
e. goingconcernconfirmation(forLSL'sgoingconcerndisclosuresee theReportoftheDirectors).
Duringtheyear,theDirectorscarriedoutarobustassessmentoftheprincipalrisksfacingtheGroup,includingthosethat threatenthebusinessmodel,futureperformance,solvencyorliquidity.TheDirectorsbelievethattheassessmentwhich hasbeencompletedisappropriate tothecomplexity, sizeandcircumstances of the Group,which isa matter of judgmentoftheBoardandhas beensupportedbytheManagementTeams.
The Directors also carried out a risk appetite assessment exercise which involved the evaluation of continually evolving aspects of risk management. During 2016, this included the capturing of anticipated impacts following the EU referendum on the residential housing market and the articulation of established 'conduct risk' routines used to support the delivery of appropriate customer outcomes. These aspects are included in the principal risks and uncertainties summarised in this Report.
The identified risks may change over time due to changes in business models, performance, strategy, operational processes and the stage of development of the Group in its business cycle as well as with changes in the external environment. This robust assessment is focused on the principal risks and it differs from the review of the effectiveness of the systems of risk management and internal controls. 


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


Asnotedabove,thisrobustanalysisofprincipalriskshasalsocontributedtotheGroup'sviabilitystatementwhichisset included theReport of the Directors. The Directors havealsoconsidered the impact if risks coincide,namely a combinationof non-principalriskscould potentiallyrepresentasinglecompound principalrisk.
The Group also faces other risks which, although important and subject to regular review, have been assessed as less significant and are not listed in this statement. This may include some risks which are not currently known to the Group or that LSL currently deems as immaterial, or were included in previous Annual Report and Accounts and through changes in external factors and careful management, are no longer deemed to be as material to the Group as a whole. 


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


Further informationrelatingtohow LSLmanagedthese risksanduncertaintiesduring2016is set outintheAudit CommitteeReport(InternalControls).
PrincipalRiskandUncertainties
Risk
Description
Mitigation
Strategic:
1
UK housing market
Groupperformanceisintrinsicallylinkedtothe overallperformanceoftheUKhousingmarket (includingsubsets - e.g. primeCentralLondon). The market is also impacted by changes in the global political and economic environments (e.g. EU Referendum outcome).
 Daily, weekly andmonthlymonitoringof tradingandmarket performancedata.
 Marketshare,productmixandsegmentationinitiatives.
 Development of counter-cyclical income and recurring revenue streams.
 Responsive investment and cost control measures during the housing market cycle.
 Investment in teams to delivery strategic projects.
 BalancedUK-widegeographicalspread.
 Monitoringofwidermacro-economic and political developments.
2
New UK housing market entrants
Traditionalbusinessmodelsforproperty servicesareexposedincreasinglytonew businessmodelsandtechnological advancements(e.g.online/hybrid estate agents,AutomatedValuationModels and automated financial services operating models).
 Competitor and industrybenchmarking.
 Development of strategies in response to market disrupters.
 Externalconsultativesupportasnecessary.
 Monitoring of potential acquisitions and joint venture opportunities.
 Servicedeliveryenhancementsandexperimentation.
 Infrastructure investment, upgrading and consolidation of core operating systems.
 Marketinginitiatives.
 Staffincentiveschemes.
3
Acquisitions and growth initiatives
Realisingappropriatetargetsforacquisitionand majorprojectinitiatives,includingdeliveryof appraisals,duediligenceand integration/implementationrequirements.
 Definedpreand post-acquisition reportingto theBoard and Audit Committee.
 Structuredauthoritylevels.
 Responsive flexing of risk appetite during the housing market cycle.
 Flexible resource pool to support acquisition and integration activities teams.
 Externalconsultativesupportasnecessary.
 Establishedintegrationplanningmethodology.
 Post-acquisitionandpost-implementation reviews.
 RiskandInternal Auditengagements.
Sales/distribution:
4
Professional services
Exposureto major PI claimsarising from any lapsesinsurveyingandvaluation practices.
 Robustframeworkandmonitoringroutinestomaintain valuationaccuracy.
 Dedicatedsurveyingriskteam.
 Timelydatacaptureofallclaimsandassociatedtrends.
 Utilisationoftechnologytomonitorvaluationtrendsand triggeralerts.
 RiskandInternal Auditreviews.
 Experiencedclaimshandlingpersonnelsupportedbylegal experts.
 Culturepromotingeffectivesalesconductandopenlinesof communicationwithclients.
 Board-levelauthoritiesforPIclaimssettlementpayments andgovernanceofunderlyingclaimshandlingand accountingprocesses.
5
Client Contracts
Theperformanceofthe Estate Agency and Surveyingbusinessesare dependent on securingandretainingkeycontracts (e.g. lenders, portfolio landlords and house builders).
 Customeroutcomefocusedforumsandinitiatives.
 Designatedseniormembersofstaffwithresponsibilityfor relationshipmanagement.
 Ongoing investment in resources, technology and service standardsto ensure LSL has the capacitytomeetserviceleveldemands.
 Targetedmarketing and training events.
 Monitoring of client dependency and compliance with contractual requirements.
 Robust control framework supporting the risk profiling of prospective clients, contract renewals and the quality of professional services.
 Dedicatedin-houseLegal Services and Claims Management teams
 Risk&InternalAudit reviews.
Operations:
6.
Information technology infrastructure
TheGrouphasvariedoperationswhichrequire arobustITinfrastructure.TheITenvironment needstoremainadaptabletosupportgrowth initiatives,harnesstechnologicaladvancements andcounterbusinesscontinuitythreats, includingmaliciousandcyberrelatedattacks.
 BoardlevelIT governance,policiesandinitiatives.
 Focus on innovation within the Group's strategy.
 Dedicatedin-houseITteams.
 Maintenanceofinfrastructuretomaintaineffectiveservice delivery.
 On-goingITinvestment and development programme.
 Implementable business continuity and disaster recovery solutions.
 Monitoring of compliance with relevant contractual and regulatoryrequirements.
 Inter-GroupITforums.
 Externalconsultativesupportasnecessary.
 RiskandInternal Auditreviews.
7.
Information security
Groupoperationsinvolvetheprocessingofhigh volumesofpersonaldata,withpotentialfor unintended data lossand exposureto increasing levelsofexternalcyber-crime.
 LSLInformationSecurity and Governance Group and Group IT Director in place. 
 DedicatedLSLInformationSecuritypersonnel.
 Groupdata protectionpolicies in place andtraining delivered.
 Advice obtained from In house legal and external advisers as appropriate.
 Trackingofdataassets/datasharing,inlinewithauthority levels.
 Penetrationtestingprogramme.
 Benchmarking versus best practice standards - e.g. ISO27001.
 Implementation of regulatory changes - e.g. General Data Protection Regulation.
 Secondandthird-linerisk-basedreviews.
8.
Regulatory and compliance
Relationshipswithregulatorsandcompliance withlegalandregulatoryrequirements. Any compliance breaches could result in sanctions and reputational damage (e.g. prosecutions or fines).
Regulatory and compliance risk extends to oversightofstandardsadoptedby businesspartners (e.g.franchises, appointed representatives,joint ventures and minority investments). 
The market and business operations are also impacted by regulatory reforms (e.g. Housing White Paper) which may have an effect on Group revenue and expenditures.
Regulatory costs, fees and charges continue to grow due to the rising funding requirements of the Financial Services Compensation Scheme.
 Top-down culture focused on fairness, transparency and successfulcustomeroutcomes.
 Opendialoguewithregulatorsandmonitoringofemerging developments and regulatory reforms.
 Groupriskframeworkpolicyincorporatinga'three-linesof defence'model totrackcompliancewithregulations.
 Grouppolicies including ethics (e.g.whistleblowingstructuresand anti-fraud and anti-bribery policies) and employee welfare.
 Group-wide health and safety arrangements to ensure the welfare of employees and visitors to Group premises.
 Group-levelforumswithregulatoryfocus and oversight (e.g. FSMC, FSRC and Information Security and Governance Group).
 Dedicated compliance teams in higher risk/regulated functions.
 EvolutionofIT systemsto strengthenoversightroutines.
 Responsivecomplaintstrackingofanyemergingthemes.
 In-house Legal Services team, with external consultativesupportwhenneeded.
 GroupRiskandInternal Auditreviews.
People:
9.
Employees
Securingandretainingkeystrategicpopulation and controlling attrition in key business critical areas, ensuringtheeffectivemanagementof personnelstandardsacrossvariedGroup businesses.
 OversightbyLSLRemunerationandNominations Committees.
 Groupremunerationpoliciesandincentiveschemesto retainkeystrategicpopulation.
 Regular benchmarkingandappraisalsof senior management.
 Successionplanningreviews and targeted reviews in some areas.
 Dedicatedin-houserecruitmentteam.
 Targeted retention and recruitment initiatives.
 StaffsurveysandGroupHRinitiativesto focus on attrition,improvestaff morale,relieveareasofpressureandimproveoperational efficiencies.
 Group-wideHRITsystems.
 Monitoringofstatutoryrequirementsanddevelopments.
 Employee policies and monitoring framework (e.g. health and safety).
 Cultureoftransparency,clearGrouppoliciesand whistleblowingproceduresto enable staffto confidentiallyraiseconcerns.
Group Income Statement
for the year ended 31st December 2016
2016
2015
Note
'000
'000
 
Revenue 
3
307,750
300,594
Operating expenses:
Employee and subcontractor costs
(182,687)
(171,216)
Establishment costs
(19,888)
(19,012)
Depreciation on property, plant and equipment
(5,475)
(5,296)
Other
(67,282)
(65,180)
(275,332)
(260,704)
Other operating income
1,165
1,865
(Loss) on sale of property, plant and equipment
(9)
(44)
Group's share of profit after tax in joint ventures
1,049
1,156
Group operating profit
4
34,623
42,867
Share-based payments
(1,263)
(871)
Amortisation of intangible assets
(3,914)
(1,803)
Exceptional gains
5
34,531
-
Exceptional cost
5
(2,341)
(258)
Contingent consideration
5
3,785
1,477
Group operating profit
3
65,421
41,412
Finance income 
-
5
Finance costs
(1,896)
(2,817)
Net financial costs
(1,896)
(2,812)
Profit before tax
63,525
38,600
Taxation
 - related to exceptional items and contingent consideration
(6,432)
52
 - others
(6,601)
(8,190)
8
(13,033)
(8,138)
Profit for the year 
50,492
30,462
Attributable to
- Owners of the parent
50,493
30,414
- Non-controlling interest
(1)
48
Earnings per share expressed in pence per share:
Basic 
6
49.2
29.7
Diluted
6
49.0
29.5
Group Statement of Comprehensive Income
for the year ended 31st December 2016
2016
2015
'000
'000
Profit for the year
50,492
30,462
Items to be reclassified to profit and loss in subsequent periods:
Reclassification adjustments for disposal of financial assets
(33,022)
(440)
Income tax effect
5,914
53
Revaluation of financial assets
11,816
5,130
Income tax effect
(2,015)
(580)
Net other comprehensive (loss)/income to be reclassified to profit and loss in subsequent periods:
(17,307)
4,163
Total other comprehensive (loss)/income for the year, net of tax
(17,307)
4,163
Total comprehensive income for the year, net of tax
33,185
34,625
Attributable to
 - Owners of the parent
33,186
34,577
 - Non-controlling interest
(1)
48
Group Balance Sheet 
as at 31st December 2016
2016
2015
'000
'000
Non-current assets
Goodwill
151,901
136,395
Other intangible assets
33,249
30,517
Property, plant and equipment
18,842
19,393
Financial assets
4,603
28,871
Investments in joint ventures
8,762
8,778
Total non-current assets
217,357
223,954
Current assets
Trade and other receivables
32,263
35,366
Cash and cash equivalents
-
5,603
Total current assets
32,263
40,969
Total assets
249,620
264,923
Current liabilities
Financial liabilities
(10,739)
(15,777)
Trade and other payables
(50,900)
(50,102)
Current tax liabilities
(7,581)
(2,525)
Provisions for liabilities 
(5,742)
(12,100)
Total current liabilities
(74,962)
(80,504)
Non-current liabilities
Financial liabilities
(26,469)
(52,511)
Deferred tax liability
(3,801)
(6,927)
Provisions for liabilities 
(15,622)
(17,625)
Total non-current liabilities
(45,892)
(77,063)
Total Liabilities
(120,854)
(157,567)
Net assets
128,766
107,356
Equity
Share capital
208
208
Share premium account
5,629
5,629
Share-based payment reserve
4,303
3,564
Treasury shares
(5,368)
(5,988)
Fair value reserve
3,571
20,878
Retained earnings
120,239
82,880
Equity attributable to owners of parent
128,582
107,171
Non-controlling interests
184
185
Total equity
128,766
107,356
Group Statement of Cash Flows
for the year ended 31st December 2016
31st
December 2016
 31st December 2015
'000
'000
'000
'000
Cash generated from operating activities
Profit before tax
63,525
38,600
Adjustments to reconcile profit before tax to net cash from operating activities
 Exceptional operating items and
 contingent consideration 
(35,975)
(1,219)
 Amortisation of intangible assets
3,914
1,803
 Finance income
-
(5)
 Finance costs 
1,896
2,817
 Share-based payments
1,263
871
Total adjustments
(28,902)
4,267
Group operating profit before amortisation and share-based payments
34,623
42,867
 Depreciation
5,475
5,296
 Dividend income
(492)
(835)
 Share of results of joint ventures
(1,049)
(1,156)
 Loss/(Gain) on sale of property, plant and 
 equipment and financial assets 
9
(253)
3,943
3,052
Decrease in trade and other receivables
3,265
975
(Decrease) in trade and other payables 
(614)
(1,026)
(Decrease) in provisions
(8,561)
(9,345)
(5,910)
(9,396)
Cash generated from operations
32,656
36,523
 Interest paid
(1,948)
(1,852)
 Tax paid
(8,861)
(5,613)
(10,809)
(7,465)
Net cash generated from operating activities
21,847
29,058
Cash flows from investing activities
 Cash acquired on purchase of subsidiary
 undertaking
1,593
774
 Acquisitions of subsidiaries and other 
 businesses 
(8,451)
(13,202)
 Payment of contingent consideration
(3,537)
(4,015)
 Investment in financial assets
-
(1,178)
 Investment in joint venture
(2)
-
 Cash received on sale of financial assets
35,991
297
 Dividends received from joint venture
-
1,499
 Dividends received from financial assets
778
549
 Interest received
-
5
 Purchase of property, plant and equipment 
 and intangible assets
(6,064)
(7,991)
 Proceeds from sale of property, plant and
 equipment 
69
328
Net cash generated / (expended) on investing activities
20,377
(22,934)
Cash flows from financing activities
 Repayment of loans
(25,243)
-
 Drawdown of loans
-
11,500
 Repayment of overdraft
(718)
 Repayment of loan notes
(7,294)
(63)
 Payment of deferred consideration
(2,422)
-
 Proceeds from exercise of share options
48
1,314
 Dividends paid
(12,916)
(12,554)
Net cash used in financing activities
(47,827)
(521) 
Net (decrease) / increase in cash and cash equivalents 
(5,603)
5,603
Cash and cash equivalents at the beginning of the year
5,603
-
Cash and cash equivalents at the end of the year
-
5,603
Group Statement of Changes in Equity
for the year ended 31st December 2016
Share capital
Share premium account
Share- based payment reserve
Treasury shares
Fair value Reserve
Retained earnings
Total equity
Non-controlling interests
Total
'000
'000
'000
'000
'000
'000
'000
'000
'000
At 1stJanuary 2016
208
5,629
3,564
(5,988)
20,878
82,880
107,171
185
107,356
Disposal of financial assets (net of tax)
-
-
-
-
(27,108)
-
(27,108)
-
(27,108)
Revaluation of financial assets (net of tax)
-
-
-
-
9,801
-
9,801
-
9,801
Other comprehensive income for the year
-
-
-
-
(17,307)
-
(17,307)
-
(17,307)
Profit for the year
-
-
-
-
-
50,493
50,493
(1)
50,492
Total comprehensive income for the year
-
-
-
-
(17,307)
50,493
33,186
(1)
33,185
Exercise of options
-
-
(524)
620
-
(218)
(122)
-
(122)
Share-based payments
-
-
1,263
-
-
-
1,263
-
1,263
Dividend payment
-
-
-
-
-
(12,916)
(12,916)
-
(12,916)
At 31stDecember 2016
208
5,629
4,303
(5,368)
3,571
120,239
128,582
184
128,766
Year ended 31st December 2015
Share capital
Share premium account
Share- based payment reserve
Treasury shares
Fair value Reserve
Retained earnings
Total equity
Non-controlling interests
Total
'000
'000
'000
'000
'000
'000
'000
'000
'000
At 1stJanuary 2015
208
5,629
3,498
(7,922)
16,715
64,835
82,963
137
83,100
Disposal of financial assets (net of tax)
-
-
-
-
(387)
-
(387)
-
(387)
Revaluation of financial assets (net of tax)
-
-
-
-
4,550
-
4,550
-
4,550
Other comprehensive income for the year
-
-
-
-
4,163
-
4,163
-
4,163
Profit for the year
-
-
-
-
-
30,414
30,414
48
30,462
Total comprehensive income for the year
-
-
-
-
4,163
30,414
34,577
48
34,625
Exercise of options
-
-
(805)
1,934
-
185
1,314
-
1,314
Share-based payments
-
-
871
-
-
-
871
-
871
Dividend payment
-
-
-
-
-
(12,554)
(12,554)
-
(12,554)
At 31stDecember 2015
208
5,629
3,564
(5,988)
20,878
82,880
107,171
185
107,356
Notes to the Preliminary Results Announcement
The financial information in this preliminary results announcement does not constitute LSL's statutory financial statements for the year ended 31st December 2016 but has been extracted from the Financial Statements included in LSL's Annual Report & Accounts 2016 and as such, does not contain all information required to be disclosed in the financial statements prepared in accordance with IFRS.
Statutory financial statements for this year will be filed following the 2017 AGM. The auditors have reported on these financial statements. Their report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
1. Directors responsibility statement 
Each of the current Directors confirms that, to the best of their knowledge, the financial statements, prepared in accordance with IFRS as adopted by EU standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidation taken as a whole; and the Directors' Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
2. Basis of preparation
The accounting policies adopted are consistent with those of the previous financial year except for the adoption of new Standards and interpretations as of 1st January 2016 which are applicable to the Group. For the Financial Statements for the year ended 31st December 2016, there were no IFRS, amendments or IFRIC interpretations effective for the first time this financial year that had a material impact on the Group. This is with the exception of IFRS 16, for which we continue to evaluate the impact.
3. 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 and as part of its business model, the Estate Agency Division also provides associated services including arranging 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 Solutions. 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 the Estate Agency and Related Services segment.
 The Surveying and Valuation Services segment provides a valuations and professional survey service of residential properties to various lending corporations and individual customers. 
Each segment has various products and services and the revenue from these products and services are disclosed in the Business Review section of the Strategic Report of the Annual Report and Accounts 2016.
The Management Teams monitor the operating results of each 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 table presents revenue and profit information regarding the Group's operating segments for the financial year ended 31st December 2016 and financial year ended 31st December 2015 respectively.
Year ended 31st December 2016
Estate Agency and Related Services
Surveying
and Valuation Services
Unallocated
Total
Income statement information
'000
'000
'000
'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
Year ended 31st December 2015
Estate Agency and Related Services
Surveying
and Valuation Services
Unallocated
Total
Income statement information
'000
'000
'000
'000
Segmental revenue
236,525
64,069
-
300,594
Segmental result:
- before exceptional costs, contingent consideration, amortisation and share-based payments
31,288
18,104
(6,525)
42,867
- after exceptional costs, contingent
29,347
17,459
(5,394)
41,412
consideration, amortisation and share-based payments
Finance income
5
Finance costs
(2,817)
Profit before tax
38,600
Taxation
(8,138)
Profit for the year 
30,462
4. 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:
2016
2015
Note
'000
'000
Group operating profit
3
65,421
41,412
Share-based payments
1,263
871
Amortisation of intangible assets
3,914
1,803
Exceptional gains
5
(34,531)
-
Exceptional costs
5
2,341
258
Contingent consideration
5
(3,785)
(1,477)
Group Underlying Operating Profit
34,623
42,867
5. Exceptional items and contingent consideration
2016
2015
'000
'000
Exceptional costs:
Branch closure and restructuring costs including redundancy costs
2,341
258
Contingent consideration on acquisitions
(3,785)
(1,477)
Exceptional gains:
Gain on disposal of Zoopla shares
(32,931)
-
Provision for PI Costs (claims and notifications)
(1,600)
-
(34,531)
-
6. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year plus the weighted average number of Ordinary Shares that would be issued on the conversion of all the dilutive potential Ordinary Shares into Ordinary Shares. 
Profit after tax
'000
Weighted average number of shares
2016
Per share amount
Pence
Profit after tax
'000
Weighted average number of shares
2015
Per share amount
Pence
Basic EPS 
50,493
102,575,484
49.2
30,414
102,406,770
29.7
Effect of dilutive share options
519,565
791,256
Diluted EPS 
50,493
103,095,049
49.0
30,414
103,198,026
29.5
There have been no other transactions involving Ordinary Shares or potential Ordinary Shares between the reporting date and the date of completion of these Financial Statements.
The Directors consider that the adjusted earnings shown below give a better and more consistent indication of the Group's underlying performance:
2016
'000
2015
'000
Group Underlying Operating Profit (excluding non-controlling interest) (Note 4):
34,625
42,819
Net finance costs (excluding exceptional costs and contingent consideration)
(1,410)
(2,360)
Normalised taxation
(6,643)
(8,193)
Adjusted profit after tax1 before exceptional costs, share-based payments and amortisation 
26,572
32,266
Adjusted basic and diluted EPS
Adjusted profit after tax1
'000
Weighted average number of shares
2016
Per share amount
Pence
Adjusted profit after tax1
'000
Weighted average number of shares
2015
Per share amount
Pence
Adjusted Basic EPS 
26,572
102,575,484
25.9
32,266
102,406,770
31.5
Effect of dilutive share options
519,565
791,256
Adjusted Diluted EPS 
26,572
103,095,049
25.8
32,266
103,198,026
31.3
Note 1 -This represents adjusted profit after tax attributable to equity holders of the parent. The normalised tax rate in 2016 is 20.00% (2015: 20.25%).
7. Dividends paid and proposed
2016
2015
'000
'000
Declared and paid during the year:
Equity dividends on Ordinary Shares:
2014 Final: 8.3pence per share
2015 Interim: 4.0pence per share
8,458
4,096
2015 Final: 8.6 pence per share
8,812
2016 Interim: 4.0 pence per share
4,104
12,916
12,554
Dividends on Ordinary Shares proposed (not recognised as a liability as at 31st December):
Equity dividends on Ordinary Shares:
Dividend: 6.3 pence per share (2015: 8.6 pence per share)
6,466
8,808
8. Taxation 
(a) Tax on profit on ordinary activities
The major components of income tax charge in the Group income statements are:
2016
2015
'000
'000
UK corporation tax - current year
12,703
7,787
 - adjustment in respect of prior years
1,009
 391
13,712
8,178
Deferred tax:
Origination and reversal of temporary differences
(500)
(470)
Adjustment in respect of prior year
(179)
430
Total deferred tax (credit)
(679)
(40)
Total tax charge in the income statement
13,033
8,138
The 2015 Summer Budget announced that the headline rate of Corporation Tax in the UK would be further reduced from the current rate of 20% to 19% effective from 1st April 2017, and further reduced to 18%, effective from 1st April 2020. The Budget of March 2016 announced that from 1st April 2020, the proposed corporation tax will be lowered further still to 17%. Following the substantive enactment of Finance Bill 2016 in September 2016, the corporation tax rate of 17% has been confirmed. Accordingly this is the rate at which deferred tax has been provided (2015: 18%). Corporation tax is recognised at the headline UK effective rate of 20% (2015: 20.25%).
The effective rate of tax for the year was 20.5% (2015: 21.1%). The effective tax rate for 2016 was decreased as a result of reducing the rate at which deferred tax is provided resulting from the reduction in the headline rate of corporation tax. Deferred tax credited directly to other comprehensive income is 3.8m (2015: charge of 0.5m); this is comprised of a credit of 5.9m and a charge of 2.1m and relates to the disposal and revaluation of financial assets. Income tax credited directly to the share based payment reserve is 0.1m (2015: nil).
(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is higher (2015: higher) than the standard UK corporation tax rate, because of the following factors:
 2016
 2015
 '000
 '000
Profit on ordinary activities before tax 
63,525
38,600
Tax calculated at UK standard rate of corporation tax rate of20.0% (2015 - 20.25%) 
12,705
7,816
Non-taxable income from joint ventures and dividends
(95)
(403)
Other income not taxable
(510)
-
Benefit of deferred tax asset and brought forward losses not previously recognised
-
(32)
Disallowable expenses
577
381
Impact of movement in contingent consideration credited to the Income Statement
(757)
(295)
Capital gains in excess of accounting profit
183
-
Share-based payment relief
251
57
Impact of rate change on deferred tax
(151)
(207)
Prior period adjustments - current tax
1,009
391
Prior period adjustment - deferred tax
(179)
430
Total taxation charge
13,033
8,138
9. Analysis of Net Bank Debt (excluding loan notes) 
2016
2015
'000
'000
Interest bearing loans and borrowings
- Current
10,851
15,777
- Non-current
26,357
52,511
37,208
68,288
Less: Unsecured loan notes
(2,000)
(10,033)
Less: cash and short-term deposits
-
(5,603)
Less: deferred and contingent consideration
(14,952)
(12,755)
Net Bank Debt at the end of the year
20,256
39,897
During the year, the Group has repaid 29.0m (2015: drawn down 11.5m) of the revolving credit facility. The utilisation of this revolving credit facility may vary each month provided that it does not exceed the maximum 100.0m facility (2015: 100.0m). 
10. Acquisitions during the year
The Group acquired the following businesses during the year:
a. Lettings books and other
During the period the Group acquired nine lettings books and a two branch estate agency business from a franchisee for a total combined consideration of 4,241,000. The fair values 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
4,190
Cash and cash equivalents
51
Deferred tax liabilities
(1,593)
Total identifiable net liabilities acquired
2,648
Purchase consideration
4,241
Goodwill
1,593
Purchase consideration discharged by:
Cash
4,241
Analysis of cash flow on acquisition
'000
Transaction costs (included in cash flows from operating activities)
55
Net cash acquired with the subsidiary (included in cash flows from investing activities)
(51)
Purchase consideration discharged in cash (included in cash flows from investing activities)
3,883
Net cash outflow on acquisition
3,887
b. Group First 
In February 2016, the Group, through a wholly owned subsidiary, acquired 65% interest in Group First, which provides mortgage and protection brokerage services to the purchasers of new homes through its subsidiaries, Mortgages First and Insurance First Brokers. The consideration for the initial investment is 9.1m cash with 50% paid on completion, and a further 50% payable in 2017. The remaining 35% is subject to put and call options which are exercisable between 2018 and 2020. The contingent consideration is the Director'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 as below: 
Fair value recognised on acquisition
'000
Intangible assets
809
Property, plant and equipment
847
Trade and other receivables
127
Cash and cash equivalents
1,542
Trade and other payables
(1,501)
Current tax liabilities
(216)
Deferred tax liabilities
160
Total identifiable net assets acquired
1,768
Purchase consideration
15,681
Goodwill
13,913
Purchase consideration discharged by:
Cash
4,550
Deferred consideration
4,550
Contingent consideration
6,581
15,681
c. Total Acquisitions
At 31st December 2016, the acquisitions in aggregate, including Group First, have contributed 7,979,000 of revenue and 2,609,000 profit before tax to the Group, excluding the impact of movements in the contingent consideration recorded through the profit and loss. If all of these combinations had taken place at the beginning of the year, the consolidated revenue would have been higher by 1,749,000 and the consolidated profit before tax would have been higher by 593,000. Transaction costs have been expensed.
'000
Transaction costs
55
Net cash acquired with the subsidiaries and other businesses
(1,593)
Purchase consideration discharged 
8,433
Net Cash outflow on acquisition
6,895
11. Annual General Meeting (AGM)
The AGM will be held at the London offices of LSL, 1-3 Sun Street, London EC2A 2EP on 27th April 2017 starting at 4.00pm.

This information is provided by RNS
The company news service from the London Stock Exchange
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