REG - LSL Property ServPLC - PRELIMINARY ANNOUNCEMENT <Origin Href="QuoteRef">LSL.L</Origin> - Part 2

LSL Property ServicesAnnouncement

12/03/2015 07:01

- Part 2: For the preceding part double click  ID:nRSL2223Ha 

liabilities has not been presented. 
 
International Financial Reporting Standards (IFRS) 
 
The Financial Statements have been prepared under IFRS as adopted by the
European Union. 
 
Principal Risks and Uncertainties 
 
During 2014, in line with FRC guidance, LSL's risk management and internal
controls framework included: 
 
a.     ownership of the risk management and internal controls framework by the
Board, supported by the Company Secretary, Head of Risk and Internal Audit and
Group Finance; 
 
b.     a network of Risk Owners in each of LSL's businesses with specific
responsibilities relating to risk management and internal controls; 
 
c.     the documentation and monitoring of risks are recorded and managed
through standardised risk registers which undergo regular reviews and scrutiny
by local boards and the Head of Risk and Internal Audit; 
 
d.     the Board regularly identifies, reviews and evaluates the principal
risks which may impact the Group as part of the planning and reporting cycle
to ensure that such risks are identified, monitored and mitigated; and 
 
e.     reporting by the Chairman of the Audit Committee to the Board on any
matters which have arisen from the Audit Committee's review of the way in
which the risk management and internal control framework has been applied
together with any breakdowns in, or exceptions to, these procedures. 
 
In line with 2014 edition of the Code and the FRC's 'Guidance on Risk
Management, Internal Control and Related Financial and Business Report', which
integrates and replaces the FRC's previous guidance ('Internal Control:
Revised Guidance for Directors on the Combined Code' and 'Going Concern and
Liquidity Risk Guidance for Directors of UK Companies') which was published in
September 2014, LSL has adopted a Group-wide risk appetite statement and
framework. The new framework will be applied during 2015, and LSL will report
on its progress in the 2015 Report. 
 
Listed below are the risks which the Board has identified at the date of this
Report as being therefore the principal risks and uncertainties faced by LSL
at the date of this Report, together with details of key management and
mitigation initiatives, which are subject to regular review. 
 
LSL also faces other risks which, although important and subject to regular
review, have been assessed as less significant and are not listed below.  This
may include some risks which are not currently known to the Group or that LSL
currently deems as immaterial, or were included in previous Annual Report and
Accounts and through changes in external factors and careful management, are
no longer deemed to be material to the Group as a whole. 
 
However, these risks may individually or cumulatively also have a material
adverse effect together with other risk factors which are beyond the direct
control of LSL, and may have a material adverse impact on LSL's business,
results of operations and/or financial condition.  The risk management
framework and procedures in place can only provide reasonable but not absolute
assurance that the principal risks and uncertainties are managed to an
acceptable level. 
 
Further information relating to how LSL managed these risks and uncertainties
during 2014 is set out in the Audit Committee Report (Internal Controls) of
the Annual Report & Accounts 2014. 
 
Principal Risk and Uncertainty 
 
 Description and Impact:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Management and Mitigation                                                                                                                                                                                                                                       
 Housing Market - UK:• The UK residential housing market in 2014 was a story in two halves, with some market improvement in the first quarter, followed by a weakening from the second quarter which continued for the remainder of the year. • Market trends in 2014 were linked in the first half of the year to the implementation of MMR, and in the second half of the year to the tightening of lending criteria together with some cooling of sentiment in the housing market generally. In addition, looking forward there is some short term political risk around the 2015 general election.  Any impact on transaction volumes (both house purchase and remortgage) and house prices may adversely affect the profitability and cash flow of all key brands and businesses.                                                                                            The Board regularly reviews trends in market volumes and monitors the Group's operational gearing to decide on the appropriate level of resourcing.  In addition, the Board regularly focuses on non-cyclical and counter cyclical income streams, in particular 
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Lettings, to offset any impact on residential transaction numbers. Further, regular reviews of trends in market volumes are undertaken and decisions made on any cost base reductions measures.                                                                 
 Housing Market - Central London:• LSL has an exposure to the prime Central London property market via Marsh & Parsons.  While historically the London market has been more robust compared to the rest of the UK, there is a risk that the London market fails to grow or that LSL fails to maximise the potential growth.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Marsh & Parsons has an incentivised and established management team with a growth strategy. It operates in all segments of the prime Central London market and has opened four new branches in 2014 with further new openings planned for 2015 to improve       
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  geographical coverage.  The Board closely monitors the company's performance.                                                                                                                                                                                   
 Client Contracts:• A failure to secure or renew, key Valuation Services or Asset Management contracts, or any significant reduction in volumes combined with a pressure on fees, either as a result of adverse market conditions, market consolidation, competition or inadequate service delivery.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              There continues to be investment in customer services to retain existing clients and to attract new ones. In addition, LSL continues to provide private survey services to provide a supplemental income stream to the core B2B arrangements. Group-wide        
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  relationship management arrangements are in place to ensure that LSL uses its networks to strengthen relationships with key lender clients.                                                                                                                     
 Professional Services: • Liabilities arising from the provision of inaccurate professional services advice to clients (e.g. valuation services) arising from employee errors and/or a failure by LSL businesses to put in place and to maintain appropriate internal controls.• The period from 2004 to 2008 is identified as the high risk lending period and notifications relating to this period are still being received. Accordingly, the PI provisions disclosed in the Report is the Group's best estimate of likely claim costs, and this remains sensitive to the rate of new notifications and the average cost of current and future claims. • The costs and management resources applied in responding to claims and notifications diverts resources away from value adding activities.• Costs and losses arising from a failure to manage any actual or threatened Monitoring arrangements include oversight by the Board (including regular review of the PI provision relating to Surveying and Valuation Services) and appropriate quality controls and Risk and Internal Audit reviews of services provided on a sample basis.  
 legal claims.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    There are also specific operational controls implemented within the Surveying Division which includes a risk based criteria for the identification of transactions to be subject to enhanced review measures.During 2014 LSL completed a detailed review of its 
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  PI claims and the associated PI provision and further initiatives to improve internal controls and related reporting are continuing into 2015. The Board regularly review the PI provision to ensure that the cost per claim, number of notifications and the   
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  rate of deterioration from notifications to claims are in line with the parameters used to calculate the provision.                                                                                                                                             
 Regulatory and Government:• Failure to comply with existing legislation/regulation or changes to legislation/regulation and/or Government/EU policy which may impact on business results or the UK housing market in general.• Changes in macro Government economic policy or specific initiatives in respect of the UK Residential Housing sector following the forthcoming election may impact upon the business.                                                                                                                                                                                                                                                                                                                                                                                                                                                              LSL business units are supported by the Compliance and Legal Services teams who closely monitor existing business practices and any reform proposals.  Where appropriate Government departments and/or trade bodies are engaged in a dialogue.The Board also    
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  monitors the impacts of changes and assess changes to business practices which may be required to respond to Government policy changes and to ensure compliance with any new legislation.Where necessary external specialists are engaged to provide advice to  
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  ensure that all laws and regulations are adhered to and that a culture of ensuring