REG - LSL Property Svcs. - Full Year Results
25/04/2024 07:15
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240425:nRSY0039Ma&default-theme=true
RNS Number : 0039M LSL Property Services PLC 25 April 2024
25 April 2024
LSL Property Services plc ("LSL" or "Group")
FULL YEAR RESULTS TO 31 DECEMBER 2023
COMPLETION OF MAJOR TRANSFORMATION PROGRAMMES IN 2023
MOMENTUM BUILDING
LSL today reports its results for the 12 months ended 31 December 2023.
The mortgage and housing markets were significantly disrupted in 2023,
impacting the financial performance of the Group. However, following a
positive final quarter of 2023, the preliminary results are slightly ahead of
expectations. Momentum has continued to build further in 2024, particularly in
our Surveying & Valuation Division. Over the first quarter, Underlying
Operating Profit was materially above the same period in 2023, reflecting the
benefits of the Group's transformation programme completed in 2023 as well as
improving market conditions.
The continued strong performance since our recent trading update on 6 March
has reinforced the Board's confidence, and our expectations for full year
Underlying Operating Profit have increased again.
Net Cash was £35.0m at the year end with the final dividend maintained at
7.4p per share, and the Board today announces a Share Buy Back programme,
following a review of capital structure and capital allocation policies. An
initial £7m tranche will commence imminently.
David Stewart, Group Chief Executive commented:
"2023 marked a period of significant progress in our transformation to a
higher margin, less capital-intensive business that will perform more
consistently through market cycles. Against the backdrop of very challenging
market conditions, we have simplified and restructured our Financial Services
and Estate Agency businesses. Both are now focused on business-to-business
services with a significantly lower cost base and the potential for higher
free cash flow generation.
"Following this significant restructuring, LSL is now a more streamlined,
agile Group comprising three market leading businesses with high return and
organic growth opportunities that are well positioned to capitalise from the
recent recovery in the housing and mortgage markets. Our focus is on
maximising the performance of these businesses to deliver value to
shareholders.
"I would also like to take the opportunity to give both my personal thanks and
those of the rest of my colleagues to Simon Embley, who has decided to step
down from the Board on 1 May. Simon's contribution to LSL has been
extraordinary, from its beginning in 2004 to the present day. I am delighted
that we will continue to work closely with him as he focuses on the growth
plans of our joint venture, Pivotal Growth, which has made substantial
progress over the past year."
STRATEGIC HIGHLIGHTS
Following the successful completion of our restructuring and transformation
programmes, LSL is now a much simpler Group, and is expected to deliver higher
operating margins, and more consistent earnings through market cycles.
· Conversion of entire owned estate agency network to franchisees. LSL
is now one of the UK's leading estate agency franchise businesses, supplying
services to 308 territories
· The sale of our four direct-to-consumer (B2C) financial service
advice businesses was completed in April 2023 to Pivotal Growth, our joint
venture with Pollen Street Capital. LSL's Financial Services core activities
are now focused on business-to-business (B2B) services, while retaining the
opportunity to capitalise on B2C opportunities through our equity share in
Pivotal Growth
· In August 2023, we announced the acquisition of TenetLime mortgage
network, with completion taking place on 2 February 2024, following FCA
approval and the successful migration and onboarding of over 150 network firms
with over 250 advisers. The acquisition will be earnings enhancing in 2024
with the current financial performance in line with our targets
· Disposal of Marsh & Parsons, our London Estate Agency brand,
which did not fit into our overall franchising strategy. Final consideration
was £26.1m at an attractive multiple
· Completion of these projects means that the Group's annualised cost
base has been reduced by £140 million representing 50% savings on an
annualised basis
OTHER HIGHLIGHTS
· Recruitment of a new Chair is well advanced, and that of a new Senior
Independent Director is also well underway. We will provide a further update
in due course
· Following the expansion of Pivotal Growth, Simon Embley will not seek
re-election at the upcoming AGM and will step down from the Board on 1 May
2024 to focus on executing Pivotal's growth plans
· Capital structure and capital allocation policy reviewed. Small net
cash position to be maintained. Capital to be deployed at an appropriate risk
adjusted margin above our Weighted Average Cost of Capital (WACC): currently
12%. Excess capital to be returned to shareholders
· Share Buy Back programme announced today, with initial £7m tranche.
Commencement of programme is imminent
· Full year dividend of 11.4p (2022: 11.4p), with Final dividend
maintained at 7.4p, reflecting strong balance sheet and Board's confidence in
prospects
· Agreed new RCF in February 2023 of £60m with existing lenders,
extending maturity to May 2026
FINANCIAL HIGHLIGHTS
The Group's strategic transformation means our 2023 financial results are less
directly comparable to 2022. Our key financial highlights are:
Full year financial metrics(1) 2023 Restated(2) Var
2022
Group Revenue (£m) 144.4 217.5 (34)%
Group Underlying Operating Profit from total operations(3) (£m) 9.3 35.8 (74)%
Group Underlying Operating margin (%) 5% 11% (600)bps
Group Underlying Operating Profit from continuing operations(4) (£m) 10.3 29.9 (66)%
Exceptional Gains (£m) 9.3 0.7 Nm
Exceptional Costs (£m) (13.8) (48.3) 71%
Group operating profit / (loss) (£m) 3.7 (21.7) 117%
Profit / (loss) before tax (£m) 4.9 (23.8) 121%
Loss from discontinued operations(4) (£m) (46.1) (36.5) (26)%
Basic Earnings per Share(5) (pence) 7.9 (26.0) 130%
Adjusted Basic Earnings per Share(5) (pence) 7.6 27.6 (72)%
Net Cash(6) at 31 December (£m) 35.0 40.1 (13)%
Final Dividend per share (pence) 7.4 7.4 -
Full Year Dividend per share (pence) 11.4 11.4 -
Notes:
1 Stated on basis of continuing operations unless otherwise
stated. Refer to notes 2 and 6 to the Financial Statements
2 Refer to note 36 to the Financial Statements for details
regarding the restatement
3 Group (and Divisional) Underlying Operating Profit is
stated before exceptional items, contingent consideration assets &
liabilities, amortisation of intangible assets and share-based payments. Refer
to note 5 to the Financial Statements for reconciliation of Group and
Divisional Underlying Operating Profit to statutory operating profit/(loss)
for continuing, discontinued and total operations
4 Following the conversion of the entire owned estate agency
network to franchises in H1 2023, the previously owned network was classified
as a discontinued operation and is now presented as such in the Financial
Statements. Refer to notes 2 and 6 to the Financial Statements
5 Refer to note 12 to the Financial Statements for the
calculation
6 Refer to note 35 to the Financial Statements for the
calculation
· Group Revenue from continuing operations(1) was £144.4m (2022:
£217.5m). After adjusting for disposals and discontinued operations in Estate
Agency(1), revenue was around 10%(2) below prior year in a market in which
purchase and remortgage lending was down 29% and house sales which were 19%
lower
· Group Revenue including discontinued operations(1,3) in Estate Agency
Franchise, was £176.8m (2022: £321.7m)
· Group Operating Profit was £3.7m (2022: loss of £21.7m)
· Group Underlying Operating Profit from total operations(1,4) was
£9.3m (2022: £35.8m), slightly ahead of expectations, with disrupted markets
particularly impacting results in the Surveying & Valuations Division
· Group Underlying Operating Profit from continued operations(1,4) was
£10.3m (2022: £29.9m)
· Net Exceptional costs(5) of £4.5m (2022: net costs £47.6m)
· Net Cash(6) of £35.0m at 31 December 2023 (31 December 2022:
£40.1m)
DIVISIONAL PERFORMANCE
Financial Services Division
· Financial Services division transformed to focus exclusively on
business-to-business services with the disposal of four businesses to Pivotal
Growth, reducing divisional costs by around £30m annualised
· Financial Services Network business traded resiliently in difficult
market conditions, reporting Underlying Operating Profit(4) of £10.0m (2022:
£15.5m)
· Increased market share of the UK purchase and remortgage market(7) of
10.7% (2022: 10.5%)
· LSL advisers responded effectively to changes in the mortgage market
increasing product transfer mortgage completions by 41% resulting in a
substantially increased share of the product transfer market of 7.4% (2022:
6.4%)
· Resilient protection sales - Network protection revenue increased
by 2% to £11.6m (2022: £11.3m)
· The number of Network firms remained broadly flat at 1,000 on 31
December 2023 (31 December 2022: 1,005). Network firms remained cautious on
adviser levels due to challenging market conditions and adviser numbers
reduced to 2,661 as at 31 December 2023 (31 December 2022: 2,867)
Surveying & Valuation Division
· Surveying & Valuation performance was impacted by significant
reductions in valuation instructions across the market and as a result
Underlying Operating Profit(4) fell to £5.4m (2022: £20.4m)
· Market share of valuation instructions increased slightly to 38%
(2022: 37%)
· Early signs of market recovery in Q4 2023, with significant
improvement in 2024
· Contract with Lloyd's Banking Group extended to September 2028,
underpinning the Group's leading market position. Furthermore, we also secured
an improvement in terms and allocation with another major lender
· Retained contracts with all lending customers with no loss in
allocations
· Self-help cost measures were taken in 2023, including a reduction in
the number of employed surveyors, achieved through voluntary redundancy. Our
principal focus was to retain sufficient capacity to meet the requirements of
more normal market conditions, and the business carried material excess costs
in 2023, over the level of demand. All capacity is now fully deployed in Q1
2024, as the market recovered
· Surveying profit in Q1 2024 was greater than the whole of 2023 as we
benefited from recovering markets, improved contract terms and renewals, as
well as the decision to retain excess capacity during 2023
Estate Agency Franchising Division
· Estate Agency Franchising Division transformation following the
conversion of owned branch network to Franchisees and disposal of Marsh &
Parsons leading to divisional annualised cost reductions of c.£110m and
thereby reducing earnings volatility
· Benefits of new business model were reflected in an Underlying
Operating Profit(4) of around £5m in the 8-month period since the franchising
change in May 2023, with H2 operating margins around 25%. This compared to a
loss of around £0.3m for the first 4 months of the year under the old
business model. Total Underlying Operating Profit(4) for 2023 of £4.7m was
delivered during a period when there was a market-wide reduction of 19% in
house sales, to the lowest level for 11 years
· In the first month of 2024, the Estate Agency Division reported a
profit for only the second time in its history, reflecting the more consistent
earnings of the franchise model
· The number of properties under management increased by 1% to 37,502
(2022: 37,177) demonstrating the resilience of lettings through market cycles
Pivotal Growth JV
· Pivotal Growth now has over 400 advisers, making it one of the
largest mortgage and protection brokers in the UK, giving it critical mass to
leverage its scale to attract deals and drive revenue synergies
· Acquisition during 2023 of four direct-to-consumer financial services
advice businesses from LSL Group for initial consideration of £9.3m, and
further contingent consideration payable to LSL in 2025 based upon 7x 2024
EBITDA performance
· These acquisitions further increased Pivotal Growth's scale,
expertise and capability serving New Build, Estate Agency, and General
Insurance customers
· Three further acquisitions have completed so far during 2024
including the acquisition of John Charcol with 150 mortgage and protection
advisers. The acquisitions were funded from Pivotal cash reserves
· Pivotal Growth's financial performance has steadily improved as it
has increased in scale and moved out of its establishment phase. Pivotal is
expected to be profitable in 2024
ECONOMIC AND MARKET ENVIRONMENT
· Conditions in both the mortgage and housing markets were challenging,
with disruption to normal lender behaviour and consumer confidence impacted by
continuing high inflation and interest rate rises
· The mortgage lending market(7) remained suppressed, with total
lending 9% less than 2022. Purchase lending fell by 31% compared to 2022,
and remortgage lending decreased by 25% whilst product transfer lending
increased by 21% triggered by the sharp increase in interest rates impacting
mortgage affordability
· Total lending arranged by LSL was 9% lower than 2022, with an
increased share in each of the purchase, remortgage and product transfer
markets, and more heavily weighted than previously to product transfers. LSL's
share of the total purchase and remortgage market increased to 10.7%(7) (2022:
10.5%). LSL's market share of Product Transfers increased to 7.4% (2022: 6.4%)
· Bank of England mortgage approvals(8) were 30% lower than 2022. The
more specialist markets of Buy-to-Let and Equity release were particularly
affected by higher interest rates. There was also an increase in the
proportion of house purchases by cash buyers. These factors together with the
shift to product transfer business significantly affected our Surveying &
Valuation business and to a lesser extent our Financial Services network
businesses. Total jobs performed by the Surveying & Valuation Division
fell by 26%, less than the market as a whole, reflecting a small increase in
market share(7)
· Total UK HMRC recorded residential transactions(9) were 19% lower in
2023 at 1,019k (2022: 1,258k)
CURRENT TRADING AND OUTLOOK
2024 has started strongly with improving sentiment and lower mortgage rates
driving more activity across our core markets. We have seen an increase in
mortgage approvals as well as housing transactions and the start of a
normalisation in product mix in our mortgage business. These conditions have
particularly benefited our Surveying & Valuation business, where there has
been a very substantial increase in activity and profits.
It was against this background of improving activity and Group trading that we
issued a trading update on 6 March, since which time trading has remained
ahead of expectations. At the end of Q1 2024, Group Underlying Operating
Profit was materially ahead of the same period in 2023. This improved trading
reflects better market conditions as well as the benefits of the new Estate
Agency franchise model, improved lender contracts, and our decision to retain
surplus capacity throughout the second half of 2023 in our Surveying &
Valuation business.
Although we retain a degree of caution, inflation data still suggests that
interest rates will reduce in 2024, which would help support our markets.
This, together with the strong performance since our recent trading update on
6 March, reinforces the Board's confidence, and our expectations for full year
Underlying Operating Profit have increased further.
Notes:
1 Following the conversion of the entire owned estate agency
network to franchises in H1 2023, the previously owned network was classified
as a discontinued operation and is now presented as such in the Financial
Statements. Refer to notes 2 and 6 to the Financial Statements
2 Revenue: £138.1m in 2023 with statutory revenue of
£144.4m less £6.2m revenue from businesses disposed in 2023, as compared to
£154.1m in 2022 with statutory revenue of £217.5m less £63.4m revenue from
businesses disposed in 2023
3 Refer to note 4 of the Financial Statements
4 Group (and Divisional) Underlying Operating Profit is
stated before exceptional items, contingent consideration assets &
liabilities, amortisation of intangible assets and share-based payments. Refer
to note 5 to the Financial Statements for reconciliation of Group and
Divisional Underlying Operating Profit to statutory operating (loss)/profit
for continuing, discontinued and total operations
5 Refer to note 9 to the Financial Statements
6 Refer to note 35 to the Financial Statements for the
calculation
7 Mortgage lending excluding product transfers - New
mortgage lending by purpose of loan, UK (BOE) - Table MM23 (Jan 2024)
8 Number of Approvals for lending secured on dwellings, BoE
via UK Finance (Jan 2024)
9 Number of residential property transaction completions
with value £40,000 or above, HMRC (Jan 2024)
For further information, please contact:
David Stewart, Group Chief Executive Officer
Adam Castleton, Group Chief Financial Officer
LSL Property Services plc investorrelations@lslps.co.uk (mailto:investorrelations@lslps.co.uk)
Helen Tarbet
Sophie Wills
George Beale
Buchanan 0207 466 5000 / LSL@buchanan.uk.com (mailto:LSL@buchanan.uk.com)
Notes on LSL
LSL is one of the largest providers of services to mortgage intermediaries and
estate agent franchisees.
Its c.2,900 advisers represent around 11% of the total purchase and remortgage
market. PRIMIS was named Best Network, 300+ appointed representatives at the
2022 Mortgage Strategy Awards.
Its 61 estate agency franchisees operate in 308 territories.
LSL is also one of the UK's largest providers of surveying and valuation
services, supplying seven out of the eight largest lenders in the UK. e.surv
was named Best Surveying Firm at the 2022 Mortgage Finance Gazette Awards.
For further information please visit LSL's website: lslps.co.uk
(http://www.lslps.co.uk/)
GROUP CHIEF EXECUTIVE'S REVIEW
2023 was a year of significant progress, with the Group's transformation to a
structurally higher margin, lower capital intensity business now complete. We
have restructured both our Financial Services Network and our Estate Agency
Franchising Division, which are now exclusively focused on
business-to-business services, with a materially lower cost base and the
potential for higher free cash flow generation. As a result of the work we
have done, LSL is now well-positioned to drive greater shareholder value and
to perform more consistently through market cycles, supported by a strong
balance sheet.
With the benefit of the restructuring and transformation programmes complete,
the Board and management are focused now on maximising the operational
potential in the business and ensuring that this potential is appropriately
reflected in the wider perceptions of LSL. To that end, the Board also remains
actively engaged with its shareholders with the common aim to drive
shareholder value, including return on investment and capital management.
Our strategic progress has been delivered against a difficult market backdrop.
Rising interest rates and higher mortgage costs significantly impacted the
size and product mix in the mortgage market whilst reducing housing
transactions by 19%, impacting the financial performance in each of our
divisions. We ended the year with some early signs of green shoots in the
mortgage and housing markets as mortgage rates started to come down. Our full
year results are slightly ahead of the Board's previous expectations, and I am
pleased to report that 2024 has started strongly, with performance
significantly ahead of prior year.
Our transformation programme has delivered material cost savings and reduced
our cost base by 50% on an annualised basis. Combined with a new bank
facility, disposal proceeds and enhanced financial flexibility due to the
Group's strategic progress, we have strengthened our balance sheet further. We
ended the year with £35.0m of Net Cash(1).
Following the completion of our restructuring programme, the Board has
reviewed the Group's capital structure and capital allocation policies. Going
forward the Board expects the Group's strong profit to cash conversion
dynamics it has historically displayed to continue, and the Group to have only
small working capital requirements.
With a clear prioritisation of organic growth in our existing three Divisions,
the Group only needs to hold a small net cash position, of up to £10m. Cash
above this level after dividends and capex requirements, expected to be £3-5m
per annum, will be considered excess and returned to shareholders.
Capital allocation will prioritise organic growth measured against a risk
adjusted return above the Group's cost of capital. While not a priority, the
Board will continue to assess inorganic growth, using the same criteria of
risk adjusted returns above the Group's cost of capital.
Given this framework, the Board has concluded that LSL currently has £7m of
excess capital at this time, reflecting cash requirements for Pivotal,
contingent consideration for TenetLime, and Estate Agency franchise
restructuring costs as previously disclosed. The Group plans to return this
through a Share Buy Back Programme which it intends to commence imminently.
I would like to thank all my colleagues for their continued hard work and
exceptional support in the transformation of the Group.
Review of 2023 Performance
The Group's performance was naturally affected by the headwinds that impacted
the mortgage and housing markets, whilst the significant transformation
activity completed in the year does mean that our 2023 financial results are
less directly comparable to 2022.
Group Revenue from continuing operations(2) was £144.4m (2022: £217.5m).
After adjusting for disposals and discontinued operations in Estate Agency(2),
revenue was 10%(3) below prior year in a new lending market that was 29% lower
by value and a housing market down 19%.
Group Underlying Operating Profit from continuing operations(2,4) was £10.3m
(2022: £29.9m) and Group Underlying Operating Profit from total
operations(2,4) was £9.3m (2022: £35.8m). These figures include costs
carried in Surveying & Valuation above demand, losses in businesses
disposed of in the period and one-off cost-of-living payments for lower-paid
staff.
Financial Services Division
Our PRIMIS network has maintained its leading position in the provision of
services to independent mortgage brokers. It is in more challenging market
conditions that the advantages of the small, independent, client-focused
broker business model is best demonstrated, and in 2023 this was reflected in
our advisers' strong market share.
The rise in mortgage rates has resulted in a market wide increase in lower
margin product transfer cases, as lenders remain conservative with respect to
new borrowers, and this has naturally had some impact on revenue and profits.
Our members responded positively to these market developments, with the value
of product transfer cases increasing by 41%. Total LSL mortgage lending
reduced to £41.7bn (2022: £45.6bn).
We increased our share of the purchase and remortgage and of the product
transfer markets, with a record share of the purchase and remortgage (10.7%(5)
up from 10.5%) and the product transfer markets (7.4% up from 6.4%).
Protection performance was also robust, with Network protection revenue
increasing by 2%. This performance is reflected in Financial Services Network
revenue which fell by just 5.2% to £39.5m (2022: £41.6m).
Network Underlying Operating Profit was £10.0m (2022: £15.5m) reflecting the
impact on revenue of market dynamics as well as increased costs including
those arising from emerging regulatory requirements, inflationary salary
increases targeted at lower paid employees and executive team restructuring.
Financial Services Other reported a loss of £3.0m (2022: loss of £2.6m)
which was in-line with our expectations, as we continued to refocus our
Mortgage Gym and DLPS technology businesses towards our core Network business,
absorbing their operations and commercial focus into the Network business. To
reflect this dynamic, from 1 January 2024 we will report results in our
Financial Services Division in just two business lines: our core Financial
Services Network business comprising PRIMIS and TMA mortgage club, and our
share of profit after tax of Pivotal Growth.
Total Financial Services Division Underlying Operating Profit(4) was £7.0m
(2022: £12.8m). On a statutory basis, operating profit was £5.0m (2022: loss
of £7.2m).
Our PRIMIS network retains a leading market position which at the start of
2024 was boosted by the completion of the TenetLime acquisition. Our new
senior management team is focused on leveraging this strong member base to
deliver organic growth whilst taking advantage of improving market conditions
in 2024.
Surveying & Valuation Division
Our Surveying & Valuation business has performed very strongly in recent
years, increasing market share, and in 2021 and 2022, it returned to operating
margins above 20%. I believe it to be the leading business in its sector and
we were pleased to confirm recently that we have extended our contract with
Lloyds Banking Group until September 2028, further enhancing our leading
market position.
The mortgage market in 2023 was extremely challenging for all valuation
businesses. The significant increase in product transfer cases, where no
valuation is needed, created a major headwind as did reduced activity in the
purchase market as well as specialist equity release and buy-to-let sectors,
where both supply and demand were reduced by the rapid rise in interest rates.
This resulted in surplus capacity and a very competitive market for new
instructions, and it is testament to the quality of service provided by our
team that we increased further our share of valuations instructions.
Underlying Operating Profit(4) was £5.4m (2022: £20.4m) reflecting reduced
activity in our markets and our decision to retain capacity to support a more
normal level of activity.
Self-help cost measures were taken in 2023, including a reduction in the
number of employed surveyors, achieved through voluntary redundancy. However,
our principal focus was to retain sufficient capacity to meet the requirements
of more normal market conditions, and the business carried material excess
costs in 2023, over the level of demand. We have been pleased to fully deploy
the excess capacity in quarter one 2024, with the market recovering earlier
than expected.
Surveying profit in quarter one 2024 was greater than for the whole of 2023 as
we benefited from recovering markets, contract renewals, and the decision to
retain excess capacity during 2023, with strong performance continuing in
April.
The much smaller overall market resulted in a reduction in Surveying &
Valuation revenue to £67.8m (2022: £93.2m). On a statutory basis, operating
profit was £2.0m (2022: £20.8m).
We have identified medium-term opportunities to increase our diversification
and reduce reliance on lender valuations and our exposure to mortgage market
cycles, with the development of new revenue streams providing data services to
lenders and other clients and by growing revenue from direct-to-consumer
("D2C") surveys. We have seen good growth in D2C in recent years, with
revenues from this source having doubled between 2019 and 2022. Despite the
more challenging conditions, 2023 revenue of £3.6m was unchanged from 2022.
Estate Agency Franchising Division
Before this year, most of the Group's cost base was incurred in operating a
large network of owned estate agency branches. This meant that the Group was
significantly exposed to changes in the number of housing transactions, whilst
the capital required to increase the number of branches represented a barrier
to growth. Furthermore, any expansion in the branch network would have
increased our fixed cost base and consequent exposure to housing market cycles
further.
After an extensive strategic review, the Board decided to transform our estate
agency operations, moving from a predominantly owned model to one entirely
focused on the provision of franchise services. After an extensive programme
of work, we announced on 4 May the conversion of our owned network of 183
branches to franchisees. This announcement followed the disposal in January of
our London estate agency business, Marsh & Parsons, for total
consideration of £26.1m(6) which did not form part of our overall franchise
strategy.
I am pleased to report that this transformation programme was executed
smoothly, with the financial performance since the change being ahead of our
expectations. I am also clear that it was a significantly more profitable
business model under the market conditions that emerged in 2023 than the
previous owned model.
On a reported continuing basis, Estate Agency Franchising business revenue was
£24.9m (2022: £42.6m), primarily reflecting the disposal of Marsh &
Parsons, and the conversion of owned branches to franchises.
The benefits of the new business model were reflected in an Underlying
Operating Profit(4) of around £5m in the eight-month period since the
franchising change in May 2023, with operating margins in H2 above 25%. This
compares to a loss of around £0.3m for the first four months of the year
under the old business model. Total Underlying Operating Profit(4) for 2023 of
£4.7m was delivered during a period when there was a market-wide reduction of
19% in house sales, to the lowest level for 11 years. The greater consistency
of the franchising model was demonstrated further at the start of 2024 when
the Division reported a profit in January for only the second time in its
history.
Estate Agency and Franchising business revenue including discontinued
operations was £57.2m (2022: £146.8m) and Underlying Operating Profit from
total Estate Agency operations was £4.7m (2022: £9.9m profit). On a
statutory basis, operating loss from total operations was £41.0m (2022: loss
of £61.2m).
To reflect the change in the structure of the Group, from 1 January 2024, our
asset management business which provides repossession services to corporate
clients and is currently reported within the Estate Agency Division, will be
reported within the Surveying & Valuation Division, as the key commercial
relationships for this business are with major lenders. The profit generated
by this business was £1.3m in 2023.
Strategic priorities and development
The Group has made substantial progress implementing its strategy to simplify
the business, reduce earnings volatility, and focus investment in high growth
areas.
Following this restructuring the Group now has a strong platform across all
three of its divisions to further develop strategic priorities for each
business and leverage our market leading positions as lending and housing
activity recovers from a difficult market in 2023.
Estate Agency Franchising model
Perhaps the most significant development came in May 2023 when we confirmed
our plans to convert our entire owned Estate Agency network to a franchising
model, and in doing so LSL has become one of the largest providers of estate
agency franchise services in the UK. The execution of the change has gone
well, and we are ahead of the plans we set for reducing costs and increasing
margin.
With the completion of the conversion of our Estate Agency business to a
franchise model during 2023, we are now focused on further enhancing our
franchising expertise to bring on new partners and develop our services for
franchisees.
Prior to the announcement of our franchising programme, in January 2023, we
announced the sale of our London estate agency business, Marsh & Parsons,
for total consideration of £26.1m(6) at an attractive multiple. We did not
consider Marsh & Parsons was suitable for our franchising operation.
Focus on B2B in Financial Services
The first half of 2023 also saw us take the last steps to focus financial
services activity exclusively on business-to-business services, through our
PRIMIS network and TMA mortgage club. The disposals announced in April 2023 of
our mortgage, protection, and general insurance brokerage firms, Embrace and
First2Protect, to Pivotal Growth, followed on from transactions in January
2023 when we similarly sold our new build focused brokerage businesses, RSC
and Group First, to Pivotal. These transactions simplify our Financial
Services Division, reducing costs and reducing earnings volatility, whilst
retaining LSL's capability to capitalise on B2C opportunities through our
equity share in Pivotal.
Increasing scale in the Financial Services Network
In August, we took the opportunity to add further scale to our PRIMIS Network
business, announcing the acquisition of the TenetLime mortgage and protection
network. This deal, which adds more than 250 advisers across over 150 firms,
completed on 2 February 2024, building on our share of over 10% of the UK
house purchase and remortgage markets. The transaction will be earnings
enhancing in 2024.
We have already successfully carried out the migration and onboarding of the
firms, and the current financial performance is in line with our plan. We
remain on track to achieve our investment hurdle target for this acquisition.
The consideration payable is expected to be up to £11.6m consisting of an
initial payment of £5.7m, a further payment of up to £4.6m, calculated by
reference to the number and turnover of appointed representative firms 12
months following completion and an expected payment of £1.4m for assets
which form part of TenetLime's regulatory capital.
Investment in management
Our Financial Services Division has welcomed a new managing director bringing
significant experience in the mortgage network market as well as a number of
other senior executives. These appointments follow the retirement of
long-standing colleagues, and I would like to thank them for their
contribution to LSL.
Surveying & Valuation contract renewals
I am delighted to report that our Surveying & Valuation Division extended
its contract to supply surveying and valuation services to Lloyds Banking
Group to September 2028, underpinning our leading market position. We also
secured an improvement in terms and allocation with another major lender as
well as contracts with a number of other smaller players. We continue to
explore new business opportunities in data and direct-to-consumer services.
Pivotal Growth Joint Venture
It is now three years since we launched Pivotal Growth, our joint venture with
Pollen Street Capital (PSC), established to execute a buy-and-build strategy
in the mortgage and protection intermediary markets. Working with Pollen
Street Capital allows the Group to cap its maximum investment whilst
benefiting from Pollen Street's considerable experience of executing similar
strategies in related markets. Our joint aim is to build the business together
with a view to an exit event over a three-to-six-year period after launch. All
major strategic decisions require agreement by both LSL and PSC.
The advantages of a buy-and-build strategy include economies of scale,
synergies between acquired companies, deployment of integrated technology and
the potential for a larger and scalable business to benefit from enhanced
multiples on exit.
Following a slower than expected start, as Pivotal maintained a disciplined
approach to deal price, it has acquired 12 businesses and currently has over
400 advisers, making it one of the largest mortgage brokers in the UK. This
includes three acquisitions made in 2024, including that of John Charcol, a
firm with 150 advisers. Pivotal's scale improves its ability to win new
distribution agreements, drive synergies and make it a more compelling
proposition for future acquisition partners. The acquisitions made to date
have integrated and synergies are being delivered.
We have invested £11m in Pivotal since 2021 and we estimate that we could
make further investment of up to £15m over the next three years by way of
equity and loan notes, subject to the timing and size of deal flows and the
introduction of any external debt.
We continue to closely monitor Pivotal's performance to maximise returns for
shareholders and it remains on track to deliver returns comfortably ahead of
the Group's WACC.
In addition, Pivotal offers further potential opportunities for our PRIMIS
mortgage network, including developing services for larger brokers and
assisting other PRIMIS members to capitalise on additional new business
opportunities, for example in some specialist mortgage sectors.
Pivotal's financial performance has steadily improved as it has increased in
scale and moved out of its establishment phase. Pivotal is expected to be
profitable in 2024.
Capital structure and capital allocation
An Investment Committee is in place to review investment proposals and the
performance of previous investments against the original business cases and
Group hurdle rate, and to identify any learnings for future capital allocation
decisions. The work of the Investment Committee allows the Board to assess the
Group's projected near and medium-term capital requirements. This facilitates
an appropriate capital structure and capital allocation policy, taking into
account economic conditions, the Group's improved resilience to market cycles
and organic and inorganic opportunities.
Following the completion of the major strategic programmes by the business in
2023, the Investment Committee has reviewed the Group's capital structure and
capital allocation policies.
The Board has held a cash balance for some time given recent uncertain markets
and to provide financial flexibility to take advantage of any material
inorganic opportunities. After reviewing its cash flow requirements, and the
high cash generating nature of our business model, the Board has concluded the
Group requires up to £10m of net cash.
The Board prioritises organic growth investments that deliver risk adjusted
returns above Group cost of capital and paying an attractive dividend to
shareholders. Our end markets are large, and the Board see significant
attractive organic growth opportunities over the medium-term. While not a
priority today, inorganic investments are assessed against the same
criteria. The Group's WACC is 12% (post tax). Today, the Board's focus is on
optimising returns in our core businesses and driving organic growth in our
large addressable markets. This will require modest capital expenditure that
will be funded by free cash flow generation. Other cash requirements such as
contingent consideration for TenetLime, Estate Agency restructuring costs, and
further investment in Pivotal Growth, will also be funded by free cash flow
generation. Any excess capital will be distributed to shareholders.
Capital expenditure and investments
We remain committed to investing in the business to support growth. During the
year, we deployed capital in the Divisional restructuring and transformation
programmes, capital expenditure which was focused on capability and technology
to support future organic growth and the settlement of contingent
consideration in RSC ahead of its disposal and further investment in Pivotal
Growth. Following the year end we invested an initial consideration of £5.7m
for the acquisition of TenetLime.
The new Group operating model is less capital intensive, which is reflected in
lower capital expenditure requirements, typically expected to be in the region
of £3-5m per annum. The Group also expects to invest up to £15m in Pivotal
Growth over the next three years. In addition, the Group expects one-off cash
investments of up to £6m for further contingent consideration on TenetLime
and up to £7m for restructuring costs relating to Estate Agency franchising,
as previously disclosed.
Dividend
The Board has reviewed the final dividend, considering the Group's policy to
pay out 30% of Group Underlying Operating Profit after finance and normalised
tax charges, so that dividend cover is held at approximately three times
earnings over the business cycle. This policy was designed to provide clarity
to shareholders and ensure the Group retained a strong balance sheet for all
market conditions.
The strategic progress made by the Group in 2023 has underpinned the Board's
confidence in the future. We have secured material cost savings and now
operate a higher margin and lower capital-intensive business following the
restructuring in Financial Services and Estate Agency. The Group balance sheet
is robust with Net Cash(1) of £35.0m at 31 December 2023, boosted by disposal
proceeds. This strong cash position, the anticipated significant increase in
profit in 2024 and the Board's confidence in the Group's prospects, allows the
Board to declare a final dividend of 7.4 pence per share, unchanged on last
year, making a total dividend of 11.4 pence per share.
The ex-dividend date for the final dividend is 9 May 2024, with a record date
of 10 May 2024 and a payment date of 28 June 2024. Shareholders can elect to
reinvest their cash dividend and purchase additional shares in LSL through a
dividend reinvestment plan. The election date is 24 May 2024.
Living Responsibly and ESG
'Living Responsibly' is at the heart of our business and is how we deliver our
ESG programme. I am clear that LSL's success needs to be measured not only in
the profits we generate, but the impact we have on the communities in which we
operate.
In our ESG and our Living Responsibly reports published in April 2023, we set
out some of the steps we have taken to reduce our environmental impact, help
ensure LSL is a supportive and inclusive workplace, and provide support to
good causes. A further updated report will be published shortly. In this
update, we will describe the very significant progress made to embed "Living
Responsibly" throughout the Group. In the past year, this included
establishing "LSL Voices", a colleague driven initiative to provide help and
support to staff from diverse backgrounds. I am also pleased to report that
all colleagues receive at least the Real Living Wage. We have continued to
focus on volunteering and fund-raising for good causes via our Communities
Forum, whilst progress against our environmental targets will also be set out
in our Annual Report & Accounts.
I am very grateful for the incredible support provided by colleagues, not only
to our Living Responsibly work but also in delivering such significant
transformation during what has been a highly challenging period. Their hard
work and commitment have put LSL in a much stronger position to take advantage
of future opportunities.
CURRENT TRADING AND OUTLOOK
2024 has started strongly with improving sentiment and lower mortgage rates
driving more activity across our core markets. We have seen an increase in
mortgage approvals as well as housing transactions and the start of a
normalisation in product mix in our mortgage business. These conditions have
particularly benefited our Surveying & Valuation business, where there has
been a very substantial increase in activity and profits.
It was against this background of improving activity and Group trading that we
issued a trading update on 6 March, since which time trading has remained
ahead of expectations. At the end of Q1 2024, Group Underlying Operating
Profit was materially ahead of the same period in 2023. This improved trading
reflects better market conditions as well as the benefits of the new Estate
Agency franchise model, improved lender contracts, and our decision to retain
surplus capacity throughout the second half of 2023 in our Surveying &
Valuation business.
Although we retain a degree of caution, inflation data still suggests that
interest rates will reduce in 2024, which would help support our markets.
This, together with the strong performance since our recent trading update on
6 March, reinforces the Board's confidence, and our expectations for full year
Underlying Operating Profit have increased further.
David Stewart
Group Chief Executive Officer
24 April 2024
Notes:
1 Refer to note 35 to the Financial Statements for the
calculation
2 Following the conversion of the entire owned estate agency
network to franchises in H1 2023, the previously owned network was classified
as a discontinued operation and is now presented as such in the Financial
Statements. Refer to notes 2 and 6 to the Financial Statements
3 Revenue: £138.1m in 2023 with statutory revenue of
£144.4m less £6.2m revenue from businesses disposed in 2023, as compared to
£154.1m in 2022 with statutory revenue of £217.5m less £63.4m revenue from
businesses disposed in 2023
4 Group (and Divisional) Underlying Operating Profit is
before exceptional items, contingent consideration assets & liabilities,
amortisation of intangible assets and share-based payments. Refer to note 5 to
the Financial Statements for reconciliation of Group and Divisional Underlying
Operating Profit to statutory operating (loss)/profit for continuing,
discontinued and total operations
5 Mortgage lending excluding product transfers - New
mortgage lending by purpose of loan, UK (BOE) - Table MM23 (Jan 2024)
6 Refer to note 9 to the Financial Statements
FY P&L (£m) 2023 Restated(1) Var
2022
Divisional Group Revenue(2)
Financial Services Network (net revenue) 39.5 41.6 (5)%
Financial Services Other 12.2 40.1 (70)%
Financial Services 51.7 81.7 (37)%
Surveying & Valuation 67.8 93.2 (27)%
Estate Agency Franchising 24.9 42.6 (42)%
Group Revenue 144.4 217.5 (34)%
Estate Agency - discontinued operations 32.3 104.3 (69)%
Group Revenue (incl. discontinued operations) 176.8 321.7 (45)%
Divisional Underlying Operating Profit/(Loss)(2,3)
Financial Services Network 10.0 15.5 (35)%
Financial Services Other (3.0) (2.6) (15)%
Financial Services 7.0 12.8 (45)%
Surveying & Valuation 5.4 20.4 (74)%
Estate Agency Franchising 5.6 3.9 44%
Unallocated Central Costs (7.7) (7.3) (5)%
Group Underlying Operating Profit from continuing operations 10.3 29.9 (66)%
Estate Agency - discontinued operations (1.0) 6.0 (117)%
Group Underlying Operating Profit 9.3 35.8 (74)%
from total operations
Divisional operating profit/(loss)(2,3)
Financial Services 5.0 (7.2) 169%
Surveying & Valuation 2.0 20.8 (90)%
Estate Agency Franchising 4.4 (26.8) 116%
Unallocated Central Costs (7.7) (8.5) 9%
Group operating profit/(loss) from continuing operations 3.7 (21.7) 117%
Estate Agency - discontinued operations (45.3) (34.3) (32)%
Group Operating Loss (41.6) (56.0) 26%
from total operations
Notes:
1 Refer to note 36 to the Financial Statements
2 Following the conversion of the entire owned estate agency
network to franchises in H1 2023, the previously owned network was classified
as a discontinued operation and is now presented as such in the Financial
Statements. Refer to notes 2 and 6 to the Financial Statements
3 Group (and Divisional) Underlying Operating Profit is
before exceptional items, contingent consideration assets & liabilities,
amortisation of intangible assets and share-based payments. Refer to note 5 to
the Financial Statements for reconciliation of Group and Divisional Underlying
Operating Profit to statutory operating (loss)/profit for continuing,
discontinued and total operations
FINANCIAL REVIEW
Income Statement
Group Revenue from continuing operations(1) was £144.4m (2022: £217.5m).
After adjusting for disposals and discontinued operations in Estate Agency,
revenue was 10%(2) below prior year in a housing market 19% lower and in a
smaller lending market. Including discontinued operations in Estate Agency,
revenue from total operations was £176.8m (2022: £321.7m), reflecting the
previously owned network revenues.
Group Underlying Operating Profit from total operations(1,3) of £9.3m (2022:
£35.8m) includes excess capacity costs carried in Surveying & Valuation,
£1m from losses in businesses disposed of in the period and a one-off
cost-of-living payment totalling £0.9m for lower-paid staff. Group Underlying
Operating Profit from continuing operations was £10.3m (2022: £29.9m).
Group Operating Profit was £3.7m (2022: loss of £21.7m), a material
improvement compared to the prior year which included an exceptional
impairment charge for goodwill and other intangibles of £47.2m.
Adjusted operating expenditure(4), comprises Employee costs, Other operating
costs, and Depreciation and totalled £133.5m in 2023, 29% lower than prior
year (2022: £188.4m), with the movement comprising the net effect of the
following factors:
- Disposal of businesses during the period
- Reduction in depreciation due to the disposal of businesses during
the period which led to the reclassification of IFRS 16 depreciation into
Other Operating Expenses because of the franchising of the Estate Agency
branch network
- Reduced costs in Surveying & Valuation through self-help
measures and reduced variable costs
- Increased costs in Financial Services including those arising
from emerging regulatory requirements, inflationary salary increases targeted
at lower paid employees and executive team restructuring
- The amounts included for Estate Agency represent those for the
expanded continuing franchising business
- Central (unallocated) costs of £7.7m (2022: £7.3m) included
staff restructure costs and increased audit fees
The Group exited 2023 with costs over 50% lower than 2022, reflecting an
annualised total operations cost reduction of c.£140m.
Other (losses)/gains
Total other operating losses were £0.2m (2022: gains of £1.3m). This
primarily reflected the movement in the fair value of units held in The
Openwork Partnership LLP (loss of £0.3m, 2022: gain £0.7m), having been
reassessed at 31 December 2023 as £0.4m (31 December 2022: £0.7m). The prior
year also included external rental income of £0.7m, no longer applicable
following the wholesale franchising of the Estate Agency branch network.
Share of losses from joint venture
Losses from our equity share of Pivotal Growth reduced to £0.4m (2022: £0.5m
loss).
Share-based payments
The share-based payment credit of £0.2m in 2023 (2022: charge of £1.9m)
comprises, a charge in the period of £3.0m for LTIP, SAYE and BAYE schemes
granted in 2020 to 2023, offset by a credit of £3.2m reflecting lapses and
adjustments for leavers largely as a result of the significant restructuring
across the Group. The prior year included a higher charge of £1.9m, offset by
lower lapse and leaver adjustments.
Amortisation of intangible assets(5)
The amortisation charge for 2023 was £2.3m (2022: £2.8m(6)), being
amortisation of intangible software investment and franchise agreements. The
year-on-year movement comprises a reduction in both lettings books and certain
software intangibles as they have been fully amortised, partly offset by
amortisation for the newly established franchise intangibles.
Exceptional items(7)
The exceptional gain of £9.3m (2022: £0.7m) relates primarily to the gain on
disposal during the period of the Embrace and First2Protect businesses to
Pivotal Growth of £9.0m. Consideration of £9.3m was received on completion
of First2Protect, with contingent consideration to be received in 2025
estimated at £2.0m (undiscounted) for Embrace based upon 7x 2024 EBITDA
performance. In addition, there was a £0.3m release in relation to the
historic exceptional Surveying & Valuation IBNR PI Costs provision (2022:
£0.7m).
Exceptional costs of £13.8m (2022: £48.3m), primarily related to
restructuring activity and corporate transaction costs of £5.8m, a reduction
in contingent consideration assets of £4.1m for businesses sold to Pivotal
Growth, reflecting changes to estimates, the net loss on disposals of Group
First, RSC and Marsh & Parsons of £1.7m and impairment of Financial
Services intangible software assets of £2.2m. Prior year exceptional costs
related principally to the outcome of the annual impairment review and prior
year restatements, which led to non-cash goodwill and other intangibles
impairment of £47.2m(6).
Contingent consideration payable
There was £0.03m contingent consideration charge recognised in the period
(2022: £0.7m), reflecting a small increase in DLPS liability based on
revisions to forecasts, subsequently paid in February 2024. The credit to the
income statement in 2022 of £0.7m related to the reduction of the contingent
consideration liability for RSC and DLPS, based on revisions to profit
forecasts.
Finance income increased to £2.8m (2022: £0.1m) resulting mainly from
increased interest received on funds held on deposit of £1.5m in 2023 (2022:
£0.1m), reflecting proactive management of funds across the Group to optimise
in the higher interest rate environment, and the unwind of discounting on
contingent consideration receivable balances as the differential in time to
payment date reduces, with income of £1.0m (2022: £nil).
Finance costs amounted to £1.7m (2022: £2.1m) and related principally to the
unwinding of discount on lease liabilities of £0.5m (2022: £1.0m) which
reduced because of the disposal of Marsh & Parsons, commitment and
non-utilisation fees on the revolving credit facility of £0.7m (2022: £1.0m)
and £0.5m for the unwinding of discount on dilapidations provisions and a
fair value adjustment to loans receivable (2022: £nil).
Profit before tax
Profit before tax was £4.9m (2022: loss before tax of £23.8m). The
year-on-year movement is primarily due to the materially higher net
exceptional cost in the prior period, and lower Group Underlying Operating
Profit during 2023.
Taxation
The tax credit of £3.2m (2022: charge of £3.0m) represents an effective tax
rate of 65.2% (2022: 12.7%), which is lower than the headline UK tax rate of
23.5% as a result of deferred tax balances written back on the disposal of
investments in subsidiary undertakings, and non-taxable gains arising from
those disposals. Deferred tax assets and liabilities are measured at 25.0%
(2022: 25.0%), the tax rate that came into effect from 1 April 2023.
Discontinued operations(1) loss of £46.1m (net of tax) in relation to the
previously owned Estate Agency branch network (2022: loss of £36.5m). The
discontinued operations in Estate Agency Franchising contributed an Underlying
Operating Loss of £1.0m during the period (2022: profit £6.0m) before
incurring exceptional restructuring costs in relation to the conversion of the
Estate Agency network to a franchise operation (£16.5m) and associated
disposed goodwill (£38.1m), offset in part by the exceptional gain on
recognition of intangible franchise agreements of £10.7m.
Earnings per Share(8)
2023 2022
Earnings per Share (pence) Basic Diluted Adjusted basic Adjusted basic diluted Basic Diluted Adjusted basic Adjusted basic diluted
Continuing 7.9 7.8 (26.0) (26.0)
Discontinued (44.7) (44.4) (35.6) (35.6)
Total operations 7.6 7.5 27.6 27.2
Balance Sheet
Goodwill(5)
The carrying value of goodwill is £16.9m (31 December 2022: £55.0m(6)).
Following the conversion of the entire owned Estate Agency network to
franchises during the period, the goodwill associated with Your Move, Reeds
Rains and LSLi owned branches (£38.1m) has been disposed and reduced to
£nil. Goodwill previously included within held for sale assets of £15.3m was
disposed as part of the sales of Marsh & Parsons (£10.6m), Group First
(£3.6m) and RSC (£1.1m), which completed in January 2023.
Other intangible assets(5)
Other intangible assets of £21.5m at 31 December 2023 (31 December 2022:
£14.7m(6)). New intangible franchise agreements of £10.7m were recognised
during the period following the conversion of the entire owned Estate Agency
network to franchises. The carrying value of all franchise agreements was
£11.7m at 31 December 2023 (31 December 2022: £1.5m(6)). Total amortisation
including discontinued operations of £2.7m was charged in the year, with
£2.1m of new intangible software investment.
Intangibles disposed during the period as part of the restructuring across the
Group came to £1.3m. During the period there has been an impairment to other
intangible assets of £2.2m (2022: £0.1m). The charge relates to software
assets within the Financial Services Division where there has been a strategic
shift to focus development on the Group's PRIMIS Connect platform and a
declining number of third party software users. Please refer to note 17 for
further information.
The Group has reviewed its Software as a Service (SaaS) arrangements and
current policy during 2023 prompted by the significant restructuring during
the year. The Group has concluded that the policy to capitalise SaaS
customisation costs, which was considered appropriate at the time, should be
revised, and has determined that restatement of the prior year financial
information is appropriate. The cumulative impact of the historic adjustment
on retained earnings on 1 January 2022 was a reduction of £1.8m(6) and was
not cash adjusting.
Property, plant and equipment
Total capital expenditure in the year amounted to £0.7m (2022: £2.0m),
primarily reflecting ongoing investment in Financial Services and Surveying
& Valuation, and a reduction in Estate Agency Franchising with the
operating model transformation during the period.
Financial assets
Financial assets of £5.5m at 31 December 2023 (31 December 2022: £1.0m)
comprise contingent consideration assets and investments in equity instruments
in unlisted companies.
During the period, the Group disposed of the Group First, RSC and Embrace B2C
brokerage businesses to Pivotal Growth, with contingent consideration
receivable in the first half of 2025 based upon 7x 2024 EBITDA performance. As
at 31 December 2023, this asset is recorded at £4.8m (31 December 2022:
£nil).
The fair value of units held in The Openwork Partnership LLP was reassessed at
31 December 2023 as £0.4m (31 December 2022: £0.7m).
In January 2023, the Group agreed to sell its shares in Yopa for £nil
consideration, which was in line with its carrying value as at 31 December
2022.
In March 2023, the Group agreed to sell its shares in VEM for £0.2m
consideration, received on completion, which was in line with its carrying
value as at 31 December 2022.
Investment in joint ventures
In April 2021 the Group established the Pivotal Growth joint venture and holds
a 47.8% interest at 31 December 2023. The joint venture is accounted for using
the equity method and is held on the balance sheet at £9.4m as at 31 December
2023 (31 December 2022: £5.1m), reflecting the Group's equity investment in
Pivotal Growth during the period (£4.7m), less our share of losses after tax
for the period.
Investment in sublease
Total current and non-current investment in subleases was £3.3m as at 31
December 2023 (31 December 2022: £nil). This reflects the situation whereby
the Group is an intermediate lessor, following the Estate Agency conversion to
a wholly franchised model. As part of the franchising transition the leases
held by the Group in respect of the previously owned network will be
transferred to the franchisees, and the investment in sublease balance will
reduce accordingly.
Loans to franchisees and appointed representatives
Loans provided as at 31 December 2023 were £2.1m (31 December 2022: £nil).
As part of the initial support provided to the new franchisees of the
previously owned Estate Agency branches, working capital loan facility
agreements were put in place, of which £0.8m had been drawn down as at 31
December 2023 (31 December 2022: £nil). Loans to appointed representatives,
which are granted in certain circumstances to support brokers during an
onboarding period, were £1.3m as at 31 December 2023 (31 December 2022:
£nil, having previously been included in trade and other receivables).
Financial liabilities
Contingent consideration liabilities
Contingent consideration liabilities at 31 December 2023 were £0.07m (31
December 2022: £2.3m). Contingent consideration liabilities relate solely to
the cost of acquiring the remaining shares in Direct Life Quote Holdings
Limited, which was subsequently paid in February 2024. The year-on-year
reduction reflects the full settlement of the contingent consideration
liability of £2.3m in RSC ahead of its disposal in January 2023.
Prior year restatements(6)
Franchising of previously owned branches
During the current period, the Group franchised its entire owned estate agency
network (183 branches). In accounting for this significant transaction, the
Group re-examined the accounting treatment applied to a much smaller
transaction in H1 2019, when 39 owned estate agency branches were franchised.
The impact of this was to restate the goodwill associated with these owned
branches, de-recognising £5.2m of goodwill, recognising a franchise
intangible, net of amortisation, of £1.7m and an associated deferred tax
liability of £0.4m with a cumulative non-cash impact on retained earnings at
1 January 2022 of £4.0m.
Adjustments to assets held for sale
At 31 December 2022 the Group reported Marsh & Parsons as held for sale.
Marsh & Parsons was written down to its fair value less cost to sell,
which was calculated as the initial consideration received less transaction
costs (£28.9m). The Group has re-examined the judgements made and has
determined that an adjustment to consideration for debt-like items of £2.0m
could have been reliably estimated at 31 December 2022. Rather than
recognising this adjustment as an increase in the loss on disposal in 2023,
the prior year financial information has been restated, in accordance with IAS
8.
Customisation costs in computing arrangements
During the year, the Group revisited its accounting policy in relation to
customisation costs incurred in implementing Software as a Service (SaaS)
arrangements. The Group has reviewed its SaaS arrangements and current policy
during 2023 prompted by the significant restructuring during the year. The
Group has concluded that the policy to capitalise SaaS customisation costs,
which was considered appropriate at the time, should be revised, and has
determined that restatement of the prior year financial information is
appropriate. The cumulative impact of the historic adjustment on retained
earnings on 1 January 2022 was a reduction of £1.8m and was not cash
adjusting.
Cash offsetting
The Group has a bank offset arrangement that was previously recorded as part
of cash and cash equivalents. The Group has reviewed its current arrangements
and has concluded that while the Group has a legally enforceable right to
offset, the Group did not intend to settle the year-end balance net. As a
result, the overdraft balances included within the offset arrangement should
be separately presented in the Group Balance Sheet. Consequently, a
restatement has been made to increase cash and cash equivalents and bank
overdrafts as at 31 December 2022 by £23.1m (2021: £24.4m). The restatement
has no impact on net assets, the income statement or the statement of cash
flows.
Group Statement of Cash flows
Operating cashflows before movements in working capital were £14.9m (2022:
£47.6m) reflecting lower profits generated in 2023. Movements in working
capital were an outflow of £11.0m (2022: £14.5m). The outflow in 2023
reflected higher Surveying billing in the last months of 2023 compared to the
prior year, and amounts paid on behalf of franchisees ahead of rebilling. We
expect working capital outflows to be more modest going forwards as the
operating cycle of working capital continues to settle following the
completion of significant restructuring and transformation programmes during
2023. The transformation has also resulted in a less capital-intensive
business, with capital expenditure expected to be lower than in previous
years, reflecting the franchise model in Estate Agency. The business is highly
cash generative and ordinarily achieves a cash flow conversion rate(4) of 75%
to 100%. The ratio in 2023 was (2.2)% reflecting the materially lower
Underlying Operating Profit, with a ratio of 77% achieved in 2022.
At 31 December 2023, Net Cash(4) was £35.0m (31 December 2022: Net Cash
£40.1m). Movements in the year included £4.7m further investment in Pivotal
Growth (2022: £4.0m), capital expenditure of £2.9m (2022: £3.9m),
exceptional costs in relation to divisional restructure and transformation
programmes of £10.4m, payment of the 2022 final and 2023 interim dividends of
£11.7m (2022: £11.8m) and the settlement of contingent consideration in RSC
of £2.3m ahead of its disposal to Pivotal Growth. With the loss before tax(3)
of £40.6m (2022: £58.4m), including discontinued operations, there was no
corporation tax paid.
Marsh & Parsons and First2Protect businesses were sold for net
consideration received during the period of £26.1m and £9.3m respectively,
with contingent consideration for the disposals of Group First, RSC and
Embrace receivable in 2025 based upon 7x 2024 EBITDA performance. Total cash
balances in the disposed businesses at the point of sale were £8.3m.
Bank facilities/liquidity
In February 2023, we agreed an amendment and restatement of our banking
facility, with a £60m committed revolving credit facility, and a maturity
date of May 2026, which replaced the previous £90m facility due to mature in
May 2024. The terms of the facility, including covenants, have remained
materially the same as the previous facility. The facility is provided by the
same syndicate members as before, namely Barclays Bank plc, NatWest Bank plc
and Santander UK plc.
In arranging the banking facility, the Board took the opportunity to review
the Group's borrowing requirements, considering our strong cash position and
the Group's aim of reducing its reliance on the housing market. We therefore
reduced the size of the committed facility and the costs associated with it.
To provide further flexibility to support growth, the facility retains a £30m
accordion, to be requested by LSL at any time, subject to bank approval.
Under the terms of the facility the Group can operate bank accounts in surplus
and overdraft positions provided that the net position under the arrangement
is within the facility limits. Overdraft balances included within the bank
offset arrangement are presented separately from cash surplus balances in the
Group Balance Sheet but are considered to form part of cash and cash
equivalents in the group statement of cash flows as they are repayable on
demand and form an integral part of the Group's cash management.
The Financial Services Network business has a regulatory capital requirement
which represents 2.5% of its regulated revenues. The regulatory capital
requirement was £6.1m at 31 December 2023 (31 December 2022: £5.9m), with a
surplus of £24.7m (31 December 2022: £24.9m).
Treasury and risk management
LSL has an active debt management policy. The Group 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
2023.
International Accounting Standards (IAS)
The Financial Statements for the period ended 31 December 2023 have been
prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and UK-adopted IAS.
Notes:
1 Following the conversion of the entire owned Estate Agency
network to franchisees in H1 2023, this was classified as a discontinued
operation and is now presented as such in the Financial Statements. Refer to
notes 2 and 6 to the Financial Statements
2 Revenue: £138.1m in 2023 with statutory revenue of
£144.4m less £6.2m revenue from businesses disposed in 2023, as compared to
£154.1m in 2022 with statutory revenue of £217.5m less £63.4m revenue from
businesses disposed in 2023
3 Group (and Divisional) Underlying Operating Profit is
before exceptional items, contingent consideration assets & liabilities,
amortisation of intangible assets and share-based payments. Refer to note 5 to
the Financial Statements for reconciliation of Group and Divisional Underlying
Operating Profit to statutory operating (loss)/profit for continuing,
discontinued and total operations
4 Refer to note 35 to the Financial Statements
5 Refer to note 17 to the Financial Statements
6 Refer to note 36 to the Financial Statements
7 Refer to note 9 to the Financial Statements
8 Refer to note 12 to the Financial Statements
Group Income Statement
for the year ended 31 December 2023
2023 Restated*
2022
Note £'000 £'000
Continuing operations:
Revenue 3 144,418 217,472
Operating expenses:
Employee costs 15 (99,090) (145,325)
Depreciation on property, plant and equipment and right-of-use assets 18 (3,362) (7,612)
Other operating costs (31,046) (35,502)
Other (losses) / gains 3 (211) 1,334
Share of post-tax (loss) from joint venture 20 (390) (494)
Share-based payments 15 164 (1,860)
Amortisation of intangible assets 17 (2,258) (2,787)
Exceptional gains 9 9,320 694
Exceptional costs 9 (13,767) (48,316)
Contingent consideration payable 25 (31) 696
Group operating profit / (loss) 4 3,747 (21,700)
Finance income 7 2,817 76
Finance cost 8 (1,701) (2,147)
Net finance income / (cost) 1,116 (2,071)
Profit / (loss) before tax 4,863 (23,771)
Taxation 16 3,170 (3,020)
Profit / (loss) for the period from continuing operations 8,033 (26,791)
Discontinued operations:
Loss for period from discontinued operations 6 (46,093) (36,511)
Loss for the period (38,060) (63,302)
Attributable to:
Owners of the parent (38,001) (63,209)
Non-controlling interest (59) (93)
(38,060) (63,302)
Loss per share from total operations (expressed in pence per share):
Basic 12 (36.9) (61.6)
Diluted 12 (36.6) (61.6)
Earnings / (loss) per share from continuing operations (expressed as pence per
share):
Basic 12 7.9 (26.0)
Diluted 12 7.8 (26.0)
*See note 36 for details regarding restatements.
Group Statement of Comprehensive Income
for the year ended 31 December 2023
2023 Restated*
2022
Note £'000 £'000
Loss for the year (38,060) (63,302)
Items that will not to be reclassified to profit and loss in subsequent
periods:
Revaluation of financial assets not recycled through the income statement (116) (5,096)
Tax on revaluation (1) 130
Total other comprehensive loss for the year, net of tax (117) (4,966)
Total comprehensive loss for the year, net of tax (38,177) (68,268)
Attributable to:
Owners of the parent (38,118) (68,175)
Non-controlling interest (59) (93)
*See note 36 for details regarding restatements.
Group Balance
Sheet
as at 31 December 2023
Note 2023 Restated* Restated*
2022 1 January 2022
£'000 £'000 £'000
Non-current assets
Goodwill 17 16,855 54,997 155,654
Other intangible assets 17 21,461 14,698 29,517
Property, plant and equipment and right-of-use assets 18 6,917 15,570 37,070
Financial assets 19 5,407 1,045 5,748
Deferred tax asset 16 166 - -
Investment in sublease 19 1,756 - -
Investment in joint venture 20 9,359 5,068 1,610
Contract assets 21 329 431 733
Loans to franchisees and appointed representatives 19 1,655 - -
Total non-current assets 63,905 91,809 230,332
Current assets
Trade and other receivables 22 23,206 26,608 33,829
Financial assets 19 54 - -
Contract assets 21 40 348 424
Investment in sublease 19 1,582 - -
Current tax assets 16 2,183 3,063 1,142
Loans to franchisees and appointed representatives 19 444 - -
Cash and cash equivalents 23 58,110 61,215 72,712
85,619 91,234 108,107
Assets held for sale - 54,402 -
Total current assets 85,619 145,636 108,107
Total assets 149,524 237,445 338,439
Current liabilities
Financial liabilities 25 (3,320) (6,949) (8,523)
Trade and other payables 24 (30,485) (47,030) (64,206)
Provisions for liabilities 26 (5,903) (660) (775)
Bank overdrafts 23 (23,139) (24,460) (24,248)
(62,847) (79,099) (97,752)
Liabilities held for sale - (21,930) -
Total current liabilities (62,847) (101,029) (97,752)
Non-current liabilities
Financial liabilities 25 (5,085) (6,277) (22,602)
Deferred tax liability 16 - (2,392) (2,491)
Provisions for liabilities 26 (5,647) (1,695) (3,191)
Total non-current liabilities (10,732) (10,364) (28,284)
Total liabilities (73,579) (111,393) (126,036)
Net assets 75,945 126,052 212,403
Equity
Share capital 28 210 210 210
Share premium account 29 5,629 5,629 5,629
Share-based payment reserve 29 3,564 5,331 5,263
Shares held by employee benefit trust and share incentive plan 2,29 (2,871) (5,457) (3,063)
Treasury shares 29 (3,983) (3,983) -
Fair value reserve 29 (385) (20,239) (15,273)
Retained earnings 74,087 144,133 219,116
Total equity attributable to owners of the parent 76,251 125,624 211,882
Non-controlling interest (306) 428 521
Total equity 75,945 126,052 212,403
*See note 36 for details regarding restatements.
Group Statement of Cash Flows
for the year ended 31 December 2023
Note 2023 Restated*
2022
£'000 £'000
Profit / (loss) before tax from continuing operations 4,863 (23,771)
Loss before tax from discontinued operations (45,425) (34,674)
Loss before tax (40,562) (58,445)
Adjustments for:
Exceptional costs 57,650 87,255
Exceptional gains (9,320) (694)
Contingent consideration payable 31 (696)
Depreciation of tangible assets 18 4,512 11,629
Amortisation of intangible assets 17 2,660 4,020
Share-based payments 6,15 (109) 1,977
Loss on disposal of property, plant and equipment and right-of-use assets 6 (2) (8)
Loss from joint venture 20 390 494
Recognition of investments at fair value through the income statement 19 279 (678)
Decrease in contract assets 21 410 378
Finance income 7 (2,817) (80)
Finance costs 6,8 1,811 2,497
Operating cash flows before movements in working capital 14,933 47,649
Movements in working capital
Decrease / (increase) in trade and other receivables 909 (1,491)
Decrease in trade and other payables (13,130) (12,198)
Increase /(decrease) in provisions 1,203 (799)
(11,018) (14,488)
Cash generated from operations 3,915 33,161
Interest paid (leases) 27 (580) (1,387)
Interest received (leases) 27 140 -
Income taxes paid - (6,109)
Exceptional costs paid (10,391) (384)
Net cash (expended)/generated from operating activities (6,916) 25,281
Cash flows used in investing activities
Interest received 1,599 -
Disposal of businesses, net of cash disposed 26,538 -
Payment of contingent consideration 25 (2,280) (76)
Investment in joint venture 20 (4,681) (3,952)
Proceeds from sale of financial assets 19 206 -
Franchisees and appointed representatives loans granted 19 (2,914) -
Franchisees and appointed representatives loan repayments 19 1,275 -
Receipt of lease income 27 1,134 68
Purchase of property, plant and equipment and intangible assets 17,18 (2,856) (3,853)
Proceeds from sale of property, plant and equipment 18 - 1,304
Net cash generated/(expended) on investing activities 18,021 (6,509)
Cash flows used in financing activities
Purchase of LSL shares by the employee benefit trust - (5,026)
Repurchase of treasury shares - (3,983)
Proceeds from exercise of share options 15 - 825
Payment of lease liabilities 14 (4,529) (7,170)
Dividends paid 13 (11,714) (11,773)
Net cash expended in financing activities (16,243) (27,127)
Net decrease in cash and cash equivalents (5,138) (8,355)
Cash and cash equivalents at the beginning of the year 23 40,109 48,464
Cash and cash equivalents at the end of the year 23 34,971 40,109
Closing cash and cash equivalents includes £nil (2022: £3.4m) presented in
assets held for sale on the Group Balance Sheet.
*See note 36 for details regarding restatements.
Group Statement of Changes in Equity
for the year ended 31 December 2023
Share- based payment reserve
Share premium account
Share Shares held by EBT and SIP Treasury shares Fair value reserve Retained earnings Equity attributable to owners of the parent Non-controlling interest Total
capital equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2023 210 5,629 5,331 (5,457) (3,983) (20,239) 144,133 125,624 428 126,052
Loss for the year - - - - - - (38,001) (38,001) (59) (38,060)
Revaluation of financial assets - - - - - (116) - (116) - (116)
Tax on revaluations - - - - - (1) - (1) - (1)
Total comprehensive loss for the year - - - - - (117) (38,001) (38,118) (59) (38,177)
Acquisition of non-controlling interests - - - - - - 675 675 (675) -
Exercise of options - - (1,106) 2,586 - - (1,480) - - -
Vested share options lapsed during the year - - (445) - - - 445 - - -
Dividend paid - - - - - - (11,714) (11,714) - (11,714)
Fair value reclassification following disposals - - - - - 19,971 (19,971) - - -
Share-based payments - - (109) - - - - (109) - (109)
Tax on share-based payments - - (107) - - - - (107) - (107)
At 31 December 2023 210 5,629 3,564 (2,871) (3,983) (385) 74,087 76,251 (306) 75,945
During the period, 567,665 share options were exercised relating to LSL's
various share option schemes resulting in the shares being sold by the
Employee Benefit Trust. LSL received £nil on exercise of these options.
Group Statement of Changes in Equity
for the year ended 31 December 2022
Share- based payment reserve
Share premium account
Share Shares held by EBT and SIP Treasury shares Fair value reserve Retained earnings Equity attributable to owners of the parent Non-controlling interest Total
capital equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2022 210 5,629 5,263 (3,063) - (15,273) 224,832 217,598 521 218,119
Prior year restatements (net of tax)* - - - - - - (5,716) (5,716) - (5,716)
At 1 January 2022 (Restated) 210 5,629 5,263 (3,063) - (15,273) 219,116 211,882 521 212,403
Loss for the year (Restated) - - - - - - (63,209) (63,209) (93) (63,302)
Revaluation of financial assets - - - - - (5,096) - (5,096) - (5,096)
Tax on revaluations - - - - - 130 - 130 - 130
Total comprehensive loss for the year - - - - - (4,966) (63,209) (68,175) (93) (68,268)
Shares repurchased into treasury - - - - (3,983) - - (3,983) - (3,983)
Shares repurchased into EBT - - - (5,026) - - - (5,026) - (5,026)
Exercise of options - - (1,806) 2,632 - - (1) 825 - 825
Dividend paid - - - - - - (11,773) (11,773) - (11,773)
Share-based payments - - 1,977 - - - - 1,977 - 1,977
Tax on share-based payments - - (103) - - - - (103) - (103)
At 31 December 2022 210 5,629 5,331 (5,457) (3,983) (20,239) 144,133 125,624 428 126,052
During the year ended 31 December 2022, the Trust acquired 1,351,000 LSL
shares. During the period, 890,146 share options were exercised relating to
LSL's various share option schemes resulting in the shares being sold by the
Employee Benefit Trust. LSL received £0.8m on exercise of these options.
*See note 36 for details regarding restatements.
Notes to the Group Financial Statements
1. General information
The above results and the accompanying notes do not constitute statutory
accounts within the meaning of Section 435 of the Companies Act 2006.
Statutory Financial Statements for this year will be filed following the 2024
AGM and will be available on LSL's website: lslps.co.uk. The auditors have
reported on these Financial Statements. Their report was unqualified and did
not contain a statement under section 498 (2), (3) or (4) of the Companies Act
2006.
2. Accounting policies, judgements and estimates
2.1 Basis of preparation
The accounting policies which follow set out those significant policies which
apply in preparing the Financial Statements for the year ended 31 December
2023. The policies have been applied consistently to all years presented. The
Group's Financial Statements are presented in pound sterling and all values
are rounded to the nearest thousand pounds (£'000) except when otherwise
indicated.
These Financial Statements have been prepared in accordance with UK-adopted
IAS. The Group Financial Statements have been prepared on a going concern
basis under the historical cost convention and on a historical cost basis,
except for certain debt and equity financial assets that have been measured at
fair value.
In preparing the Financial Statements management has considered the impact of
climate change. The Group has assessed climate-related risks, covering both
physical risks and transition risks. In the short (0-3 years) to medium term
(4-9 years), the impact of climate-rated risks on the Group is expected to be
relatively low due to the nature of the Group's business model. Over the long
term (beyond 10 years), there could be physical risks, such as severe weather,
flooding events, increase in temperature and rising sea levels, as well as
transition risks such as policy and regulation changes. The risk to the
Group's own premises as a result of climate change is considered low, the
majority of our property portfolio is leased, and we would not expect
significant climate-related costs during the remainder of our current lease
terms. The impact of climate change in the medium to long term is likely to be
localised and have varying degrees of impact on the areas where we work and
our revenue profile. This could have an impact on the carrying value of
goodwill and investments.
2.2 Basis of consolidation
The consolidated Financial Statements comprise the Financial Statements of the
Company and its subsidiaries as at 31 December 2023. The financial year
represents the year from 1 January 2023 to 31 December 2023.
Subsidiaries
Subsidiaries are consolidated from the date that control commences until the
date control ceases. A change in the ownership interest of a subsidiary,
without a loss of control, is accounted for as an equity transaction.
Interest in joint ventures
The Group's share of the results of joint ventures is included in the Group
Income Statement using the equity method of accounting. Investment in joint
ventures are carried in the Group Balance Sheet at cost plus post-acquisition
changes in the Group's share of the net assets of the entity, less any
impairment in value. Goodwill relating to the joint venture is included in the
carrying amount of the investment and is not tested for impairment
individually. Unrealised gains and losses resulting from transactions between
the Group and the joint venture are eliminated to the extent of the interest
in the joint venture.
In addition, when there has been a change recognised directly in the equity of
the joint venture, the Group recognises its share of any changes, when
applicable, in the statement of changes in equity.
The Financial Statements of the joint venture are prepared for the same
reporting period as the Group. When necessary, adjustments are made to bring
the accounting policies in line with those of the Group.
2.3 Going concern
The UK Corporate Governance Code requires the Board to assess and report on
the prospects of the Group and whether the business is a Going Concern. In
considering this requirement, the Directors have taken into account the
Group's forecast cash flows, liquidity, borrowing facilities and related
covenant requirements and the expected operational activities of the Group.
The Group's objectives, policies, and processes for managing its capital; its
financial risk management objectives; details of its financial instruments;
and its exposures to credit risk and liquidity risk are set out in note 32
alongside details of the Group's borrowing facilities.
The Group expects to continue to meet its day-to-day working capital
requirements through cashflows generated by its trading activities and
available net cash resources (31 December 2023: £34.9m). The Group's banking
facility, a £60 million committed revolving credit facility has a maturity
date of May 2026, having been amended and restated in February 2023. As shown
in note 25, the Group have not currently utilised the facility leaving £60.0m
of undrawn committed borrowing facilities in respect of which all conditions
precedent had been met. The facility agreement contains financial covenants,
including a minimum net debt to EBITDA ratio. At the balance sheet date, the
Group could have drawn a maximum of c.£33.0m from the facility and remain
compliant with covenants. However, under the base case and downside scenarios
the full facility would not be available within the going concern period.
LSL has continued to run a variety of scenario models throughout the year to
help the ongoing assessment of risks and opportunities. The Group considered
both current trading and external reference points in developing a base case
forecast and has assumed inflation and interest rates of 5.0% and 5.5%
respectively in 2024 (4.0% and 5.0% in 2025). The base case forecast prudently
assumes a continuation of current trading throughout the going concern period
to 30 June 2025.
A severe downside scenario has been modelled as part of the going concern
assessment, which includes the pessimistic assumption that there is a
significant reduction in market transaction volumes reducing below the low
point experienced during the global financial crisis and in turn reducing
Group revenue by over 25%. The scenario modelling includes certain mitigating
actions, within the Group's control, however there are further cost
mitigations that could be applied in such a severe scenario. Underpinned by
LSL's strong balance sheet and diverse business revenue streams, the severe
downside financial scenario modelling confirmed that the Group's current
liquidity position would enable the Group to operate under this scenario to 30
June 2025 within the terms of its current facilities with no breach of banking
covenants and therefore it is appropriate to use the going concern basis of
preparation for this financial information.
Having due regard to the scenarios above and after making appropriate
enquiries, the Directors have a reasonable expectation that the Group and the
Company have adequate resources to remain in operation to 30 June 2025. The
Board have therefore continued to adopt the Going Concern basis in preparing
this Report.
2.4 Revenue recognition
Revenue is recognised under IFRS 15. The standard is based on a single model
that distinguishes between promises to a customer that are satisfied at a
point in time and those that are satisfied over time. Revenue is recognised
when performance obligations are fulfilled.
Financial Services
Revenue is earned on mortgage procuration fees and insurance commissions from
sales of protection and general insurance policies. Revenue from mortgage
procuration fees is recognised by reference to the completion date of the
mortgage/remortgage on the housing transaction and revenue from insurance
commissions is recognised by reference to the date that the policy goes on
risk. The commission refund liability (formerly named lapse provision)
associated with insurance commissions is recognised as a reduction in revenue
which is calculated with reference to historical refunds which have occurred,
commission refund liabilities are recorded within trade and other payables.
The Group acts as both a principal and agent depending on its arrangements
with the lenders and broker firms. In scenarios where the Group determines
that it has control of the service before it is provided to a client, the
Group recognises revenue as the gross amount of consideration expected to be
received following satisfaction of the performance obligation. In scenarios
where the Group concludes that it does not control the service before it is
provided to a client, the Group recognises revenue on a net basis, being gross
consideration less any fee or commission due to a counterparty.
Estate Agency
At 1 January 2023, the Group's Estate Agency Division included a network of
owned and franchised branches. During the year, the Group has transitioned to
a fully franchised business model for its principal estate agent businesses
and the revenue from the formerly owned operations has been presented as
discontinued, see note 2.25 for further details. The accounting policies for
both franchise and residential services and lettings, as well as asset
management and conveyancing services, are set out below.
Franchise services:
Revenue represents the value of commissions, charges for services and fixed
fees due to the Group under franchise agreements. The Group earns a percentage
of all sales and lettings income generated by the franchisees. Revenue in
respect of commissions due on house sales is recognised at the point of the
relevant property sale, in which the franchisee acts as estate agent, having
been exchanged. Revenue in respect of commissions due on lettings, property
management and ancillary products is recognised at the point at which the
underlying performance obligation has been delivered by the franchisee.
Revenue for services provided to the franchisee by the Group is recognised in
the period to which the services relate, typically monthly. The franchise
agreements include fixed fees for membership of the franchise which are
charged per branch on a monthly basis for the term of the franchise agreement
and are recognised over time.
Residential services:
Residential sales:
Revenue from the exchange fees generated in the formerly owned residential
sales exchange business described above is recognised by reference to the
legal exchange date of the housing transaction.
Lettings:
Revenue from lettings in the formerly owned lettings business is recognised
monthly once the Group has satisfied its performance obligations, such as the
collection of rent.
New build residential sales:
Revenue earned by the Group's new build residential sales business is
recognised by reference to the legal exchange date of the housing transaction.
Conveyancing services:
Where the Group provides conveyancing packaging services, the revenue is
recognised by reference to the legal exchange date of the housing transaction.
Asset management:
Revenue earned from the repossessions asset management business is recognised
by reference to the legal exchange date of the housing transaction.
Surveying & Valuation
Revenue from the supply of surveying and valuation services is recognised upon
the completion of the professional survey or valuation by the surveyor, and
therefore at a point in time.
Interest income
Revenue is recognised at a point in time as interest accrues (using the
effective interest method - that is the rate that discounts estimated future
cash receipts through the expected life of the financial instrument to the net
carrying amount of the financial asset).
Dividends
Revenue is recognised when the Group's right to receive the payment is
established.
2.5 Segment reporting
An operating segment is a distinguishable segment of an entity that engages in
business activities from which it may earn revenues and incur expenses and
whose operating results are reviewed regularly by the Board. The Board reviews
the Group's operations and financial position as Financial Services, Surveying
& Valuation and Estate Agency Franchising, and therefore considers that it
has three operating segments. During the year, the Group made the strategic
decision to convert the entire owned estate agency branch network into
franchises, in doing so the Estate Agency Franchising operating segment became
mainly a provider of franchise services.
Within the Estate Agency Franchising operating segment, the only remaining
owned operations relate to the Group's new build residential sales,
conveyancing packaging and asset management businesses which are LSL Land
& New Homes Ltd, Homefast Property Services Limited, LSL Corporate Client
Services Limited and Templeton LPA Limited.
The information presented to the Directors directly reflects the Group
Underlying Operating Profit as defined in the alternate performance measures
(APM) in note 5 to these Financial Statements and they review the performance
of the Group by reference to the results of the operating segments against
budget.
2.6 Alternative Performance Measures (APMs)
In reporting financial information, the Group presents a number of APMs that
are designed to assist with the understanding of underlying Group performance.
The Group believes that the presentation of APMs provides stakeholders with
additional helpful information on the performance of the business. APMs are
also used to help enhance comparability of information between reporting
periods. The Group does not consider APMs to be a substitute for or superior
to IFRS measures and the Group's APMs are defined, explained and reconciled to
the nearest statutory measure in notes 5, 12 and 35.
2.7 Discontinued operations
The Group has classified its previously owned network of estate agency
branches as a discontinued operation for the reporting period ending 31
December 2023. The Group operated a network of both owned and franchised
branches prior to disposing of its entire owned network. The owned network was
determined to be a separate major line of business because it made up the
majority of the branch network, its revenue, costs and risk profile was
significantly different to that of franchise and its cash flows could be
clearly distinguished.
The owned branch network became a discontinued operation on 1 April 2023 when
it was classified as held for sale. The Group has presented both the current
and comparative income statement and statement of comprehensive income as if
the owned network had been discontinued from 1 January 2022.
Discontinued operations are presented in the Group Income Statement as a
single line, which comprises the post-tax profit or loss of the discontinued
operation along with the post-tax gain or loss recognised on the
re-measurement to fair value less costs to sell on disposal of the assets or
disposal groups constituting discontinued operations.
2.8 Exceptional items
Exceptional items are those which are material by size and are both
non-recurring and unusual in nature. These items are presented within their
relevant income statement category but highlighted separately on the face of
the income statement. Items that management considers fall into this category
are also disclosed within the notes to the Financial Statements (see notes 6
and 9).
Due to the nature and expected infrequency of these items, separate
presentation helps provide a better indication of the Group's underlying
business performance. This allows shareholders to better understand the
elements of financial performance in the year, so as to facilitate comparison
with prior periods and to better assess trends in financial performance.
2.9 Income taxes
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities, based on tax rates and
laws that are enacted or substantively enacted by the balance sheet date.
Management periodically evaluates positions taken in the tax returns with
respect to the situations in which applicable tax regulations are subject to
interpretation and establishes provisions where appropriate.
Deferred income tax is recognised on all temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the
Financial Statements, with the following exceptions:
- where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a transaction that is
not a business combination that at the time of the transaction affects either
accounting nor taxable profit or loss;
- in respect of taxable temporary differences associated with
investments in subsidiaries, where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future; and
- deferred income tax assets are recognised only to the extent
that it is probable that taxable profit will be available, against which the
deductible temporary differences, carried forward tax credits or tax losses
can be utilised.
Deferred income tax assets and liabilities are measured on an undiscounted
basis at the tax rates that are expected to apply when the related asset is
realised or liability is settled, based on tax rates and laws enacted or
substantively enacted at the balance sheet date.
The carrying amount of deferred income tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the
deferred tax asset to be utilised. Unrecognised deferred tax assets are
reassessed at each reporting period and are recognised to the extent that it
has become probable that future taxable profits will allow the deferred tax
asset to be recovered.
Deferred income tax assets and liabilities are offset, only if a legally
enforceable right exists to offset current tax assets against current tax
liabilities, the deferred income taxes relate to the same taxation authority
and that authority permits the Group to make a single net payment. Income tax
is charged or credited directly to other comprehensive income (OCI) or equity,
if it relates to items that are charged or credited in the current or prior
periods to OCI or equity respectively. Otherwise, income tax is recognised in
the income statement.
2.10 Share-based payment transactions
The equity share option programme allows Group employees to acquire LSL
shares. The fair value of the options granted is recognised as an employee
expense with a corresponding increase in equity in the case of equity-settled
schemes. The fair value is measured at grant date and spread over the period
during which the employees become unconditionally entitled to the options. The
fair value of employee share option plans, which are all equity-settled, is
calculated at the grant date using the Black Scholes model. The resulting cost
is charged to the Group Income Statement over the vesting period. The value of
the charge is adjusted to reflect expected and actual levels of vesting.
No expense is recognised for awards that do not ultimately vest, except for
equity-settled transactions where vesting is conditional upon a market or
non-vesting condition, which are treated as vesting irrespective of whether or
not the market or non-market vested condition is satisfied, provided that all
other performance and/or service conditions are satisfied.
The dilutive effect of outstanding options is reflected as additional share
dilution in the computation of diluted earnings per share (further details are
given in note 12 to these Financial Statements).
2.11 Business combinations and goodwill
The Group accounts for business combinations using the acquisition method of
accounting when control is transferred to the Group. On acquisition, the
assets, liabilities, and contingent liabilities of a subsidiary are measured
at their fair values at the date of acquisition. Any excess of the cost of
acquisition over the fair values of the net assets acquired is recognised as
goodwill.
Deferred and contingent consideration, resulting from business combinations is
valued at fair value at the acquisition date as part of the business
combination. When the contingent consideration meets the definition of a
financial liability, it is subsequently measured to fair value at each
reporting date. The determination of the fair value for deferred and
contingent consideration is based on discounted cash flows and is included
within financial liabilities on the balance sheet.
After the initial recognition, goodwill is measured at cost less accumulated
impairment losses, for the purposes of impairment testing, goodwill acquired
in a business combination is allocated to each of the Group's cash generating
units (CGU) that are expected to benefit from the combination. Where goodwill
has been allocated to a CGU and part of the operations within that unit are
disposed of, the goodwill associated with the disposed operation is included
in the carrying amount when determining the gain or loss on disposal. Goodwill
disposed in these circumstances is measured based on the relative values of
the disposed operation and the portion of the CGU retained.
2.12 Intangible assets
Intangible assets such as brand names, lettings contracts, franchise
agreements, customer relationships and in-house software are measured at cost
less accumulated amortisation and impairment losses. Internally generated
intangibles, excluding capitalised development costs, are not capitalised and
the related expenditure is reflected in the profit or loss in the period in
which the expenditure is incurred.
Intangible assets acquired in a business combination are deemed to have a cost
to the Group of the asset's fair value at the acquisition date. The fair value
of an intangible asset reflects market expectations about the profitability
that the future economic benefits embodied in the asset will flow up to the
Group.
Gains or losses arising from derecognition of an intangible asset are measured
as the difference between the net disposal proceeds and the carrying amount of
the asset and are recognised in the income statement when the asset is
derecognised.
The useful lives of intangible assets are assessed as either finite or
indefinite.
Brand names are not amortised as the Directors are of the opinion that they
each have an indefinite useful life based on the expectation that there is no
foreseeable limit to the period over which each of the assets are expected to
generate net cash inflows to the businesses. The Directors are confident that
trademark registration renewals will be filed at the appropriate time and
sufficient investment will be made in terms of marketing and communication to
maintain the value inherent in the brands, without incurring significant cost.
All brands recognised have been in existence for a number of years and are not
considered to be at risk of obsolescence from technical, technological nor
commercial change. Whilst operating in competitive markets they have
demonstrated that they can continue to operate in the face of such competition
and that there is expected to remain an underlying market demand for the
services offered. The lives of these brands are not dependent on the useful
lives of other assets of the entity.
Franchise agreements entered into by the Group (as franchisor) as part of
contractual arrangements concerning the disposal of previously owned branches
are recognised as intangible assets. Franchise intangible assets are initially
recognised at fair value level 3 and subsequently amortised on a straight-line
basis over their useful economic lives, being the term of the agreement. The
franchise intangible assets are being written off over a remaining life of 15
years as based on the agreements, this is the most likely minimum term. The
life of the relationship is assessed annually.
All other intangible assets are amortised on a straight-line basis over their
useful economic lives of 12 months for order books, two years for customer
contacts, five years for lettings contracts and between three and five years
for in-house software.
2.13 Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation
and impairment losses. Property, plant and equipment is depreciated on a
straight-line basis to its residual value over its anticipated useful economic
life:
Office equipment, fixtures and fittings - over three to seven years
Computer equipment - over three to four years
Motor vehicles - over three to four years
Leasehold improvements - over the shorter of the lease term or ten years
Freehold and long leasehold property - over fifty years or the lease term whichever is shorter
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected from its use or disposal. Any gain or
loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is
included in the income statement when the asset is derecognised. These assets'
residual values, useful lives and methods of depreciation are reviewed at each
financial year end, and adjusted prospectively, if appropriate.
2.14 Financial instruments
Financial assets and financial liabilities are recognised in the Group's
Balance Sheet when the Group becomes a party to the contractual provisions of
the instrument. When financial assets are recognised initially, they are
measured at fair value, being the transaction price plus, in the case of
financial assets not at fair value through the income statement, directly
attributable transaction costs. Financial assets are derecognised when the
Group no longer has the rights to cash flows, the risks and rewards of
ownership or control of the asset. Financial liabilities are derecognised when
the obligation under the liability is discharged, cancelled or expires. The
subsequent measurement of financial assets depends on their classification.
The Group's accounting policy for each category of financial instruments is as
follows:
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its
equity investments as equity instruments designated at fair value through OCI
when they meet the definition of equity under IFRS 9 Financial Instruments and
are not held for trading. The classification is determined on an
instrument-by-instrument basis. Gains and losses on these financial assets are
never recycled to profit or loss. Dividends are recognised as other income in
the statement of profit or loss when the right of payment has been
established, except when the Group benefits from such proceeds as a recovery
of part of the cost of the financial asset, in which case such gains are
recorded in OCI. Equity instruments designated at fair value through OCI are
not subject to impairment assessment.
Financial assets designated at fair value through the income statement
Gains and losses arising from the changes in the fair value of equity
investments are in the income statement.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and on demand deposits and
fixed-term deposits with original maturities of three months or less with the
Group's relationship banks. Bank overdrafts which are repayable on demand are
included in cash and cash equivalents only when there is a legal right to
offset and an intention to settle net, otherwise these amounts are classified
separately as liabilities on the balance sheet. For the purposes of the
statement of cash flow, bank overdrafts are a component of cash and cash
equivalents as they are repayable on demand and form an integral part of the
Group's cash management.
Trade receivables
Trade receivables do not carry any interest and are stated at their original
invoiced value as reduced by appropriate allowances for estimated
irrecoverable amounts. The expected credit loss model under IFRS 9 is applied
to trade and other receivables. The chosen method of recognising the expected
credit loss across the Group is the simplified approach allowing a provision
matrix to be used, which is based on the expected life of trade receivables
and historic default rates, default being defined as when impaired debts are
assessed as uncollectable. The carrying amount of the receivables is reduced
through use of an allowance account and impaired debts are derecognised when
they are assessed as uncollectable.
Trade payables
Trade payables are stated on the balance sheet at their original invoice
value.
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly
attributable transaction costs. After initial recognition, interest-bearing
loans and borrowings are subsequently measured at amortised cost using the
effective interest method. Gains and losses arising on repurchase, settlement
or otherwise cancellation of liabilities are recognised respectively in
finance income and finance costs. Finance costs comprise interest payable on
borrowings calculated using the effective interest rate method and are
recognised on an accruals basis. Borrowing costs are recognised as an expense
when incurred.
2.15 Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that
an asset may be impaired. If any such indication exists, or when annual
impairment testing for an asset is required, the Group makes an estimate of
the asset's recoverable amount. For the purposes of impairment testing, assets
are grouped together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows
of other assets or cash generating units (CGUs). An asset's or CGU's
recoverable amount is the higher of its fair value less costs to sell (FVLCTS)
and value-in-use (VIU). Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is written down to
its recoverable amount. In assessing an asset's VIU, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset. Impairment losses of continuing operations are
recognised in the income statement in those expense categories consistent with
the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as
to whether there is any indication that previously recognised impairment
losses may no longer exist or may have decreased. If such indication exists,
the Group estimates the asset's or CGU's recoverable amount.
2.16 Loans to franchisees and appointed representatives
The Group issues loans to its franchisees and appointed representatives, the
Group's objective is to hold these loans to collect contractual cash flows and
the contractual cash flows are solely payments of principal and interest. They
are initially recognised at fair value plus transaction costs that are
directly attributable to their issue and are subsequently carried at amortised
cost, less provision for impairment.
Loans to appointed representatives are made in the normal course of business
and on standard terms, the duration is typically three years and the loans are
offered on an interest-free basis. The Group calculates the difference between
the par value and fair value on recognition using a market rate of interest
and charges this amount to finance costs in the Group Income Statement, the
residual loan amount is recorded as a financial asset at amortised cost.
Impairment provisions against loans to franchisees and appointed
representatives are recognised based on an expected credit loss model. The
methodology used to determine the amount of provision is based on whether
there has been a significant increase in credit risk since initial recognition
of these financial assets and is calculated by considering the cash shortfalls
that would be incurred and probability of these cash shortfalls using the
Group's model. Where a significant increase in credit risk is identified,
lifetime expected credit losses are recognised; alternatively, if there has
not been a significant increase in credit risk, a 12-month expected credit
loss is recognised. Such provisions are recorded in a separate allowance
account with the loss being recognised within operating expenses in the Group
Income Statement. On confirmation that a loan will not be collectable, the
gross carrying value of the asset is written off against the associated
provision.
2.17 Gain or loss on disposal to a joint venture
In circumstances where a former subsidiary is sold to a joint venture through
a downstream transaction, the Group recognises the full gain or loss in the
income statement, consistent with IFRS 10. The resultant gain or loss is
calculated as consideration received less the net assets of the subsidiary.
2.18 Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event and it is
probable that an outflow of economic benefits will be required to settle the
obligation. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, where appropriate,
the risks specific to the liability.
2.19 Leases
Leases are defined as a contract which gives the right to use an asset for a
period of time in exchange for consideration. As a lessee, the Group
recognises three classes of leases on this basis:
- Property leases
- Motor vehicle leases
- Other leases
Property leases and motor vehicle leases have been recognised on the Group
Balance Sheet, in financial liabilities, by recognising the future cash flows
of the lease obligation, discounted using the incremental borrowing rate of
the Group, adjusted for factors such as swap rates available and the credit
risk of the entity entering into the lease.
Corresponding right-of-use assets have been recognised on the Group Balance
Sheet under property, plant and equipment and have been measured as being
equal to the discounted lease liability plus any lease payments made at or
before the inception of the lease and initial direct costs, less any lease
incentives received. Cash flows from these leases have been recognised by
including the principal portion of the lease payments in cash flows from
financing activities and the interest portion of the lease payment recognised
through operating activities.
Other leases are leases for low value items or leases whose contract term is
less than 12 months. The practical expedient not to recognise right-of-use
assets and lease liabilities for these leases has been utilised by the Group.
A charge for these leases has been recognised through the income statement as
an operating expense. The cash flows relating to low value and short-term
leases have been recognised in net cash flows from operating activities.
No leases where the Group is a lessee, or a lessor contain variable lease
payments.
In scenarios where the Group is an intermediate lessor, the sublease is
classified as a finance lease if substantially all of the risk and rewards
incidental to the ownership of the leased asset have transferred to the
sublessee, otherwise the sublease is classified as an operating lease. The
Group accounts for finance subleases by derecognising the existing
right-of-use asset at the effective date of the sublease and recognising a
receivable for the Group's net investment in the sublease, with any resultant
gain/(loss) recognised in the income statement. The net investment in the
leases equals remaining fixed payments, discounted at the interest rate
implicit in the lease. After initial recognition, the Group recognising
finance income over the remaining lease using the amortised cost method. The
net investment in sublease is subsequently reviewed for impairment under IFRS
9 (further details are given in note 27 to these Financial Statements).
Rental income including the effect of lease incentives from sublet properties
and vehicles are recognised over time on a straight-line basis, throughout the
lease term for operating leases or by recognising in the balance sheet a lease
receivable equal to the investment in the lease for finance leases. Subleases
are assessed as finance leases or operating leases in reference to the
right-of-use asset the lease generates.
2.20 Assets and liabilities held for sale
A disposal group is classified as held for sale where it is available for immediate sale, in its present condition and it is highly probable that its value will be recovered through a sale rather than continuing use. Disposal groups are measured at the lower of carrying value and fair value less costs to sell (FVLCTS) and their assets and liabilities are presented separately from other assets and liabilities on the balance sheet.
2.21 Shares held by employee benefit trust (EBT) and share incentive plan
(SIP)
The Group has an employee share scheme (ESOT) for the granting of LSL shares
to Executive Directors and selected senior employees; and an employee share
incentive plan. Shares in LSL held by the ESOT and the trusts are treated as
treasury shares and presented in the balance sheet as a deduction from equity.
No gain or loss is recognised in the income statement on the purchase, sale,
issue or cancellation of the Group's own equity instruments. The finance costs
and administration costs relating to the ESOT and the trusts are charged to
the income statement. Dividends earned on shares held in the ESOT and the
trusts have been waived. The ESOT and trust shares are ignored for the
purposes of calculating the Group's earnings per share (EPS).
2.22 Treasury shares
Where the Group repurchases shares from existing shareholders, they are held
as treasury shares and are presented as a deduction from equity. No gain or
loss is recognised in the income statement on the purchase, sale, issue or
cancellation of the Group's own equity instruments. Treasury shares are
ignored for the purposes of calculating the Group's EPS and adjusted EPS.
2.23 Dividends
Equity dividends are recognised when they become legally payable. In the case
of interim dividends to shareholders, this is when paid. In the case of final
dividends, this is when approved by shareholders at each AGM.
2.24 Pensions
The Group operates a defined contribution pension scheme for employees of all
Group companies. The assets of the scheme are invested and managed
independently of the finances of the Group. The pension cost charge represents
contributions payable in the year.
2.25 Critical accounting judgements and estimates
The preparation of the Group's Financial Statements requires the use of
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the Financial Statements and the reported amounts
of revenue and expenses during the year. These estimates and judgements are
based on Management's best knowledge of the amount, event or actions and
actual results ultimately may differ from those estimates. Group Management
believe that the estimates and assumptions listed below have a significant
risk of resulting in a material adjustment to the carrying amounts of assets
and liabilities.
Carrying value of goodwill and intangible assets (estimate)
The Group carries out impairment reviews of intangible assets when there is an
indication that the carrying value may not be recoverable and tests the
carrying value of goodwill and indefinite life intangibles at least annually,
each of the Group's three segments hold goodwill or indefinite life intangible
assets and therefore an annual impairment review is required.
The Group disposed of £38.1m of goodwill and £1.5m of intangible assets in
the period to 31 December 2023, remaining goodwill of £16.9m includes,
Surveying & Valuation (£9.6m), Estate Agency Franchising (£0.3m) and
Financial Services (£7.0m). At 31 December 2023, the Group held £21.4m of
intangible assets on the balance sheet (2022: £14.7m), of which £6.9m are
indefinite life intangible assets relating to brand (2022: £6.9m), the
remaining balance of £14.5m is split between franchise intangibles £11.7m
(2022: £1.5m) and software £2.8m (2022: £4.7m).
The former Estate Agency impairment review (including the owned and franchise
network) had a low level of headroom due to the high value of goodwill in the
segment, this made the model particularly sensitive to changes in forecast
assumptions and discount rate. The Estate Agency segment disposed of £38.1m
of goodwill associated with the owned network, replaced by a franchise asset
of £11.7m in the new franchise operation (Estate Agency Franchising), the
value of brand has transferred from Estate Agency to Estate Agency Franchising
and has remained consistent period on period. Furthermore, of the Group's
three divisions, Estate Agency has historically been the most sensitive to
changes in assumptions, Surveying & Valuation and Financial Services have
always previously had greater levels of headroom and have therefore typically
been less sensitive.
The impairment tests are carried out by CGU and reflect the latest Group
budgets and forecasts approved by the Board. The budgets and forecasts are
based on various assumptions relating to the Group's business including
assumptions relating to market outlook, observable trends, and profitability.
A pre-tax discount rate has been used to discount the CGU cash flows:
· Financial Services Division - 15.6%
· Surveying & Valuation Division - 15.6%
· Estate Agency Franchising Division - 15.7%
A terminal value is also applied using a long-term growth rate of 2.0%. A
sensitivity analysis has been performed allowing for possible changes to the
assumptions in the impairment model, see note 17 for details.
Commission refund liability (formerly named lapse provision) (estimate)
Certain subsidiaries sell life assurance products which are cancellable
without a notice period, and if cancelled within a set period require that a
portion of the commission earned must be repaid. The commission refund
liability is recognised as a reduction in revenue which is calculated with
reference to historic refunds which have occurred. Details of the assumptions
applied to commission refund liability and the impact of changes in average
lapse rates are shown in note 24.
Professional Indemnity (PI) claims - valuation (estimate)
A provision is made for professional indemnity claims and potential claims
that arise during the normal course of business in relation to valuations
performed by the Surveying & Valuation Division. This includes an estimate
for the settlement of claims already received as well as claims incurred but
not yet reported (IBNR). Details of the assumptions applied to PI claims areas
are disclosed in note 26 to these Financial Statements. A sensitivity analysis
which illustrates the impact of different assumptions on the required PI costs
provision is also included in note 26.
Contingent consideration receivable (estimate)
Deferred and contingent consideration, resulting from disposals of businesses
is valued at fair value at the disposal date. When the contingent
consideration meets the definition of a financial asset, it is subsequently
measured to fair value at each reporting date. The determination of the fair
value for deferred and contingent consideration is based on discounted cash
flows and is included within financial assets on the balance sheet. Any
changes to fair value are recorded in the operating results of the income
statement, with the effects of discounting being recorded in finance income.
The receivables are disclosed in note 19 to these Financial Statements. A
sensitivity calculation showing the impact of changes to future performance
assumptions is also included in note 19.
Valuation of franchise intangible assets (estimate)
When valuing franchise intangible assets associated with the franchising of
previously owned estate agency branches, management estimate the expected
future cash flows under the agreement and choose a suitable discount rate to
calculate the present value of those cash flows. The budgets and forecasts are
based on various assumptions relating to the future performance of franchised
branches including assumptions relating to market outlook and observable
trends. A sensitivity analysis has been performed allowing for possible
changes to assumptions in the valuation of franchise intangible assets, see
note 17 for details.
Dilapidation provisions (estimate)
When valuing dilapidation provisions, the Group estimates the potential future
liability based on an average dilapidations rate per square foot or a cost
estimate provided for each property which has satisfied the Group's
recognition criteria. The future liability is then discounted to present value
based on the estimated timing of the outflow. A sensitivity analysis has been
performed allowing for possible changes to assumptions in the dilapidation
provision, see note 26 for details.
Exceptional items (judgement)
The Group presents as exceptional items on the face of the income statement
those material items of income and expense which, because of the nature and
expected infrequency of the events giving rise to them, merit separate
presentation to allow shareholders to understand better the elements of
financial performance in the year, so as to facilitate comparison with prior
periods and to assess better trends in financial performance.
Classification of discontinued operations (judgement)
The Group disposed of its entire owned estate agency network during the
period, judgement was required to determine whether the disposal represented a
discontinued operation. The key considerations made by Management in
determining whether the disposals of the owned network met the definition of a
discontinued operation are noted below:
· The Group ceased to operate all remaining owned estate agency
branches and has changed strategic direction in being an operator of
franchised estate agencies only.
· The owned estate agencies constitute a component of the Group in
that the operations could be clearly distinguished operationally, and for
financial reporting purposes, from the rest of the Group.
· The owned estate agency operations constituted a separate major
line of business which has been discontinued, prior to transitioning to a
fully franchised model the Group's weighting of owned vs franchised branches
was 63% / 37%.
· The risk profile of the Estate Agency Division changed
significantly on moving to a fully franchised model, the customer base has
changed to franchisees only, the new segment's revenue (now includes only
commission payments, charges for services and fixed charges), as well as the
high fixed cost of operating branches (c£125m) have been reduced
substantially.
Management considered the requirements of IFRS 5 in the context of the
disposal and concluded that the disposal did meet the definition of a
discontinued operation. The Group has retained its new build residential
sales, conveyancing services and asset management business, these businesses
were previously included in the Estate Agency Division and accounted for less
than 20% of the segment's revenue in 2022. The businesses were not part of the
disposed owned network and are now included within the Estate Agency
Franchising Division.
2.26 New standards and interpretations not applied
The Group is required to comply with the requirements of IFRS 17 Insurance
Contracts from 1 January 2023. The new accounting standard sets out
requirements that the Group should apply in reporting information about
insurance contracts it issues and reinsurance contracts it holds. The Group
has undertaken an assessment of its insurance contracts, including those held
under its captive insurance company, Albany Insurance Company (Guernsey)
Limited (Albany) and has concluded that there is no impact on the Group
Financial Statements as Albany does not write insurance contracts outside of
the Group, nor does it enter into reinsurance arrangements.
The amendments to IAS 1 - Classification of Liabilities as Current or
Non-current and Non-current Liabilities with Covenants which are required to
be effective from 1 January 2024 are currently under review. The Group has
chosen not to adopt the amended standard early.
3. Disaggregation of revenue
Set out below is the disaggregation of the Group's revenue from contracts with
customers:
Year ended 31 December 2023
Financial Services £'000 Surveying & Valuation
£'000 Residential sales exchange* Asset management £'000 Other Total
£'000 Lettings* Estate Agency Franchising income £'000 £'000
£'000 £,000
Timing of revenue recognition
Services transferred at a point in time 51,692 67,834 4,115 950 13,529 3,907 1,156 143,183
Services transferred over time - - - 170 952 113 - 1,235
Total revenue from contracts with customers 51,692 67,834 4,115 1,120 14,481 4,020 1,156 144,418
* Continuing operations residential and lettings revenues include Marsh &
Parsons prior to disposal, and revenue from the Group's new build residential
sales and conveyancing services businesses.
During the year 14% (2022: 12%) of the Group's revenue was generated from a
single large customer within the Surveying & Valuation division. The
revenue recorded within continuing operations in relation to this customer
during the year was £19.9m (2022: £26.0m).
Year ended 31 December 2022 (Restated)
Financial Services £'000 Surveying & Valuation
£'000 Residential ales exchange Asset management £'000 Other Total
£'000 Lettings Estate Agency income £'000 £'000
£'000 £,000
Timing of revenue recognition
Services transferred at a point in time 81,681 93,228 15,532 16,876 2,656 2,811 1,201 213,985
Services transferred over time - - - 2,337 - 1,150 - 3,487
Total revenue from contracts with customers 81,681 93,228 15,532 19,213 2,656 3,961 1,201 217,472
2023 Restated
£'000 2022
£'000
Revenue from services 144,418 217,472
Operating revenue 144,418 217,472
Rental income - 656
(Loss) / gain on fair value (note 19) (279) 678
Other gains 68 -
Other operating (loss) / income (211) 1,334
Total revenue and operating income 144,207 218,806
4. Segment analysis of revenue and operating profit
For the year ended 31 December 2023 LSL has reported three operating segments:
Financial Services; Surveying & Valuation; and Estate Agency Franchising.
During the year the Group disposed of its entire owned estate agency branch
network and in doing so transitioned to an operator of franchised estate
agencies only. The Estate Agency segment previously included the Group's owned
network, pre-existing franchise network, new build residential sales,
conveyancing services and asset management businesses. The Estate Agency
segment has been replaced by Estate Agency Franchising which includes the
Group's franchise operations, new build residential sales, conveyancing
services and asset management businesses. The Group's asset management
business will transfer from Estate Agency Franchising to Surveying &
Valuation following changes in management responsibilities from 1 January
2024. Management deemed the Group's asset management operations, including the
class of customer for its services, are more closely aligned to the Surveying
& Valuation division after the Estate Agency Division's transformation
into a franchise model. Internally, the Chief Operating Decision Maker has
begun monitoring the performance of the asset management businesses as part of
the Surveying & Valuation segment from 1 January 2024.
Operating segments
The Management Team monitors the operating results of its segments 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
income) and income taxes are managed on a Group basis and are not allocated to
operating segments.
Reportable segments
The following table presents revenue and profit information regarding the
Group's reportable segments for the financial year ended 31 December 2023 and
financial year ended 31 December 2022 respectively.
Year ended 31 December 2023
Financial Services Surveying Estate Agency Franchising Unallocated Total
& Valuation
Income statement information £'000 £'000 £'000 £'000 £'000
Total revenue from external customers from continuing operations 53,284 67,834 24,892 - 146,010
Introducer's fee (1,592) - - - (1,592)
Revenue from continuing operations 51,692 67,834 24,892 - 144,418
Revenue from external customers from discontinued operations - - 30,750 - 30,750
Introducer's fee - - 1,592 - 1,592
Total revenue from continuing and discontinued operations 51,692 67,834 57,234 - 176,760
Segmental result:
- Group Underlying Operating profit/(loss) from continuing operations 7,022 5,398 5,637 (7,738) 10,319
- Operating profit/(loss) 5,049 2,000 4,364 (7,666) 3,747
Finance income 2,817
Finance costs (1,701)
Profit before tax 4,863
Loss before tax from discontinued operations (45,425)
Loss before tax (40,562)
Taxation 2,502
Loss for the year (38,060)
Balance sheet information
Segment assets - intangible 8,893 11,626 17,761 36 38,316
Segment assets - other 23,439 12,063 12,530 63,176 111,208
Total segment assets 32,332 23,689 30,291 63,212 149,524
Total segment liabilities (14,476) (13,728) (19,510) (25,865) (73,579)
Net assets 17,856 9,961 10,781 37,347 75,945
Other segment items
Capital expenditure including intangible assets (2,065) (536) (255) - (2,856)
Depreciation (590) (1,754) (1,018) - (3,362)
Amortisation of intangible assets (1,733) (46) (443) (36) (2,258)
Exceptional gains 8,981 339 - - 9,320
Exceptional costs (9,275) (3,661) (831) - (13,767)
Share of results in joint venture (390) - - - (390)
PI Costs provision (905) (2,313) - - (3,218)
Dilapidation provision - - (5,691) - (5,691)
Restructuring provision - - (2,069) - (2,069)
Other provision - - (571) - (571)
Onerous leases provision - - (1) - (1)
Share-based payment 54 (30) 1 139 164
Unallocated net assets comprise intangible assets and plant and equipment
£1.0m, other assets £4.2m, cash £58.0m, accruals and other payables £2.8m,
overdraft of £23.1m. Unallocated result comprises costs relating to the
Parent Company.
Year ended 31 December 2022 (Restated)
Financial Services Surveying Estate Agency Franchising Unallocated Total
& Valuation
Income statement information £'000 £'000 £'000 £'000 £'000
Revenue from external customers from continuing operations 87,437 93,228 42,563 - 223,228
Introducer's fee (5,756) - - - (5,756)
Total revenue from continuing operations 81,681 93,228 42,563 - 217,472
Revenue from external customers from discontinued operations - - 98,510 - 98,510
Introducer's fee - - 5,756 - 5,756
Total revenue from continuing and discontinued operations 81,681 93,228 146,829 - 321,738
Segmental result:
- Group Underlying Operating profit/(loss) 12,841 20,378 3,949 (7,295) 29,873
- Operating profit/(loss) (7,179) 20,799 (26,822) (8,498) (21,700)
Finance income 76
Finance costs (2,147)
Loss before tax (23,771)
Loss before tax from discontinued operations (34,674)
Loss before tax (58,445)
Taxation (4,857)
Loss for the year (63,302)
Balance sheet information
Segment assets - intangible 11,750 11,217 46,656 72 69,695
Segment assets - other 24,182 9,236 64,915 69,417 167,750
Total segment assets 35,932 20,453 111,571 69,489 237,445
Total segment liabilities (20,983) (14,926) (46,824) (28,660) (111,393)
Net assets 14,949 5,527 64,747 40,829 126,052
Other segment items
Capital expenditure including intangible assets (1,888) (736) (886) (343) (3,853)
Depreciation (810) (1,755) (3,742) (1,305) (7,612)
Amortisation of intangible assets (2,546) (36) (205) - (2,787)
Exceptional gains - 694 - - 694
Exceptional costs (17,458) - (30,858) - (48,316)
Share of results in joint venture (494) - - - (494)
PI Costs provision - 2,341 - - 2,341
Onerous leases provision - - 14 - 14
Share-based payment (16) (237) (80) (1,527) (1,860)
Unallocated net assets comprise intangible assets and plant and equipment
£2.0m, other assets £6.3m, cash £61.2m, accruals and other payables £2.2m,
current and deferred tax liabilities £2.0m, overdraft of £24.5m. Unallocated
result comprises costs relating to the Parent Company.
5. Group and Divisional Underlying Operating Profit
Group and Divisional Underlying Operating Profit are alternative performance
measures (APMs) used by the Directors and Group Management to monitor
performance of operating segments against budget. It is calculated as
profit/(loss) before tax adjusted for the items set out below. The Group's
APMs are defined, explained, and reconciled to their closest statutory
measures in note 35.
Year ended 31 December 2023
Financial Services Surveying Estate Agency Franchising Unallocated Total including discontinued operations
& Valuation IFRS reported total from continuing operations
Discontinued operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Profit/(loss) before tax 5,848 2,576 5,117 (8,678) 4,863 (45,425) (40,562)
Net finance income/(cost) (799) (576) (753) 1,012 (1,116) 110 (1,006)
Operating (loss)/profit per income statement 5,049 2,000 4,364 (7,666) 3,747 (45,315) (41,568)
Operating Margin 9.8% 2.9% 17.5% - 2.6% (140.1%) (23.5%)
Adjustments:
Share-based payments (54) 30 (1) (139) (164) 55 (109)
Amortisation of intangible assets 1,733 46 443 36 2,258 402 2,660
Exceptional gains (8,981) (339) - - (9,320) - (9,320)
Exceptional costs 9,275 3,661 831 - 13,767 43,883 57,650
Contingent consideration payable - - - 31 31 - 31
Underlying Operating Profit/(Loss) 7,022 5,398 5,637 (7,738) 10,319 (975) 9,344
Underlying Operating Margin 13.6% 8.0% 22.6% - 7.1% (3.0%) 5.3%
Year ended 31 December 2022 (Restated)
Financial Services Surveying Estate Agency Unallocated IFRS reported total from continued operations Total including discontinued operations
& Valuation
Discontinued operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000
(Loss)/profit before tax (7,183) 20,921 (27,731) (9,778) (23,771) (34,674) (58,445)
Net finance income/(cost) 4 (122) 909 1,280 2,071 346 2,417
Operating (loss)/profit per income statement (7,179) 20,799 (26,822) (8,498) (21,700) (34,328) (56,028)
Operating Margin (8.8%) 22.3% (63.0%) - (10.0%) (32.9%) (17.4%)
Adjustments:
Share-based payments 16 237 80 1,527 1,860 117 1,977
Amortisation of intangible assets 2,546 36 205 - 2,787 1,233 4,020
Exceptional gains - (694) - - (694) - (694)
Exceptional costs 17,458 - 30,858 - 48,316 38,939 87,255
Contingent consideration - - (372) (324) (696) - (696)
Underlying Operating Profit/(Loss) 12,841 20,378 3,949 (7,295) 29,873 5,961 35,834
Underlying Operating Margin 15.7% 21.9% 9.3% - 13.7% 5.7% 11.1%
6. Discontinued operations
On 4 May 2023, the Group announced that its entire owned estate agency network
of 183 branches would become franchises. The operations of the previously
owned network were franchised to a combination of new and existing franchisees
between 4 May and 31 May. The operations of the branches were sold to the
franchisees through either asset or share sales.
Following completion of these franchise agreements, LSL became one of the
largest providers of estate agency franchise services in the UK, supplying
services to a network of just over 300 branches. The Group previously operated
both franchised and owned branch business models, and by disposing of all
owned branches the Group now no longer operates as a principal in an estate
agency business and has changed to solely operating as the franchisor of
estate agents.
At 31 December 2023, the owned branch network of estate agencies was
classified as a discontinued operation and presented as such within the
Financial Statements. The financial performance and cash flow information
presented here are for the five months ended 31 May 2023 and year ended 31
December 2022.
Financial performance and cash flow information
2023 2022
£'000 £'000
Revenue 32,342 104,266
Operating Expenses:
Employee and subcontractor costs (20,660) (61,244)
Depreciation on property, plant and equipment (1,150) (4,017)
Other operating costs (11,509) (33,052)
Gain on sale of property, plant and equipment 2 8
Share-based payments (55) (117)
Amortisation of intangible assets (402) (1,233)
Exceptional costs (9,049) (38,939)
Group operating (loss) (10,481) (34,328)
Finance income - 4
Finance costs (110) (350)
Net finance costs (110) (346)
Loss before tax (10,591) (34,674)
Taxation charge (668) (1,837)
Loss for the year (11,259) (36,511)
Loss on sale of discontinued operation (34,834)
Attributable tax expense -
Loss on sale of discontinued operation (34,834)
Loss after tax for the period from discontinued operation (46,093)
The net cash flows generated/(incurred) by discontinued operations are, as
follows:
2023 2022
£'000 £'000
Operating (3,524) 7,087
Investing (671) (672)
Financing (935) (2,887)
Net cash inflow/(outflow) (5,130) 3,528
Loss on disposal
Details of the sale of the operations:
2023
£'000
Consideration received or receivable:
Cash 144
Franchise intangible 10,707
Directly attributable costs (3,334)
Total disposal consideration 7,517
Carrying amount of net assets sold (42,351)
Loss on sale before tax (34,834)
Tax -
Loss on sale after tax* (34,834)
*Loss on sale after tax are wholly attributable to owners of the Parent
The total disposal consideration recognised includes cash of £0.1m, a
franchise intangible asset of £10.7m less directly attributable costs of
£3.3m. A franchise intangible asset of £10.7m has been calculated using
expected future cash flows that will be generated from the franchise
agreement, discounted using a post-tax discount rate of 11.8% (the Group's
WACC at the date of the agreement). A term of 15 years has been applied to the
cash flows, consistent with management's estimate of most likely minimum term
per the franchise agreements. Market growth assumptions have been applied to
2024 and 2025, with a long-term growth rate of 2.0% applied thereafter.
The directly attributable costs incurred of £3.3m include legal, advisory and
support costs of £1.4m, of which £1.0m relates to a provision for legal
expenses associated with the transfer of leases to the franchisees which the
Group agreed to pay up to a certain amount per lease as part of the franchise
agreement. A further £1.9m relates to committed branch work costs which were
also agreed as part of the franchise agreement.
The carrying amount of net assets sold relates mostly to the goodwill
associated with Your Move and Reeds Rains (£15.3m), LSLi (£22.5m) and other
(£0.3m). The entire balance of goodwill held by Your Move, Reeds Rains, LSLi
and other related to the owned branch network, has therefore been disposed of
as part of the transition to a fully franchised business model. The loss also
included the disposal of other assets with a net book value of £2.2m and
lettings contracts of £1.2m relating to asset sales and net assets of £0.6m
associated with share sales.
Franchise intangible - sensitivity analysis
The fair value of franchise intangible assets is calculated based on a
discounted future cash flow model, the cash flows are based on management's
future assumptions of franchise performance and considers market outlook and
observable trends. If the discount rate was to be increased by 1%, this would
result in a decrease in the assets of £0.6m, similarly if the rate was to
decrease by 1%, this would result in an increase in the franchise intangible
of the same amount. If the net cash flows from future franchise operations
were to decrease by 10% this would result in a reduction in the assets of
£1.1m, if they were to increase by 10% this would result in an increase in
the value of the same amount. A reasonable change in the long-term growth rate
would not result in a material difference to the value of the franchise
intangible.
Exceptional costs
2023 2022
£'000 £'000
Exceptional costs:
Estate Agency restructuring costs 9,049 632
Goodwill and intangible asset impairment - 38,307
9,049 38,939
Estate Agency restructuring costs
The Group has provided for future dilapidation costs of £4.6m related to
previously owned branches, consistent with the recognition criteria per the
Group's accounting policy, please refer to note 26 for detail of how the
provision has been calculated. The other costs incurred are redundancy and
office closure costs totalling £4.1m and project costs of £0.5m offset by a
gain of £0.2m recognised on derecognition of the right-of-use for previously
owned branches and recognition of investment in sublease.
7. Finance income
2023 2022
£'000 £'000
Finance income on subleased assets 140 9
Unwinding of discount on contingent consideration receivable 986 -
Interest from loans to franchisees and appointed representatives 148 -
Bank interest 1,536 -
Other interest receivable 7 67
2,817 76
8. Finance costs
2023 2022
£'000 £'000
Commitment and non-utilisation fees on RCF 728 1,035
Unwinding of discount on lease liabilities 499 1,037
Unwinding of discount on contingent consideration payable 3 75
Unwinding of discount on dilapidations provision 119 -
Fair value adjustment to loans receivable 332 -
Other interest payable 20 -
1,701 2,147
9. Exceptional items
2023 Restated
2022
£'000 £'000
Exceptional costs:
Goodwill and intangible asset impairment (note 17) - 47,208
Estate Agency restructuring costs - 1,108
Surveying & Valuation restructuring costs 3,661 -
Financial Services acquisition costs 2,164 -
Loss on sale of disposal groups 1,697 -
Intangible assets write down 2,152 -
Reduction in deferred consideration receivable 4,093 -
13,767 48,316
Exceptional gains:
Exceptional gain in relation to historic PI costs 339 694
Gain on sale of disposal groups 8,981 -
9,320 694
Exceptional costs
Estate Agency restructuring costs
The costs incurred as a result of estate agency restructuring during 2023 are
included within discontinued operations. The costs included in continuing
operations in 2022 relate to the closure of branches in Marsh & Parsons.
Surveying & Valuation restructuring costs
The Group initiated a restructuring program in response to the difficult
market conditions which followed the UK mini-budget in quarter three 2022. The
exceptional costs related to redundancy costs of £3.4m and office closure
costs of £0.2m.
Financial Services acquisition costs
Financial Services restructuring costs relate to corporate activity, including
costs related to the acquisition of TenetLime Limited of £1.1m (refer to note
34) and aborted deal costs of £1.1m.
Loss on sale of disposal groups
The loss on disposal groups relates to the sale of Marsh & Parsons, Group
First and RSC during January 2023.
Group First and RSC:
The Group announced the sale of Group First and RSC on 13 January 2023 to
Pivotal Growth for consideration payable of 7x the combined Group First and
RSC EBITDA in calendar year 2024, subject to working capital adjustments and
payable in H1 2025. Group First and RSC were classified as held for sale at 31
December 2022 and were written down to their fair value less cost to sell
(FVLCTS) of £5.3m, calculated as the present value of consideration
receivable less costs to dispose. The Group recognised losses on the disposal
of Group First and RSC of £0.7m and £0.2m respectively as a result of
adverse working capital adjustments during the period 1 January 2023 to 13
January 2023 and an update to expected consideration of £0.3m.
Marsh & Parsons:
The Group announced the sale of Marsh & Parsons on 26 January 2023 to
Dexters for an initial consideration of £29.0m, subject to adjustments for
working capital and debt-like items. Marsh & Parsons was classified as
held for sale at 31 December 2022 and was written down to its fair value less
cost to sell (FVLCTS) of £26.9m, calculated as consideration received
(£29.0m), less estimated adjustments for debt-like items (£2.0m) and costs
to sell (£0.1m). A loss on disposal of £0.8m has been recognised at 31
December 2023 and this is a result of adverse working capital movements during
the period 1 January 2023 to 26 January 2023 of £0.3m and an additional
adjustment to consideration of £0.3m.
See note 36 for details regarding restatements.
Intangible assets write down
During the period there has been an impairment to other intangible assets of
£2.2m (2022: £0.1m). The charge relates to software assets within the
Financial Services Division where there has been a strategic shift to focus
development on the Group's PRIMIS Connect platform and a declining number of
third party software users. Please refer to note 17 for further information.
Reduction in deferred consideration receivable
The reduction in deferred consideration receivable relates to contingent
consideration assets recognised on the disposal of Group First, RSC and EFS.
The charge included in exceptionals is the result of a downward revision of
future forecasts at the reporting date in comparison to original recognition,
combined with changes in discount rate. The Group has included movements in
the deferred consideration for these disposals in exceptional, because the
original gain/loss on disposal was taken to exceptional. The Group recognises
finance income on the unwinding of the receivables in finance income in the
income statement.
Exceptional gains
Gain on sale of disposal groups
On 11 April 2023, the Group announced the disposal of two further
subsidiaries, Embrace Financial Services (EFS) and First2Protect (F2P) to
Pivotal Growth. The consideration payable for EFS will be 7x the EBITDA in
calendar year 2024, subject to working capital adjustments and payable in H1
2025. The consideration for F2P was £9.3m. The Group recognised a gain on
disposal of EFS and F2P of £1.6m and £7.4m respectively. This EFS gain has
been calculated as contingent consideration of £2.4m less disposal costs of
£0.5m and net assets disposed of £0.2m. The gain recognised on F2P has been
calculated as consideration received of £9.3m, less transaction costs of
£0.1m and net assets disposed of £1.9m.
Summary of gain/loss on disposal groups
Group First RSC Marsh & Parsons EFS F2P Total
£'000 £'000 £'000 £'000 £'000 £'000
Goodwill 3,638 1,064 10,557 - - 15,259
Other intangible assets 396 43 12,067 - - 12,506
Property, plant and equipment and right-of-use assets 294 74 15,704 56 301 16,429
Trade and other receivables 230 220 6,333 462 892 8,137
Bank balances and cash 1,438 986 1,493 2,652 1,733 8,302
Deferred tax asset/(liability) 15 14 47 - (3) 73
Current tax asset/(liability) (379) (197) 94 171 (329) (640)
Trade and other payables (847) (663) (4,928) (3,115) (417) (9,970)
Financial liabilities - (74) (14,668) - (275) (15,017)
Net assets disposed of 4,785 1,467 26,699 226 1,902 35,079
Consideration
Cash and cash equivalents - - 26,100 - 9,289 35,389
Contingent consideration 4,152 1,382 - 2,352 - 7,886
Disposal costs (75) (75) (230) (501) (31) (912)
Total consideration (less transaction costs) 4,077 1,307 25,870 1,851 9,258 42,363
Gain/(loss) on disposal (708) (160) (829) 1,625 7,356 7,284
Net cash inflow arising on disposal
Consideration received in cash and cash equivalents - - 26,100 - 9,289 35,389
Less: cash and cash equivalents disposed (1,438) (986) (1,493) (2,652) (1,733) (8,302)
Less: disposal costs paid (75) (75) (230) (501) (31) (912)
Cash inflow/(outflow) (1,513) (1,061) 24,377 (3,153) 7,525 26,175
10. Loss before tax
Loss before tax is stated after charging:
2023 2022
£'000 £'000
Auditor's remuneration (note 11) 1,533 1,001
Short-term leases 1,960 1,997
Low value leases 334 649
Depreciation - owned assets 1,482 3,853
Depreciation - right-of-use assets 1,880 3,759
Gains / (losses) on disposal of property, plant and equipment and right-of-use - -
assets
11. Auditor's remuneration
The remuneration of the auditors is further analysed as follows:
2023 2022
£'000 £'000
Audit of the Financial Statements 490 333
Audit of subsidiaries 588 543
Total audit 1,078 876
Audit-related assurance services (including interim results review) 455 125
1,533 1,001
12. 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.
As the Group reported a profit from continuing operations in 2023 (2022:
loss), the effect of dilutive share options has been included in the
calculation of diluted earnings per share for continuing operations,
discontinued operations and the overall result.
However, for the calculation in 2022, as the Group reported a loss from
continuing operations, any potential ordinary shares are antidilutive and are
therefore excluded from the calculation of diluted earnings per share for
continuing operations, discontinued operations and the overall result:
Total EPS:
2023 2022
Loss after tax Weighted average number of shares Weighted average number of shares Restated
£'000 Per share amount Restated per share amount
pence loss after tax pence
£'000
Basic EPS (38,001) 103,066,026 (36.9) (63,209) 102,659,027 (61.6)
Effect of dilutive share options - 817,786 - - - -
Diluted EPS (38,001) 103,883,812 (36.6) (63,209) 102,659,027 (61.6)
Total EPS from continuing operations:
2023 2022
Profit after tax Weighted average number of shares Restated Weighted average number of shares
£'000 Per share amount loss after tax Restated
pence per share amount
£'000 pence
Basic EPS 8,092 103,066,026 7.9 (26,698) 102,659,027 (26.0)
Effect of dilutive share options - 817,786 - - - -
Diluted EPS 8,092 103,883,812 7.8 (26,698) 102,659,027 (26.0)
Total EPS from discontinued operations:
2023 2022
Loss after tax Weighted average number of shares Restated Weighted average number of shares
£'000 Per share amount loss after tax Restated
pence £'000 per share amount
pence
Basic EPS (46,093) 103,066,026 (44.7) (36,511) 102,659,027 (35.6)
Effect of dilutive share options - 817,786 - - - -
Diluted EPS (46,093) 103,883,812 (44.4) (36,511) 102,659,027 (35.6)
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.
Adjusted basic and diluted EPS
The Directors (who were members of the Board at 31 December 2023) consider
that the adjusted earnings shown below give a consistent indication of the
Group's underlying performance:
2023 Restated
2022
£'000 £'000
Group Underlying Operating Profit 9,344 35,834
Loss attributable to non-controlling interest 59 93
Finance income/(costs) (excluding exceptional and contingent consideration 795 (968)
items, fair value adjustment to loans receivables and discounting on lease
liabilities)
Normalised taxation (tax rate 23.5%, 2022:19.0%)* (2,396) (6,642)
Adjusted profit after tax attributable to owners of the parent 7,802 28,317
*The headline UK rate of corporation tax for the period is 23.5% (2022:
19.0%).
Adjusted basic and diluted EPS
2023 2022
Profit after tax Weighted average number of shares Restated Weighted average number of shares
£'000 Per share amount profit after tax Restated per share amount
pence pence
£'000
Adjusted basic EPS 7,802 103,066,026 7.6 28,317 102,659,027 27.6
Effect of dilutive share options - 817,786 - - 1,275,216 -
Adjusted diluted EPS 7,802 103,883,812 7.5 28,317 103,934,243 27.2
This represents adjusted profit after tax attributable to equity holders of
the parent. Tax has been adjusted to exclude the prior year tax adjustments,
and the tax impact of exceptional items, amortisation, and share-based
payments. The effective tax rate used is 23.5% (31 December 2022: 19.0%).
13. Dividends paid and proposed
2023 2022
£'000 £'000
Declared and paid during the year:
2023 Interim: 4.0 pence per share (2022 Interim: 4.0 pence) 4,098 4,084
Dividends on shares proposed (not recognised as a liability as at 31
December):
Equity dividends on shares:
Dividend: 7.4 pence per share (2022: 7.4 pence) 7,714 7,616
14. Cash flow from financing activities
At 1 January 2023 Cash flow Additions Disposals Reclassified as held for sale At 31 December 2023
£'000 £'000 £'000 £'000 £'000 £'000
Lease liabilities 10,915 (4,529) 4,350 (2,396) - 8,340
10,915 (4,529) 4,350 (2,396) - 8,340
Set out below are the movements in the Group's lease liabilities and long-term
debt during the year.
At 1 January 2022 Cash flow Additions Disposals Reclassified as held for sale At 31 December 2022
£'000 £'000 £'000 £'000 £'000 £'000
Lease liabilities 28,117 (7,170) 5,550 (875) (14,707) 10,915
28,117 (7,170) 5,550 (875) (14,707) 10,915
2023 2022
£'000 £'000
Non-current liabilities 5,085 6,246
Current liabilities 3,255 4,669
8,340 10,915
Lease liability movements comprise new leases entered into during the year,
cancellation of leases and movements between current and non-current
liabilities, this also includes interest paid during the year of £0.6m (2022:
£1.4m). The Group holds no other long-term debt at 31 December 2023.
15. Directors and employees
Remuneration of Directors
2023 2022
£'000 £'000
Directors' remuneration (short-term benefits)(*) 1,367 1,563
Contributions to money purchase pensions schemes (post-employment benefits) 2 2
1,369 1,565
Aggregate gains on exercise of share based payment awards 479 1,226
Note:
(*) Directors' remuneration (short term benefits) excludes the value of share
awards (including the value of matching shares, dividend shares and free share
awards) that vested in the year amounting to £0.2m (2022: £0.4m). Included
within this amount are accrued bonuses of £nil (2022: £nil).
The number of Directors who were members of Group money purchase pension
schemes during the year totalled 2 (2022: 2).
Remuneration of Key Management Personnel
2023 2022
£'000 £'000
Key management personnel remuneration (short-term benefits)(1) 2,641 5,402
Contributions to money purchase pensions schemes (post-employment benefits) 63 48
Termination benefits 142 -
Share-based payments charge on current incentive schemes 377 1,253
3,223 6,703
(Note:)
(1 Included within this amount are accrued bonuses of £0.1m (2022:£1.5m).)
Remuneration of Key Management Personnel represents the charge to the income
statement in respect of the remuneration of the Group Board and Group
Executive Committee members.
Employee numbers and costs
The Group employs staff in divisional offices and head office. Aggregate
payroll costs of these employees, including Directors were:
2023 2022
£'000 £'000
Wages and salaries 83,401 122,187
Social security costs 10,862 16,229
Pension costs 4,536 6,002
Subcontractor costs 291 907
Total employee costs 99,090 145,325
Share-based payment (credit)/expense (see below) (164) 1,860
The average monthly FTE staff numbers (including Directors) during the year
were:
2023 2022
Financial Services 490 953
Surveying & Valuation 879 931
Estate Agency Franchising 1,006 2,062
2,375 3,946
During the year the Group announced that its entire owned estate agency
network of 183 branches would become franchises. The operations of the
previously owned network were franchised to a combination of new and existing
franchisees between 4 May and 31 May. As a result, only 15% of the estate
agency staff remained employees of LSL, 85% of staff were transferred to the
franchisees. The average monthly FTE staff number disclosed in 2022 includes
staff which were in the Group's old estate agency model.
Share-based payments
The Group operates the following equity-settled share-based remuneration
schemes:
Long-term incentive plan (LTIP)
The Group operates a LTIP (an equity-settled share-based remuneration scheme)
for certain employees. Under the LTIP, the options vest if the individual
remains an employee of the Group after a three-year period, unless the
individual has left under certain 'good leaver' terms in which case the
options may vest earlier and providing the performance conditions are met.
Vesting conditions:
For all LTIP options granted between 2020 and 2023, 50% of the options vest
based on the total shareholder return (TSR) of LSL as compared to a comparator
group of FTSE Small Cap, excluding investment trusts, over the three-year
performance period (for LTIP 2023 this is 1 January 2023 to 31 December 2025):
• if the Group is in the top 25% percentile, all of these options will vest;
• if the Group is at the median, 25% will vest;
• straight-line vesting between median and top 25% percentile; and
• below the median, no options vest.
The remaining 50% of the options are based on LSL's Adjusted Basic EPS
performance in the financial year which they become exercisable:
LTIP 2023 LTIP 2022 LTIP 2021 LTIP 2020
EPS (pence) EPS (pence) EPS (pence) EPS (pence)
100% vest (more than or equal to) 24.0 52.8 31.5 31.5
25% vest (equal to) 16.0 46.9 25.6 25.6
Straight-line vesting (between) 16.0 - 24.0 46.9 - 52.8 25.6 - 31.5 25.6 - 31.5
No options vest (less than) 16.0 46.9 25.6 25.6
Company stock option plan (CSOP)
The Group operates a CSOP (an equity-settled share-based remuneration scheme)
for certain employees. Under the CSOP the options vest if the individual
remains an employee of the Group after a three-year period, unless the
individual has left under certain 'good leaver' terms in which case the
options may vest earlier.
SAYE (save-as-you-earn) scheme
The Group has offered options under the SAYE scheme in each of 2011 to 2014,
2016 to 2019 and 2021 years. All these offers were open to all qualifying
employees and provide for an exercise price equal to the daily average market
price on the date of grant. The options will vest if the employee remains in
service for the full duration of the option scheme (three years). There are no
cash settlement alternatives.
BAYE (buy-as-you-earn) scheme
The matching shares element of the SIP (share incentive plan)/SAYE was
introduced and provides participants with one matching share for every five
partnership shares purchased. The matching shares are allocated from ordinary
shares held by the Employee Benefit Trust for the benefit of SIP/BAYE
participants. The maximum saving under the scheme would be automatically
capped at £150 per month (as per HMRC limits).
All employee share award
The Group launched its second free share award under its SIP Plan in 2022. The
award was £500 per full-time employee and a pro-rated award for all part-time
employees. This award offer was made to LSL employees who had joined the Group
on or before 28 February 2022 and remain employed and not serving notice at
the date the shares are awarded in April 2022. The awards will normally become
available for employees once they have been held in the SIP for three years or
more.
The Group's first free share scheme awarded £500 per full-time employee and a
pro-rated award for all part-time employees who had joined the Group on or
before 31 March 2020 and were still employed and not serving notice at the
time the grant was made on 1 October 2020. The awards will normally become
available for employees once they have been held in the SIP plan for three
years or more.
Movements during the year
The following table illustrates the number and weighted average exercise
prices of, and movements in, share options during the year:
2023 2022
Weighted Number Weighted Number
average exercise average exercise
price price
Outstanding at 1 January 0.71 4,808,256 0.98 4,994,221
Granted during the year 0.98 1,639,999 - 1,303,850
Exercised during the year* 0.00 (567,665) 0.93 (890,146)
Lapsed during the year 0.81 (1,815,311) 1.09 (599,669)
Outstanding at 31 December 0.87 4,065,279 0.71 4,808,256
*The weighted average share price at the date of exercise of these options was
£2.35 in 2023 (2022: £3.53).
· There were no cancellations or modifications to the awards in
2023 or 2022.
· The weighted average remaining contractual life for the share
options outstanding as at 31 December 2023 was 1.46 years (2022: 1.07 years).
· The weighted average fair value of options granted during the
year was £1.76 (2022: £3.43).
· The range of exercise prices for options outstanding at the end
of the year was £nil to £3.64 (2022: £1.22 to £3.64).
· 719,230 share options were exercisable as at 31 December 2023.
The following tables list the inputs to the models used for the new plans for
the years ended 31 December 2023 and 2022, respectively:
LTIP SAYE LTIP Share award
2023
2022
2022
2023
Option pricing model used Black Scholes Black Scholes Black Scholes Black Scholes
Weighted average share price at grant date (£) 2.44 2.50 3.67 3.93
Exercise price (£) - 1.99 - -
Expected life of options (years) 3 3 3 3
Expected volatility (%) 100 100 100 100
Expected dividend yield (%) 3.96 6.03 3.77 3.77
Risk free interest rate (%) 3.99 3.83 1.93 1.93
The volatility assumption, measured at the standard deviation of expected
share price returns, is based on statistical analysis of historical share
price. The dividend yield assumption is based on the fact that the shares
awarded are not eligible to receive dividends until the end of the vesting
period.
The total cost recognised for equity-settled transactions is as follows:
2023 2022
£'000 £'000
Share-based payment (credit)/expense during the year (164) 1,860
A credit of £0.1m (2022: charge of £1.5m) relates to employees of the
Company.
16. Taxation
(a) Taxation charge
The major components of income tax charge in the Group Income Statement are:
2023 Restated
2022
£'000 £'000
UK corporation tax - current year - 5,783
- 153 (824)
adjustment in respect of prior years
153 4,959
Deferred tax:
Origination and reversal of temporary differences 246 (202)
Rate differential 16 (64)
Adjustment in respect of prior year (416) 164
Deferred tax balances written back on disposal of subsidiaries (2,501) -
Total deferred tax (credit) (2,655) (102)
Total tax (credit) / charge in the income statement (2,502) 4,857
Continuing and discontinued operations:
2023 Restated
2022
£'000 £'000
Total tax (credit)/charge from continuing operations (3,170) 3,020
Total tax charge from discontinued operations 668 1,837
(2,502) 4,857
Corporation tax is recognised at the headline UK corporation tax rate of 23.5%
(2022: 19%).
The opening and closing deferred tax balances in the Financial Statements were
measured at 25%. This is in accordance with rates included in the Finance Act
2021 which was enacted on 10 June 2021 and came into effect from 1 April 2023.
The effective rate of tax for the year was 6.2% (2022: (8.3%)). The effective
tax rate for 2023 is lower than the headline UK tax rate of 23.5% largely as a
result of two items. Firstly, the inclusion of a loss on disposal following
the Group's adoption of a franchise model within the loss before tax which is
not deductible for corporation tax purposes and net gains arising from the
disposal of investments in subsidiary undertakings during the year, which
similarly, are non-taxable for corporation tax purposes. The second being the
impact of writing back the deferred tax balances held at Group in relation to
the subsidiary undertakings disposed of.
Deferred tax credited directly to other comprehensive income is rounded to
£nil (2022: £0.1m). Income tax debited directly to the share-based payment
reserve is £0.1m (2022: £0.1m).
(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is higher than (2022: higher
than) the standard UK corporation tax (CT) rate, because of the following
factors:
2023 Restated
2022
£'000 £'000
Profit / (loss) before tax from continuing operations 4,863 (23,771)
(Loss) / profit before tax from discontinued operations (45,425) (34,674)
Loss before tax (40,562) (58,445)
Tax calculated at UK standard CT rate of 23.5% (2022: (9,532) (11,105)
19%)
Non-deductible expenditure from joint venture 91 94
Other disallowable expenses 9,934 16,525
Net non-taxable gains on disposal of investments (834) -
Impact of movement in contingent consideration credited to the income 817 (118)
statement
Share-based payment relief (229) 78
Brought forward losses not previously recognised (1) (50)
Current year losses not recognised - 157
Impact of rate change on deferred tax 16 (64)
Prior period adjustments - current tax 153 (824)
Prior period adjustment - deferred tax (416) 164
Deferred tax balances written back on disposal of subsidiary undertakings (2,501) -
Total taxation (credit)/charge (2,502) 4,857
Total tax (credit)/charge from continuing operations (3,170) 3,020
Total tax charge from discontinued operations 668 1,837
Total taxation (credit)/charge (2,502) 4,857
Other disallowable expenses of £9.9m (2022: £18.4m) includes the tax impact
of exceptional costs of £9.7m (2022: £16.6m), which are not taxable /
deductible for tax purposes. This item also includes other smaller permanent
items which are not eligible for tax relief.
The impact of the net non-taxable gains on disposal of investments during the
year relate to the disposal of the Group's interests in its subsidiary
undertakings of Marsh & Parsons, the Group's D2C broker businesses (Group
First, RSC, EFS and F2P) those subsidiary undertakings impacted by the Group's
adoption of a franchise model (see note 6). A net deferred tax liability of
£2.5m was held in relation to those entities disposed of and the balances
have been written back to the income statement as a credit.
There is a debit to the income statement of £0.2m in relation to a
corporation tax prior year adjustment. This balance refines the estimate
previously reported and its main contributing components are prior year losses
not surrendered for group relief and carried forward (£0.1m) and a reduction
in available capital allowances (£0.1m).
There is a credit to the income statement in relation to a deferred tax prior
year adjustment of £0.4m. This predominately relates to losses available to
carry forward in relation to the Group's D2C broker businesses. These balances
have been subsequently disposed of during the financial year as a debit to the
income statement.
(c) Factors that may affect future tax charges (unrecognised)
2023 2022
£'000 £'000
Unrecognised deferred tax asset relating to:
Losses 3,020 3,018
3,020 3,018
No deferred tax asset is recognised in respect of trading losses of £9.5m
(2022: £9.3m). Of this balance, £1.6m relates to the impact of the prior
year restatement (refer to note 36 for further information). The balance has
not been recognised as the formal process for claiming a deduction for these
losses has not yet been finalised. The remaining losses may be recoverable in
the future, and this is dependent on subsidiary companies generating taxable
profits sufficient to allow the utilisation of these amounts. These deferred
tax assets cannot be offset against profits elsewhere in the Group as they
relate to losses brought forward which can only be offset against taxable
profits arising from the same trade in which the losses arose. There is no
time limit for utilisation of the above tax losses. No deferred tax asset is
recognised in respect of capital losses of £2.6m (2022: £2.7m) as there are
no capital profits forecast against which these losses can be utilised. There
is no time limit for utilisation of the above tax losses.
(d) Deferred tax
An analysis of the balance sheet movements in deferred tax is as follows:
2023 Restated
2022
£'000 £'000
Net deferred tax liability at 1 January 2,392 2,491
Research and development tax credits (14) -
Deferred tax liability recognised directly in other comprehensive income 108 (28)
Deferred tax (credit) in income statement for the year from continuing (5,898) (152)
operations
Deferred tax charge in income statement for the year from discontinued 3,246 50
operations
Reclassified as held for sale - 31
Net deferred tax (asset) / liability at 31 December (166) 2,392
Net deferred tax (asset) / liability analysed as:
2023 Restated
2022
£'000 £'000
Accelerated capital allowances (1,583) (1,318)
Deferred tax liability on separately identifiable intangible assets on 5,200 5,198
business combinations
Deferred tax on financial assets 93 13
Deferred tax on share options (487) (713)
Other short-term temporary differences (166) (319)
Trading losses recognised (3,223) (500)
Reclassified as held for sale - 31
(166) 2,392
During the year, the Group adopted a full franchised model Estate Agency. An
intangible asset of £10.7m has been recognised in relation to the franchise
agreements signed. This has resulted in a deferred tax liability of £2.7m
being recognised in the year.
In addition, the reported results for 2022 have been restated to recognise an
intangible asset of £1.5m in relation to owned branches which were franchised
in 2019. This resulted in a deferred tax liability of £0.4m being recognised.
Refer to note 36 for further information.
At 31 December 2023, the Group has unused trading tax losses of £12.9m
available for offset against future profits. See note 16c for commentary on
those balances for which no deferred tax asset is recognised.
At the end of either year there was no unrecognised deferred tax liability for
taxes that would be payable on the unremitted earnings of the Group's
subsidiaries.
Deferred tax credit in income statement relates to the following:
2023 Restated
2022
£'000 £'000
Intangible assets recognised on business combinations (2) 513
Accelerated capital allowance 267 (260)
Deferred tax on share options (119) (179)
Other temporary differences (213) 7
Trading losses recognised 2,722 21
Total deferred tax credited in income statement 2,655 102
2023 Restated
2022
£'000 £'000
Deferred tax (credit) in income statement for the year from continuing 5,901 152
operations
Deferred tax charge in income statement for the year from discontinued (3,246) (50)
operations
Total deferred tax credited in income statement 2,655 102
The income statement credit of £2.6m includes a credit of £2.5m relating to
the deferred tax balances written back on disposal of subsidiaries. The £2.5m
disposal credit comprises of a £0.2m credit on accelerated capital
allowances, a £2.9m credit on intangible assets recognised on business
combinations, a £0.5m debit on trading losses recognised and a £0.1m debit
on other temporary differences. The remaining £0.1m credit to the income
statement comprises of a net rounded £nil credit on accelerated capital
allowances, a £2.9m debit on intangible assets recognised on business
combinations, a £3.2m credit (which is inclusive of the calculated prior year
adjustment of £0.4m - see note 16a) on trading losses recognised and a £0.2m
debit on other temporary differences.
17. Intangible assets
Goodwill and brand
Goodwill Brand Total
£'000 £'000 £'000
Cost
At 1 January 2022 (as previously reported) 160,865 19,074 179,939
Restatement (note 36) (5,211) - (5,211)
At 1 January 2022 (Restated) 155,654 19,074 174,728
Impairment (Restated, note 36) (83,363) - (83,363)
Reclassified as held for sale (17,294) (12,163) (29,457)
At 31 December 2022 (Restated) 54,997 6,911 61,908
Disposed (38,142) - (38,142)
At 31 December 2023 16,855 6,911 23,766
Net book value
At 31 December 2023 16,855 6,911 23,766
At 31 December 2022 (Restated) 54,997 6,911 61,908
The carrying amount of goodwill and brand by CGU is summarised below:
Goodwill Brand Restated goodwill Brand
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Financial Services segment companies
First Complete 3,998 - 3,998 -
Advance Mortgage Funding 2,604 180 2,604 180
Personal Touch Financial Services 348 - 348 -
6,950 180 6,950 180
Surveying & Valuation segment company
e.surv 9,569 1,305 9,569 1,305
Estate Agency Franchising segment companies
Your Move and Reeds Rains* - 3,751 15,282 3,751
LSLi* - 1,675 22,512 1,675
Templeton LPA 336 - 336 -
Others - - 348 -
336 5,426 38,478 5,426
Total 16,855 6,911 54,997 6,911
*Goodwill balances associated with Your Move, Reeds Rains and LSLi were
disposed of in the year due to the Group's transition to a franchise model.
Refer to note 6 for further detail.
Impairment of goodwill and other intangibles with indefinite useful lives
The Group tests goodwill and the indefinite life intangible assets annually
for impairment, or more frequently if there are indicators of impairment.
Goodwill and brands acquired through business combinations have been allocated
for impairment testing purposes to statutory companies or groups of statutory
companies which are managed as individual CGUs as follows:
· Financial Services companies
o First Complete
o Advance Mortgage Funding
o Personal Touch Financial Services
o Direct Life and Pension Services
· Surveying & Valuation company
o e.surv
· Estate Agency companies
o Your Move and Reeds Rains (including its share of cash flows from LSL
Corporate Client Department)
o LSLi
o Templeton LPA
o St Trinity
Recoverable amount of CGUs
The recoverable amount of the Financial Services, Surveying & Valuation
and Estate Agency Franchising companies has been determined based on a
value-in-use (VIU) calculation using cash flow projections based on financial
budgets and forecasts approved by the Board and in the three-year plan.
During the year, the Group disposed of £15.3m of goodwill and £12.2m of
brand associated with businesses disposed during H1 which were previously held
for sale. The Group disposed of a further £38.1m of goodwill when the Estate
Agency Division transferred to a fully franchised model.
The calculation of value-in-use for each of the Financial Services, Surveying
& Valuation and Estate Agency companies is most sensitive to the following
assumptions:
· Discount rates
· Performance in the market
Discount rates
The pre-tax discount rate applied to cash flow projections used in the VIU
models is as follows:
2023* 2022
Financial Services 15.6% 14.2%
Surveying & Valuation 15.6% 14.2%
Estate Agency Franchising 15.7% 14.2%
*Note: the Group's approach has been updated in the current year to apply CGU
specific discount rates.
Cash flows beyond the three-year plan are extrapolated using a 2.0% growth
rate (2022: 2.0%).
Performance in the market
Reflects how management believes the business will perform over the three-year
period and is used to calculate the value-in-use of the CGUs.
Sensitivity to changes in assumptions
Sensitivity analysis has been performed to assess whether changes to key
assumptions would lead to impairments across the Group. Management deemed that
there are no reasonably possible changes in key assumptions that would cause
any of the Group's CGUs carrying amounts to exceed its recoverable amounts.
Other intangible assets
Customer contracts Lettings contracts Franchise agreements Total
Software
£'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2022 (as previously reported) 625 21,770 - 22,558 44,953
Restated (note 36) - - 2,059 (2,057) 2
At 1 January 2022 (Restated) 625 21,770 2,059 20,501 44,955
Additions (Restated) - - - 1,827 1,827
Reclassified as held for sale - - - (1,128) (1,128)
At 31 December 2022 (Restated) 625 21,770 2,059 21,200 45,654
Additions - - 10,707 2,137 12,844
Disposals - (21,770) - - (21,770)
Impairment - - - (3,940) (3,940)
At 31 December 2023 625 - 12,766 19,397 32,788
Amortisation and impairment
At 1 January 2022 (as previously reported) 286 19,037 - 15,100 34,423
Restated (note 36) - - 389 (300) 89
At 1 January 2022 (Restated) 286 19,037 389 14,800 34,512
Amortisation (Restated) 313 1,163 137 2,407 4,020
Other intangible impairment - - - 117 117
Reclassified as held for sale - - - (782) (782)
At 1 January 2023 (Restated) 599 20,200 526 16,542 37,867
Amortisation 26 291 494 1,849 2,660
Disposals - (20,491) - (10) (20,501)
Impairment - - - (1,788) (1,788)
At 31 December 2023 625 - 1,020 16,593 18,238
Net book value
At 31 December 2023 - - 11,746 2,804 14,550
At 31 December 2022 (previously reported) 26 1,570 - 7,240 8,836
At 31 December 2022 (Restated) 26 1,570 1,533 4,658 7,787
At 31 December 2023, the Group performed an impairment indicator assessment of
its other intangible assets and identified an impairment trigger in the
Financial Services Division relating to the Group's Mortgage Gym software
platform. The trigger was the result of a strategic shift by the Group to
focus development on the Group's PRIMIS Connect platform and a declining
number of paid users of Mortgage Gym. The Group determined that the total net
book value of Mortgage Gym (£2.2m) should be written down to £nil at the
period end as the remaining future cash flows associated with the platform
show a net loss and it is expected that all users will cease to use the
platform during 2024.
18. Property, plant and equipment and right-of-use assets
Fixtures, fittings and computer equipment
Land and buildings Leasehold Motor
improvements vehicles Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2022 41,207 9,611 9,003 18,741 78,562
Additions 3,069 242 2,075 1,785 7,171
Disposals (3,743) (660) (1,908) (1,082) (7,393)
Transferred to asset held for sale (18,619) (7,747) (1,726) (3,524) (31,616)
At 31 December 2022 21,914 1,446 7,444 15,920 46,724
Additions 1,614 100 2,710 620 5,044
Disposals (4,861) (580) (2,190) (5,758) (13,389)
Transfer to investment in sublease (9,649) - (738) - (10,387)
At 31 December 2023 9,018 966 7,226 10,782 27,992
Depreciation and impairment
At 1 January 2022 17,879 5,981 5,440 12,192 41,492
Charge for the year 5,831 860 1,969 2,969 11,629
Disposals (2,553) (499) (1,849) (1,079) (5,980)
Transferred to asset held for sale (6,300) (5,248) (1,087) (3,352) (15,987)
At 31 December 2022 14,857 1,094 4,473 10,730 31,154
Charge for the year 1,356 57 1,425 1,674 4,512
Disposals (3,021) (185) (1,728) (3,576) (8,510)
Transfer to investment in sublease (5,858) - (223) - (6,081)
At 31 December 2023 7,334 966 3,947 8,828 21,075
Net book value
At 31 December 2023 1,684 - 3,279 1,954 6,917
At 31 December 2022 7,057 352 2,971 5,190 15,570
Property, plant and equipment - - - 1,954 1,954
Right-of-use assets 1,684 - 3,279 - 4,963
In 2023, the Group disposed of assets with a net book value of £4.9m,
including property, plant and equipment of £2.8m and right-of-use assets of
£2.1m. On transferring the Group's entire owned Estate Agency to franchise,
the Group derecognised £4.3m property and vehicle right-of-use assets of
£4.3m and recognised an investment in sublease in its place.
The additions value consists of property, plant and equipment of £0.7m (2022:
£2.0m) and right-of-use asset of £4.3m (2022: £5.1m).
19. Financial assets
2023 2022
£'000 £'000
(a) Financial assets at fair value through other comprehensive income
(FVOCI)
Unquoted shares at fair value - 322
(b) Financial assets at fair value through income statement (FVPL)
Unquoted shares at fair value (Openwork units) 399 678
Contingent consideration receivable 5,062 -
(c) Financial assets at amortised cost
Investment in sublease 3,338 45
Loans to franchisees and appointed representatives 2,099 -
10,898 1,045
Non-current assets 8,818 1,045
Current assets 2,080 -
10,898 1,045
(a) Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income (FVOCI)
include unlisted equity instruments which are carried at fair value and
measured using level 3 valuation techniques. During the period the Group
disposed of the following equity instruments:
· The Group sold its shares in Yopa Property Limited for £nil
consideration based on third party valuations provided to the existing
shareholders (fair value at 31 December 2022: £nil); and
· The Group sold its shares in Vibrant Energy Matters Limited (VEM)
for consideration of £0.2m (fair value at 31 December 2022: £nil).
On disposal of these equity investments, any related balance within the FVOCI
reserve is reclassified to retained earnings.
During the period, the Group also wrote down its investment in Global Property
Ventures to £nil at 31 December 2023 (2022: £0.1m). The Group also holds an
equity instrument in NBC Property Master Limited which is carried at £nil
value (2022: £nil).
(b) Financial assets at fair value through income statement
Financial assets through profit or loss (FVPL) include unquoted shares in
Openwork's and contingent consideration receivable which are carried at fair
value and measured using level 3 valuation techniques. During the year, the
following gains/(losses) were recognised in the income statement:
2023 2022
£'000 £'000
Fair value (losses) / gains on equity investments at FVPL recognised in other (279) 678
operating costs
Fair value losses on contingent consideration recognised as exceptional (4,093) -
Finance income recognised on contingent consideration receivable 986 -
Openwork Units
During the period the fair value of units held in The Openwork Partnership LLP
was reassessed to £0.4m (31 December 2022: £0.7m), with the reduction in
value recognised in other operating costs. Our valuation is based on an
estimated strike price which has been calculated using the average strike
price from recently executed trading windows.
Contingent Consideration Receivable
Contingent consideration of £4.8m relates to EFS, Group First and RSC which
were sold in H1 2023. The consideration payable will be 7x the combined EBITDA
in calendar year 2024, subject to working capital adjustments and is payable
in H1 2025. The fair value of the contingent consideration receivable has been
calculated for each of the three disposals noted above based on forecast
profitability in calendar year 2024, discounted at 15.5% (Financial Services
Division's weighted average cost of capital for an 18-month period).
The future cash flow and discount rate assumptions are key to the calculation,
if full year 2024 profitability was to reduce by 10% this would result in a
reduction in the receivable of £0.5m, if profitability was to increase, this
would result in an increase in the receivable of the same amount. If the
discount rate was to increase by 1%, the receivable would decrease by £0.1m,
and if the discount rate was to reduce by 1%, this would result in an increase
in the receivable of the same amount.
The remaining £0.3m of contingent consideration relates to amounts due from
disposed lettings books, amounts are receivable in December 2024 and November
2025.
(c) Financial assets measured at amortised cost
Financial assets measured at amortised cost include investment in subleases
and loans to Franchisees and Appointed Representatives.
Investment in subleases
The Group recognises an investment in sublease in scenarios where it is an
intermediate lessor, and the sublease is classified as finance lease. On
recognition, the investment in sublease is valued as the remaining fixed
payments due from the sublessor, discounted at the discount rate implicit in
the headlease. The Group recognises finance income over the remaining life of
the leases. An expected credit loss has been provided against the investment
in sublease of £0.1m, applying a 12-month expected credit loss model.
Loans to franchisees and appointed representatives
The loans to franchisees and appointed representatives balance includes loans
to franchisees in the Estate Agency Franchising segment and loans to appointed
representatives in Financial Services.
The franchisee loans reflect drawdowns on agreed facilities which have
availability over a range of periods from 31 December 2024 to 31 December
2025, are repayable in full within 24 months from the respective period end
and bear fixed rate interest at 8.5%. The Group has issued franchisee loans of
£1.6m during the period and has received principal repayments of £0.8m, an
expected credit loss has been provided against the facility of £0.1m applying
a 12-month expected credit loss model.
The Group issues loans to appointed representatives in the normal course of
business and on standard terms, the duration is typically three years and the
loans are offered on an interest-free basis. The Group has issued loans to
appointed representatives of £1.3m during the year, which were subsequently
written down by £0.2m, and received principal repayments of £0.5m. An
expected credit loss has been provided against the remaining facility of
£0.3m, applying a 12-month expected credit loss model. In previous periods,
the Group has reported loans to appointed representatives as part of
prepayments in trade and other receivables.
20. Investment in joint venture
2023 2022
£'000 £'000
Opening balance 5,068 1,610
Equity investment in Pivotal Growth 4,681 3,952
Equity accounted (loss) (549) (494)
Adjustment for non-controlling interests 159 -
Closing balance 9,359 5,068
Pivotal Growth
The Group is party to one joint venture, Mottram TopCo Limited. The Group
holds a 47.8% (2022: 47.8%) shareholding in Mottram TopCo Limited and has
joint control by virtue of its holding of 50% of the voting shares in Mottram
TopCo Limited and through rights granted to it under a joint venture
agreement.
Mottram TopCo Limited holds a 100% shareholding in Mottram MidCo Limited which
in turn holds a 89.6% shareholding in Pivotal Growth Limited (Pivotal).
Mottram TopCo and Mottram MidCo are both holding companies. Pivotal is a
direct-to-consumer (D2C) financial services advice business which invests in
growing mortgage and protection brokerages to help them build long-term
sustainable value. The brokerages will have access to LSL's financial services
network which further aids the brokerages and LSL's growth plans. Pivotal's
principal place of business is the United Kingdom.
As at 31 December 2023, the Group did not have any commitments or contingent
liabilities relating to Pivotal. The Group invested a further £4.7m during
the year (2022: £4.0m).
The summarised financial information of Pivotal, which is accounted for using
the equity method, is presented below:
2023 2022
Pivotal balance sheet: £'000 £'000
Non-current assets 28,981 11,827
Current assets (excluding cash and cash equivalents) 2,273 257
Cash and cash equivalents 8,896 1,986
Current liabilities (7,874) (1,357)
Non-current liabilities (12,574) (2,110)
Net assets 19,702 10,603
Add Back: Net assets attributable to non-controlling interests 241 -
Net assets attributable to Pivotal 19,943 -
LSL share of Pivotal's net assets* 9,359 5,068
(Note: *LSL's share of Pivotal's assets was adjusted to include the effect of
share based payments within the joint venture.)
2023 2022
Pivotal results: £'000 £'000
Revenue 37,308 6,217
Operating expenses (37,886) (6,974)
Operating loss (578) (757)
Finance costs - (6)
Finance income 34 -
Loss before tax (544) (763)
Taxation (606) (269)
Loss after tax (1,150) (1,032)
LSL share of total loss after tax (549) (494)
Adjustment for non-controlling interests 159 -
LSL share of post-tax (loss) from joint venture (390) (494)
The above Pivotal results for the period ended 31 December 2023 includes the
following:
2023 2022
£'000 £'000
Depreciation (170) (24)
Amortisation (51) (3)
21. Contract assets
2023 2022
£'000 £'000
Non-current contract asset 329 431
Current contract asset 40 348
369 779
In 2021, the Group entered a long-term contract for the provision of mortgage
and insurance advice in the Financial Services Division. In accordance with
IFRS 15, items relating to the reimbursement of costs associated with the
award of material contracts in the Group have been recognised as contract
assets. This reimbursement will be amortised over the term of the contracts.
The amount of amortisation recognised in the income statement in 2023 is
£0.3m (2022: £0.4m). During the year, the Group reviewed the contract's
value-in-use (VIU) and recognised £0.1m (2022: £nil) impairment to the
asset.
22. Trade and other receivables
2023 Restated*
2022
£'000 £'000
Current
Trade receivables 5,611 14,887
Prepayments* 6,377 10,761
Accrued income 9,656 7,982
Other debtors 1,562 380
Reclassified to held for sale - (7,402)
23,206 26,608
*Accrued income was reported within the prepayments balance in the 2022
financial statements.
Trade receivables are non-interest-bearing and are generally on 4 to 30 day
terms depending on the services to which they relate. As at 31 December 2023,
trade receivables with a nominal value of £3.6m (2022: £3.0m) were impaired
and provided for. Set out below is the movement in the allowance for expected
credit losses of trade receivables:
2023 2022
£'000 £'000
At 1 January 2,988 3,248
Provision for expected credit losses 1,588 453
Amounts written off (954) (713)
At 31 December 3,622 2,988
The chosen method of recognising the expected credit loss across the Group is
the simplified approach allowing a provision matrix to be used, which is based
on the expected life of trade receivables, historic default rates and
forward-looking information.
As at 31 December, an analysis of gross trade receivables by credit risk
rating grades is as follows:
Neither past due nor impaired
Total <30 days 30-60 days 60 - 90 90 - 120 > 120 days
days days
£'000 £'000 £'000 £'000 £'000 £'000 £'000
2023 18,889 7,215 5,568 863 362 515 4,366
2022 25,857 17,552 2,504 780 329 211 4,481
The expected credit loss rate applied by ageing bracket has been disclosed
below:
Neither past due nor impaired
<30 days 30-60 days 60 - 90 90 - 120 > 120 days
days days
2023 0.24% 6.29% 14.03% 28.60% 33.81% 64.71%
2022 0.90% 7.77% 17.77% 36.79% 50.06% 50.68%
During 2023 the expected credit loss rate applied to >120 days ageing
bracket has increased due to a higher expectation of credit risk. This has
been driven by increased bad debt write offs in the year.
23. Cash and cash equivalents
Bank overdrafts reflect the aggregate overdrawn balances of Group companies
(even if those companies have other positive cash balances). The overdrafts
are held with the Group's relationship banks.
For the purpose of the statement of cash flows, cash and cash equivalents
comprise the following at 31 December:
2023 2022
£'000 £'000
(Restated)
Cash and cash equivalents 58,110 61,215
Bank overdrafts (23,139) (24,460)
Cash and cash equivalents 34,971 36,755
24. Trade and other payables
2023 2022
£'000 £'000
Current
Trade payables 6,423 8,416
Other taxes and social security payable 4,755 11,764
Other payables 6,683 2,524
Accruals 9,769 25,430
Commission refund liability* 2,855 5,240
Reclassified to held for sale - (6,344)
30,485 47,030
*Formerly named lapse provision.
Commission refund liability
Certain subsidiaries earn commissions on the sale of life assurance and
general insurance products with terms from one to four years which are
cancellable without a notice period, and if cancelled within a set period,
require that a portion of the commission earned must be repaid. The
subsidiaries do not hold insurance risk on the life assurance and general
insurance products sold.
The commission refund liability is recognised as a reduction in revenue. The
liability represents management's best estimate of commissions that will be
clawed back for insurance products sold that may be cancelled in future
periods and is calculated based on historic cancellation experience. If
average lapse rates across all products sold were to increase by 1.0%, the
total liability would increase by £0.3m. The reduction in commission refund
liabilities in the year was due to the Group's disposals of its
direct-to-consumer financial service advice businesses EFS, Group First and
RSC.
25. Financial liabilities
2023 2022
£'000 £'000
Current
IFRS 16 lessee financial liabilities 3,255 4,669
Contingent consideration 65 2,280
3,320 6,949
Non-current
IFRS 16 lessee financial liabilities 5,085 6,246
Contingent consideration - 31
5,085 6,277
Bank loans - RCF and overdraft
In accordance with the terms at 31 December 2023, the utilisation of the RCF
may vary each month as long as this does not exceed the maximum £60.0m
facility (2022: £90.0m). The Group's overdraft is also secured on the same
facility, and the combined overdraft and RCF cannot exceed £60.0m (2022:
£90.0m). The banking facility is repayable when funds permit on or by May
2026.
The bank loan totalling £nil (2022: £nil) is secured via cross guarantees
issued from the following businesses: LSL Property Services plc,
Your-move.co.uk Limited, Reeds Rains Limited, e.surv Limited, Lending
Solutions Holdings Limited, First Complete Limited, New Daffodil Limited, St
Trinity Limited, LSL Corporate Client Services Limited, Advance Mortgage
Funding Limited, LSLi Limited, Vitalhandy Enterprises Limited, Personal
Touch Financial Services Limited and Personal Touch Administration Services
Limited.
Fees payable on the RCF amounted to £0.7m during the year (2022: £1.0m)
including amortisation of arrangement fees and non-utilisation fees.
Contingent consideration
2023 2022
£'000 £'000
RSC - 2,280
DLPS 65 31
65 2,311
Current contingent consideration 65 2,280
Non-current contingent consideration - 31
Total contingent consideration 65 2,311
Opening balance 2,311 3,008
Cash paid (2,280) (76)
Acquisition - -
Amounts recorded through income statement 34 (621)
Closing balance 65 2,311
RSC
The contingent consideration of £2.3m, in line with the fair value recognised
at 31 December 2022 was paid in January 2023 prior to the disposal of the
entity.
Direct Life and Pensions Services Limited
£0.07m of contingent consideration relates to DLPS, acquired in January 2021.
The additional consideration has been calculated using earnings multiple of
four times EBITA. The contingent consideration was paid in February 2024.
The table below shows the allocation of the contingent consideration
liabilities (income)/charge to the income statement:
2023 2022
£'000 £'000
Arrangement under IFRS 3 31 (696)
Unwinding of discount on contingent consideration (note 8) 3 75
Debit / (credit) to income statement 34 (621)
The contingent consideration charged to the income statement in the year,
excluding the unwinding of discount relates to the previous acquisitions of
DLPS, debit of £0.03m (2022: £0.03m credit).
26. Provisions for liabilities
2023
PI claim provisions Onerous leases Dilapidation Restructuring provision Total
provision
Other
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2,341 14 - - - 2,355
Transfer from accruals* - - 1,007 - 571 1,578
Provided in financial year 1,622 - 4,647 2,941 - 9,210
Amount utilised (406) (13) - (872) - (1,291)
Amount released (339) - (82) - - (421)
Unwinding of discount - - 119 - - 119
Balance at 31 December 3,218 1 5,691 2,069 571 11,550
Current liabilities 1,314 1 1,948 2,069 571 5,903
Non-current liabilities 1,904 - 3,743 - - 5,647
3,218 1 5,691 2,069 571 11,550
*The Group has transferred £1.2m of opening balances from accruals during
2023, including dilapidation provisions of £1.0m and an indemnity provision
of £0.6m relating to a previously disposed joint venture. The
reclassification of the dilapidation provision is the result of a change to
the planned timing of future works and the reclassification of the indemnity
provision is the result of a reassessment by Management in light of ongoing
legal matters which cannot be assessed with a high degree of certainty.
PI claim provisions:
Surveying & Valuation PI provision
The PI claim provision is to cover the costs of claims that arise during the
normal course of business. The PI claim provision includes both valuation and
defect claims and provides for claims already received from clients and claims
yet to be received. The provision is Management's best estimate of the likely
outcome of such claims, taking account of the incidence of such claims and the
size of the loss that may be borne by the claimant, after taking account of
actions that can be taken to mitigate losses.
The PI claim provision will be utilised as individual claims are settled, and
the settlement amount may vary from the amount provided depending on the
outcome of each claim. It is not possible to estimate the timing of payment of
all claims and therefore a significant proportion of the provision has been
classified as non-current. As of 31 December 2023, the total provision for PI
claim was £2.4m. The Directors have considered the sensitivity analysis on
the key risks and uncertainties discussed above.
Valuation claims:
· Cost per claim
A substantial element of the PI claim provision relates to specific claims
where disputes are ongoing. These specific claims have been separately
assessed and specific provisions have been made. The average cost per claim
has been used to calculate the claims incurred but not yet reported (IBNR).
Should the costs to settle and resolve these specific claims and future claims
increase by 10%, an additional £0.2m would be required.
· Rate of claim
The IBNR assumes that the rate of claim for the high-risk lending period
reduces over time. Should the rate of reduction be lower than anticipated and
the duration extended, further costs may arise. An increase of 30% in
notifications more than that assumed in the IBNR calculations would increase
the required provision by £0.5m. Claims are settled, on average, 3.7 years
after initial notification.
· Notifications
The Group has received a number of notifications which have not deteriorated
into claims or loss. Should the rate of deterioration increase by 50%, an
additional provision of less than £0.1m would be required.
Defect claims:
The Group also provides for defect claims, whereby it is found that a property
has a defect which was not identified when the survey was performed. The value
provided for each received claim is the expected value of that claim. To
assess the value of future claims incurred but not yet received (IBNR),
analysis is performed on the number of surveys that lead to future claims and
the average cost per claim.
PI release:
The PI amounts released relate to a PI balance that was originally recognised
as exceptional and relates specifically to valuation work performed pre-2008
(pre financial crisis).
Financial Services PI provision
The PI claim provision is to cover the costs of claims that arise during the
normal course of business. The PI provision provides for both claims which
have been received from customers and claims yet to be received (IBNR). The
provision includes amounts for the anticipated cost of offering redress where
appropriate, and is calculated using management's best estimate of the
potential liability for claims received. In addition, an asset is recognised
for the estimated recoveries from professional indemnity insurance. The
provision is presented gross of amounts due from insurers which form part of
other debtors included in note 22.
The Group calculates a provision for claims expected to be received based on
the historical rate of claims, average cost per claim and the time which
elapses between the advice being provided and the claim being raised. The
average cost per claim is calculated based on data from recent claims paid. If
the average rate of claim was to increase by 10%, the IBNR provision would
increase by £0.01m and if the average cost per claim was to increase by 10%,
this would result in an increase to the provision of £0.02m.
As at 31 December 2023, the total provision for Financial Services PI was
£0.9m, including a provision for received claims of £0.7m and IBNR of
£0.2m. The Group has recognised an asset of £0.6m against received claims in
other debtors at 31 December 2023.
Dilapidation provision:
The Group recognises its obligation to make good its leased properties when it
becomes probable that there will be an economic outflow and a reliable
estimate can be made, this is typically where notice has been served to the
landlord and there is an agreed exit date.
During the year, the Group has entered into a number of 'right to occupy'
agreements with its estate agency franchisees. The right to occupy agreements
relate to leases held by the Group that are due to be novated to the
franchisees. They set out the Group's obligations to the franchisees,
regarding the making good of existing modifications to the leased properties
incurred during the Group's tenancy, which will be payable to the franchisees
at the point of novation. The calculation of the Group's dilapidation
settlement provision is based on an average cost rate per square foot, for
damages already incurred during the Group's occupancy. The provision is
discounted using a risk-free discount rate based on expected date of novation
of the lease.
If the average rates applied were to increase by 10% this would result in an
increase in the overall provision of £0.8m, if they were to decrease by 10%
this would result in a reduction of the same amount. If the discount rate was
to increase by 1.0% this would result in a decrease in the provision of
£0.1m, if the discount rate was to decrease by 1.0% this would result in an
increase in the provision of the same amount. Management has concluded the
provision to be the best estimate of the expenditure required to settle
present obligations at the end of the reporting period.
Restructuring provision:
The restructuring provision recognised relates to costs associated with the
disposal of the owned branch network (£2.0m), including committed branch
works (£1.1m) and legal costs for the novation of leases to franchisees
(£0.9m).
Other:
Claims indemnity provision and contingency
Included in the sale agreement of LMS was a claims indemnity of £2.0m, for
which the Group has provided £0.6m, which it considers to be the most likely
outcome, the Group disposed of LMS in 2021. Further cases exist and are
considered possible, not probable, therefore no further provision has been
made for these cases in the Financial Statements. Should these claims succeed
the estimated further costs would be £1.4m.
27. Leases
Group as a lessee
At the year ended 31 December 2023, the Group has the following in regards to
leases in the Group Balance Sheet.
2023 2022
Right-of-use assets
Property Motor vehicles Total Property Motor vehicles Total
£'000 £'000 £'000 £'000 £'000 £'000
1 January 6,813 2,971 9,784 22,788 3,550 26,338
Additions 1,615 2,710 4,325 3,356 2,075 5,431
Disposals (1,597) (462) (2,059) (1,479) (52) (1,531)
Depreciation (1,356) (1,425) (2,781) (5,813) (1,963) (7,776)
Transfer to investment in sublease (3,791) (515) (4,306) - - -
Reclassified as held for sale - - - (12,039) (639) (12,678)
31 December 1,684 3,279 4,963 6,813 2,971 9,784
These are included in the carrying amounts of property, plant and equipment on
the face of the Group Balance Sheet and have been included in note 18.
Lease liabilities 2023 2022
£'000 £'000
1 January 10,915 28,117
Additions 4,350 5,550
Interest expense 580 1,387
Disposals (2,396) (875)
Repayment of lease liabilities (5,109) (8,557)
Classification as held for sale - (14,707)
31 December 8,340 10,915
The Group added £4.4m (2022: £5.6m) of new lease liabilities in the year.
The weighted average discount rate applied across the Group for these
additions was 7.40% (2022: 7.21%)
Maturity of these lease liabilities undiscounted is analysed as follows:
£'000 £'000 £'000
Property Vehicles Total
Current lease liabilities 2,194 1,659 3,853
Non-current lease liabilities 3,107 2,357 5,464
31 December 2023 5,301 4,016 9,317
These are included in non-current and current financial liabilities on the
face of the Group Balance Sheet and have been included in note 25. Maturity
analysis of the future cash flows of lease liabilities has been included in
note 32.
Group as a lessor
Following the transition of the Group's entire owned estate agency network to
franchises, described further in note 6, the Group has become an intermediate
lessor on premises it leased whilst owning the estate agency network, that are
now operated by franchisees.
In such situations, the Group has maintained the head lease with the original
lessor, and has entered a sublease with the franchisee until the head lease
transfers or expires.
The Group, in its capacity as lessor, has determined that the subleases with
franchisees are finance leases and on the commencement date of the sublease,
the Group has derecognised the right-of-use assets previously associated with
these leases and recognised a net investment in the sublease of £4.3m on its
balance sheet. The Group has since received £1.1m of repayments from the
franchisees in relation to the subleases, with finance income of £0.1m being
recognised.
These leases have a term of up to five years. Although the risks associated
with rights that the Group retains in underlying assets are not considered to
be significant, the Group employs strategies to further minimise these risks.
For example, including clauses to enable periodic upward revision of the
rental charge in line with the head lease.
The maturity analysis of lease receivables, including the undiscounted lease
payments to be received are as follows:
2023 2022
£000 £000
Less than 1 year 1,540 -
1-2 years 965 -
2-3 years 570 -
3-4 years 239 -
4-5 years 102 -
More than 5 years 74 -
3,490 -
Unearned finance income (152) -
Net investment in sublease 3,338 -
The following shows how lease income and expenses have been included in the
income statement and cash flow statement, broken down between amounts charged
to operating profit and amounts charged to finance costs:
2023 Restated 2022
£'000 £'000
Depreciation of right-of-use assets
Property (1,356) (5,813)
Vehicles (1,425) (1,963)
Short term and low value lease expense (note 10) (2,294) (2,646)
Sublease income 2,294 68
Charge to operating profit (2,781) (10,354)
(580) (1,387)
Interest expense related to lease liabilities
Interest income related to investment in sublease 140 -
Charge to profit before taxation (440) (1,387)
440 (1,387)
Cash inflow/(outflow) relating to operating activities
Cash inflow relating to investing activities 1,134 68
Cash outflow relating to financing activities (4,529) (7,170)
Total net cash (outflow) relating to leases (2,955) (8,489)
At the 31 December 2023, the Group had not entered into any leases to which it
was committed but had not yet commenced.
28. Share capital
2023 2022
Shares £'000 Shares £'000
Authorised:
Ordinary shares of 0.2 pence each 500,000,000 1,000 500,000,000 1,000
Issued and fully paid:
At 1 January 105,158,950 210 105,158,950 210
At 31 December 105,158,950 210 105,158,950 210
29. Reserves
Share premium
The amount subscribed for share capital in excess of nominal value less any
costs attributable to the issue of new shares.
Share-based payment reserve
The share-based payment reserve is used to record the value of equity-settled
share-based payment provided to the employees, as part of their remuneration.
Note 15 gives further details of these plans.
Shares held by employee benefit trust (EBT) and share incentive plan (SIP)
Shares held by EBT represent the cost of LSL shares purchased in the market
and held by the Employee Benefit Trust and the Share Incentive Plan (SIP) to
satisfy future exercise of options under the Group's employee share options
schemes.
At 31 December 2023, the Trust held 517,949 (2022: 1,063,097) LSL shares at an
average cost of £3.86 (2022: £3.72), and the SIP held 991,419 (2022:
1,185,692) LSL shares at an average cost of £0.88 (2022: £0.88). The market
value of the LSL shares at 31 December 2023 was £3.9m (2022: £4.1m). The
nominal value of each share is 0.2 pence.
Treasury shares
Treasury shares represent the cost of LSL shares purchased in the market as a
result of a share buy-back scheme which commenced in April 2022 and ceased in
September 2022. At 31 December 2023, LSL had repurchased 1,179,439 (2022:
1,179,439) LSL shares at an average cost of £3.38 (2022: £3.38). The market
value of the LSL shares at 31 December 2023 was £3.0m (2022: £4.1m). The
nominal value of each share is 0.2 pence.
Fair value reserve
The fair value reserve is used to record the changes in fair value of equity
financial assets that the Group has elected to recognise through OCI.
Following the disposals of investments in Vibrant Energy Matters Limited (VEM)
and Yopa Property Limited (Yopa) during the year, £20m of fair value held
within the fair value reserve were transferred to retained earnings.
30. Pension costs and commitments
The Group operates defined contribution pension schemes for certain Executive
Directors and certain employees. The assets of the schemes are held separately
from those of the Group in independently administered funds, the total
contributions to the defined contribution schemes in the year were £4.5m
(2022: £6.0m). At the 31 December 2023, there were outstanding pension
contributions of £0.5m (2022: £0.9m) included in trade and other payables.
31. Client monies
As at 31 December 2023, monies held by the Group on behalf of franchisees in
separate bank accounts in relation to client monies amounted to £68.4m (2022:
£104.1m). Neither this amount, nor the matching liabilities to the clients
concerned are included in the Group Balance Sheet.
Client funds are protected by the Financial Services Compensation Scheme
(FSCS) under which the Government guarantees amounts up to £85,000. This
guarantee applies to each individual client, not the total of deposits held by
LSL.
32. Financial instruments - risk management
The Group's principal financial instruments comprise of cash and cash
equivalents with access to a further £60m revolving credit facility which is
undrawn at the balance sheet date. The main purpose of these financial
instruments is to raise finance for the Group's operations and to fund
acquisitions. The Group has various financial assets and liabilities such as
trade receivables, cash and short term deposits and trade payables, which
arise directly from its operations.
The Group is exposed through its operations to the following financial risks:
· interest rate risk;
· liquidity risk; and
· credit risk.
Policy for managing these risks is set up by the Board following
recommendations from the Group Chief Financial Officer. Certain risks are
managed centrally, while others are managed locally following communications
from the centre. The policy for each of the above risks is described in more
detail below.
Interest rate risk
The Group's exposure to the risk of changes in market interest rates relates
primarily to the use of the Group's RCF. The RCF incurs interest on drawings
at a variable rate, based on the Bank of England base rate plus a margin and
this policy is managed centrally by the Group treasury function. The
subsidiaries are not permitted to borrow from external sources directly
without approval from the Group treasury function.
The Group has not drawn down on its RCF during the year to 31 December 2023
and therefore has incurred no interest, the amount shown in interest expense
relates to the amortisation of the facility fees.
Liquidity risk
The Group aims to mitigate liquidity risk by managing cash generation by its
operations, dividend policy and acquisition strategy. Acquisitions are
carefully selected with authorisation limits operating up to Board level and
cash payback periods applied as part of the investment appraisal process. In
this way the Group aims to maintain a good credit rating to facilitate
fundraising. The Group has net current assets in the current year. The
requirement to pay creditors is managed through future cash generation and, if
required, from the RCF.
The Group monitors its risk of a shortage of funds using a recurring liquidity
planning tool and daily cash flow reporting. This includes consideration of
the maturity of both its financial investments and financial assets (e.g.
accounts receivable, and other financial assets) and projected cash flows from
operations. The Group's objective is to maintain a balance between continuity
of funding and flexibility for potential acquisitions through the use of its
banking facilities.
Cash at the bank earns interest at floating rates based on daily bank
overnight deposit rates. Short term deposits are made for varying periods of
time depending on the immediate cash requirements of the Group and earn
varying interest rates. The fair value of net cash and cash equivalents is
£34.9m (2022: £40.1m, including £3.4m included in assets held for sale). At
31 December 2023, the Group had available £60.0m of undrawn committed
borrowing facilities, of which the Group could have drawn £33.0m under the
terms of the facility (2022: the Group could have drawn £90.0m of the
facility available at 31 December 2022).
The table below summarises the maturity profile of the Group's financial
liabilities at 31 December 2022 based on contractual undiscounted payments:
Year ended 31 December 2023
On demand Less than 3 months 3 to 12 months 1 to 5 years
> 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
Trade payables - 6,423 - - - 6,423
Other payables - 21,207 - - - 21,207
Overdraft 23,139 - - - - 23,139
Contingent consideration - 65 - - - 65
Lease liabilities - 963 2,890 5,385 79 9,317
23,139 28,658 2,890 5,385 79 60,151
Year ended 31 December 2022
(Restated)
On demand Less than 3 months 3 to 12 months 1 to 5 years
> 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
Trade payables - 8,416 - - - 8,416
Other payables - 39,718 - - - 39,718
Overdraft 24,460 - - - - 24,460
Contingent consideration - 2,280 - 31 - 2,311
Lease liabilities - 1,886 5,659 15,371 5,025 27,941
24,460 52,300 5,659 15,402 5,025 102,846
The 2022 disclosure includes all payable balances that have been transferred
to liabilities held for sale.
The liquidity risk of each Group entity is managed centrally by the Group
Treasury function. The Group's cash requirement is monitored closely. All
surplus cash is held centrally to achieve higher interest income. The type of
cash instrument used and its maturity date will depend on the Group's forecast
cash requirements. The Group has a RCF with a syndicate of major banking
corporations to manage longer term borrowing requirements.
Capital management
The primary objective of the Group's capital management is to ensure that it
maintains appropriate capital structure to support its business objectives,
including any capital adequacy requirements, and maximise shareholder value.
The capital structure of the Group consists of cash and cash equivalents and
equity attributable to the shareholders comprising issued capital, reserves
and retained earnings as disclosed in the statement of changes in equity.
The Group does not have a current ratio of Net Bank Debt to EBITDA (2022: nil)
due to a net cash position of £34.9m (2022: net cash £40.1m) and operating
profit before exceptional costs, amortisation and share-based payment charge
of £9.3m (2022: £36.5m). The business is cash generative with a low capital
expenditure requirement. The Group remains committed to its stated dividend
policy of 30% of Group Underlying Operating Profit after interest and tax. The
Board has reviewed the policy in line with the risks and capital management
decisions facing the Group.
Credit risk
There are no significant concentrations of credit risk within the Group. The
Group is exposed to credit risk in respect of revenue transactions (i.e.
turnover from customers). It is Group policy, implemented locally, to obtain
appropriate details of new customers before entering into contracts.
Estate Agency Franchising's highest risk exposure is in relation to loans to
franchises and their ability to service their debt. The Directors have
established a credit policy under which each new franchisee is analysed
individually for creditworthiness before a franchise is offered. The Company's
review includes external ratings, when available, and in some cases bank
references.
Risk of exposure to non-return of cash on deposit is managed by placing funds
with lenders who form part of the Group's agreed banking facility syndicate,
which comprises several leading UK banks.
The majority of the Surveying & Valuation customers and those of the asset
management business are large financial institutions and as such, the credit
risk is not expected to be significant. The maximum credit risk exposure
relating to financial assets is represented by the carrying value as at the
balance sheet date.
Financial instruments are grouped on a subsidiary basis to apply the expected
credit loss model. The chosen method of recognising the expected credit loss
across the Group is the simplified approach allowing a provision matrix to be
used, which is based on the expected credit life of trade receivables,
historic default rates and forward-looking information. Trade receivable
balances are written off when the probability of recovery is assessed as being
remote.
Interest rate risk profile of financial assets and liabilities
LSL's treasury policy is described above. The disclosures below exclude
short-term receivables and payables which are primarily of a trading nature
and expected to be settled within normal commercial terms.
The interest rate profile of the financial assets and liabilities of the Group
as at 31 December 2023 are as follows:
Within 1 year 1-2 years 2-3 years 3-4 years Total
£'000 £'000 £'000 £'000 £'000
Floating rate
Cash and cash equivalents 58,110 - - - 58,110
Bank overdrafts (23,139) - - - (23,139)
Fair values of financial assets and financial liabilities
There are no differences between the carrying amounts and fair values of all
of the Group's financial instruments that are carried in the Financial
Statements.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair
value of the financial instruments by valuation technique:
· Level 1: quoted (unadjusted) prices in active markets for
identical assets or liabilities;
· Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable, either directly
or indirectly; and
· Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable market
data.
The following table provides the fair value measurement hierarchy of the
Group's assets and liabilities:
2023 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Assets measured at fair value
Financial assets 5,461 - - 5,461
Liabilities measured at fair value
Contingent consideration 65 - - 65
2022 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Assets measured at fair value
Financial assets 1,045 - - 1,045
Liabilities measured at fair value
Contingent consideration 2,311 - - 2,311
Financial assets in 2022 included £0.2m of IFRS 16 subleases held in assets
held for sale.
The fair value of financial assets that are not traded in the open market is
£0.4m (2022: £1.0m), these are valued using Level 3 techniques in accordance
with the fair value hierarchy and management use all relevant and up to date
information (including cash flow forecasts and financial statements) to arrive
at their judgement. Where appropriate, a range of potential outcomes is
considered in reaching a conclusion. If this was to drop by 10%, the implied
valuation is likely to also drop by around 10%, £0.04m.
Contingent consideration receivable of £4.8m relates to EFS, Group First and
RSC which were sold in 2023. The consideration payable will be 7x the combined
EBITDA in calendar year 2024, subject to working capital adjustments and is
payable in H1 2025. The fair value of the contingent consideration receivable
has been calculated for each of the three disposals noted above based on
forecast profitability in calendar year 2024, discounted at 15.5% (Financial
Services Division's weighted average cost of capital for an 18-month period).
The future cash flow and discount rate assumptions are key to the calculation,
if full year 2024 profitability was to reduce by 10% this would result in a
reduction in the receivable of £0.5m, if profitability was to increase, this
would result in an increase in the receivable of the same amount. If the
discount rate was to increase by 1%, the receivable would decrease by £0.1m,
and if the discount rate was to reduce by 1%, this would result in an increase
in the receivable of the same amount.
The remaining £0.3m contingent consideration receivable relates to the
Group's disposal of lettings books in the year. Amounts are receivable in
December 2024 and November 2025.
The contingent consideration payable relates to amounts payable in the future
on acquisitions. The amounts payable are based on the amounts agreed in the
contracts and based on the future profitability of each entity acquired. In
valuing each provision, estimates have been made as to when the options are
likely to be exercised and the future profitability of the entity at this
date. Further details of these provisions are shown in note 25. Of the balance
held at 31 December 2023, £0.07m (2022: £2.3m) relates to DLPS acquired in
January 2021. The consideration has been calculated using earnings multiple of
4x EBITDA. The contingent consideration was paid in January 2024.
33. Related party transactions
As disclosed in note 20 LSL have one joint venture partner, Mottram Topco.
Transactions with Pivotal Growth and its subsidiaries
2023 2022
£'000 £'000
Gross commission received 17,340 3,833
Commissions paid to broker businesses (6,710) (3,421)
Revenue recognised 3,688 412
Receivable/(Payable) at 31 December 682 (3)
There are no transactions with Key Management Personnel other than those
disclosed in note 15.
34. Events after the reporting period
On 2 February 2024, the Group acquired the entire issued share capital of
TenetLime Limited (TenetLime), a subsidiary of Tenet Group Limited (Tenet
Group). TenetLime operates a network providing services to mortgage and
protection advisers operating within appointed representative (AR) firms.
Following completion TenetLime became part of the PRIMIS Network and the
Financial Services Network acquired 153 AR firms. The transaction also
includes the transfer of AR firms from Tenet Connect Limited (Tenet Connect)
into other parts of the PRIMIS Network.
The Group did not acquire TenetLime's network platform and only a small number
of Tenet Group compliance staff were transferred to the Group through the
operation of TUPE. No other staff or assets were transferred in connection
with the transaction. The Group has therefore determined that the purchase
was an asset acquisition and not a business combination on the basis that no
substantive process was acquired. The primary asset acquired is the
contractual relationship with each of the individual AR firms acquired.
The Group has paid initial consideration of £5.7m and will pay further
consideration of up to c£4.6m in H1 2025, calculated by reference to the
number of AR firms who remain in the PRIMIS Network 12 months following
completion and calculated by reference to the turnover of these firms in 2022
and an expected payment of £1.4m for assets which form part of TenetLime's
regulatory capital.
35. Alternative performance measures
In reporting financial information, the Group presents APMs which are not
defined or specified under the requirements of IFRS. The Group believes that
the presentation of APMs provides stakeholders with additional helpful
information on the performance of the business but does not consider them to
be a substitute for or superior to IFRS measures. Definitions and
reconciliations of the financial APMs used to IFRS measures, are included
below.
The Group reports the following APMs:
a) Group and Divisional Underlying Operating Profit
Underlying Operating Profit represents the profit/(loss) before tax for the
period before net finance cost, share-based payments, amortisation of
intangible assets, exceptional items and contingent consideration. This is the
measure reported to the Directors as it considered to give a consistent
indication of both Group and Divisional underlying performance.
The closest equivalent IFRS measure to Underlying Operating Profit is
operating profit/(loss). Refer to note 5 for a reconciliation between
profit/(loss) before tax and Group and Divisional Underlying Operating Profit.
b) Group and Divisional Underlying Operating Margin
Underlying Operating Margin is defined as Underlying Operating Profit divided
by revenue. Refer to note 5 for the calculation of both Group and Divisional
Underlying Operating Margin. The closest equivalent IFRS measure to Underlying
Operating Margin is operating margin, refer to note 5 for a reconciliation
between operating margin and Group Underlying Operating Margin.
c) Adjusted basic earnings per share, adjusted diluted earnings per
share and adjusted profit after tax
Adjusted basic earnings per share is defined as Group Underlying Operating
Profit adjusted for profit/(loss) attributed to non-controlling interests, net
finance cost (excluding exceptional and contingent consideration items and
discounting on leases) less normalised tax (to arrive at adjusted profit after
tax), divided by the weighted average number of shares in issue during the
financial period. The effect of potentially dilutive ordinary shares is
incorporated into the diluted measure.
The closest equivalent IFRS measures are basic and diluted earnings per share.
Refer to note 12 for a reconciliation between earnings/(loss) per share and
adjusted earnings per share.
d) Adjusted operating expenditure
Adjusted operating expenditure is defined as the total of employee costs,
depreciation on property, plant and equipment and other operating costs and is
considered to give a consistent indication of the Group's underlying operating
expenditure.
2023 Restated
2022
£'000 £'000
Total operating expenditure (140,671) (239,172)
Add back:
Other (losses) / gains 211 (1,334)
Gain on sale of property, plant and equipment - -
Share of post-tax (loss)/profit from joint venture 390 494
Share-based payments (164) 1,860
Amortisation of intangible assets 2,258 2,787
Exceptional gains (9,320) (694)
Exceptional costs 13,767 48,316
Contingent consideration 31 (696)
Adjusted operating expenditure (133,498) (188,439)
e) Net cash/debt
Net cash/debt is defined as current and non-current borrowings, less cash on
short-term deposits, IFRS 16 financial liabilities, deferred and contingent
consideration and where applicable cash held for sale.
2023 Restated
2022
£'000 £'000
Net Bank Cash/Debt is defined as follows:
Interest-bearing loans and borrowings (including loan notes, overdraft, IFRS
16 Leases, contingent and deferred consideration, bank overdraft)
- Current 26,459 31,410
- Non-current 5,085 6,277
31,544 37,687
Less: cash and short-term deposits (58,110) (61,215)
Less: IFRS 16 lessee financial liabilities (8,340) (10,915)
Less: deferred and contingent consideration (65) (2,311)
Less: cash included in held for sale - (3,355)
Net Bank Cash / Debt (34,971) (40,109)
f) Adjusted cash flow from operations
Adjusted cash flow from operations is defined as cash generated from
operations, less the repayment of lease liabilities, plus the utilisation of
PI provisions.
2023 Restated
2022
£'000 £'000
Cash generated from operations 3,916 34,116
Payment of principal portion of lease liabilities (4,529) (7,170)
PI provision utilisation 406 762
Adjusted cash flow from operations (207) 27,708
g) Cash flow conversion rate
Cash flow conversion rate is defined as cash generated from operations (pre-PI
Costs and post-lease liabilities, divided by Group Underlying Operating
Profit.
2023
Restated
2022
£'000 £'000
Adjusted cash flow from operations (207) 27,708
Group Underlying Operating Profit 9,344 35,834
Cash flow conversion rate (2.2%) 77.3%
36. Prior year restatements
Franchising of previously owned branches
During the current period, the Group franchised its entire owned estate agency
network (183 branches). In accounting for this significant transaction, the
Group re-examined the accounting treatment that had been applied to a much
smaller transaction in H1 2019, when 39 owned estate agency branches were
franchised. The Group has re-examined certain judgements made in accounting
for the 2019 transaction, which were deemed appropriate at the time, and has
determined that restatement of the prior year financial information, in
accordance with IAS 8, is appropriate. The cumulative impact on retained
earnings on 1 January 2022 was a reduction of £4.0m and was not
cash-adjusting. The restatements are discussed in points 1-3 below:
1. Disposal of goodwill
When the transaction in 2019 was originally accounted for, it was considered
not necessary to dispose of goodwill associated with the previously owned
branches which were franchised. Having re-examined the accounting treatment
applied; the Group has determined that goodwill of £5.2m, associated with the
previously owned Your Move and Reeds Rains branches, should have been
derecognised in 2019. Restatement of the prior year financial information in
this regard results in a decrease in non-current assets only and has no impact
on cash.
2. Recognition of franchise intangible and subsequent amortisation
The franchise agreements entered upon disposal of the previously owned
branches were not considered to represent assets of the Group and were not
recognised in 2019 when the transaction was accounted for. Having re-examined
the accounting treatment applied; restatement of the 2022 opening net assets
in this regard will be an increase of £1.7m and has no impact on cash.
The fair value of the franchise intangible asset has been calculated based on
the assumptions that would have been made had it been determined in 2019. This
was calculated using the expected future cash flows (at the date of the
agreement), discounted using a post-tax discount rate of 8.2% (the Group's
WACC at the date of the agreement). A term of 15 years has been applied,
consistent with management's estimate of most likely minimum term per the
franchise agreement. Market growth rates, consistent with the Group's
assumptions in 2019 were applied to 2020 and 2021, with a long-term growth
rate of 1.8% applied thereafter.
3. Revision to goodwill impairments
In light of point 1 above, the impairment charged to the goodwill of Your Move
and Reeds Rains at 31 December 2022 (£42.0m) has been re-examined to take
account of the restated disposal of goodwill in 2019, resulting in increased
headroom. The impact of this assessment is a reduction to the impairment
charge of £3.7m. Restatement of the prior year financial information in this
regard results in an increase in non-current assets and has no impact on cash.
Adjustments to assets held for sale
At 31 December 2022 the Group reported Marsh & Parsons, a single CGU as
held for sale. Marsh & Parsons was written down to its fair value less
cost to sell (FVLCTS), which was calculated as the initial consideration
received less transaction costs (£28.9m). The sale agreement included
provisions for adjustments to the initial consideration for debt-like items
and working capital adjustments. Such amounts were subject to negotiation and
judgement and were not reflected in the fair value assessment at 31 December
2022. The Group has re-examined the judgements made and has determined that an
adjustment to consideration for debt-like items of £2.0m could have been
reliably estimated at 31 December 2022. Rather than recognising this
adjustment as an increase in the loss on disposal in 2023, the prior year
financial information has been restated, in accordance with IAS 8. Restatement
of the prior year financial information in this regard results in a decrease
in current assets, an increase in exceptional costs and has no impact on cash.
Customisation costs in computing arrangements
During the year, the Group revisited its accounting policy in relation to
customisation costs incurred in implementing Software as a Service (SaaS)
arrangements. The Group's accounting policy has historically been to
capitalise costs directly attributable to the customisation of SaaS platforms
(typically the cost of employees), as intangible assets on the balance sheet.
The Group has reviewed its SaaS arrangements and current accounting policy
during 2023 prompted by the significant restructuring during the year. The
Group has concluded that the policy to capitalise SaaS customisation costs,
which was considered appropriate at the time, should be revised, and has
determined that restatement of the prior year financial information is
appropriate.
The Group has applied the guidance per the IFRIC SaaS agenda decision as to
whether customisation expenditure gives rise to an asset, including whether
the Group has control of the software, or whether the customisation creates a
resource controlled by the Group that is separable from the software. Where
these criteria are not met, the Group's updated policy is to expense costs to
operating expenses as they are incurred. The cumulative impact of the historic
adjustment on retained earnings on 1 January 2022 was a reduction of £1.8m
between 2019 - 2022 with a corresponding reduction to intangible assets. At 31
December 2022, the adjustment results in a further reduction of £0.8m to
retained earnings and intangible assets, totalling £2.6m. The adjustment was
not cash adjusting.
Cash offsetting
The Group has a bank offset arrangement that was previously recorded as part
of cash and cash equivalents. The Group has reviewed its current arrangements
and has concluded that while the Group has a legally enforceable right of
offset, the Group did not intend to settle the year-end balance net. As a
result, the overdraft balances included within the offset arrangement should
be separately presented in the Group Balance Sheet, rather than netted off
against cash and cash equivalents. Consequently, a restatement has been made
with the effect that cash and cash equivalents and bank overdrafts as at 31
December 2022 increased by £23.1m (31 December 2021: £24.4m). The
restatement has no impact on net assets, the Group's income statement or
statement of cash flows.
Earnings per share
Basic and diluted earnings per share for prior periods have also been
restated, as a result of the items above. For the year to 31 December 2022,
the amount of the correction for both basic and diluted earnings per share was
an increase of 0.7 pence.
Tax impacts of prior year adjustments
The Group has assessed the tax impact of its prior year adjustments and
determined that only the restatement with regards to recognition of franchise
intangible assets and subsequent amortisation has an impact of the tax charge
previously reported. The impact would be a decrease in tax charge by £0.1m
and has no impact on cash.
Balance sheet (extract)
Reported year ended 31 December 2021 1. Disposal of goodwill 2. Franchise intangible asset 5. Customisation costs 6. Cash offsetting Restated year ended 31 December 2021 Reported year ended 31 December 2022 1. Disposal of goodwill 2. Franchise intangible asset 3. Revision of goodwill impairments 4. Adjustments to assets held for sale 5. Customisation costs Restated year ended 31 December 2022
6. Cash offsetting
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Current assets
Assets held for sale - - - - - - 56,437 - - - (2,035) - - 54,402
Cash and cash equivalents 48,464 - - - 24,248 72,712 36,755 - - - - - 24,460 61,215
Non-current assets
Goodwill 160,865 (5,211) - - - 155,654 56,530 (5,211) - 3,678 - - - 54,997
Other intangible assets 29,604 - 1,670 (1,757) - 29,517 15,747 - 1,533 - - (2,582) - 14,698
Current liabilities
Bank overdrafts - - - - (24,248) (24,248) - - - - - - (24,460) (24,460)
Non-current liabilities
Deferred tax liability (2,073) - (418) - - (2,491) (2,008) - (384) - - - - (2,392)
Net assets 218,119 (5,211) 1,252 (1,757) - 212,403 131,053 (5,211) 1,149 3,678 (2,035) (2,582) - 126,052
Equity
Retained earnings 224,832 (5,211) 1,252 (1,757) - 219,116 149,134 (5,211) 1,149 3,678 (2,035) (2,582) - 144,133
Total equity 218,119 (5,211) 1,252 (1,757) - 212,403 131,053 (5,211) 1,149 3,678 (2,035) (2,582) - 126,052
Income statement (extract)
Reported year ended 31 December 2022 2. Recognition of franchise intangible and subsequent amortisation 3. Revision of goodwill impairments 4. Adjustments to assets held for sale 5. Customisation costs in computing arrangements Restated year ended 31 December 2022 Continued operations Discontinued operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Other operating costs (67,500) - - - (1,054) (68,554) (35,502) (33,052)
Amortisation of intangible assets (4,112) (137) - - 229 (4,020) (2,787) (1,233)
Exceptional costs (88,898) - 3,678 (2,035) (87,255) (48,316) (38,939)
Operating profit/loss (56,709) (137) 3,678 (2,035) (825) (56,028) (21,700) (34,328)
Taxation charge (4,891) 34 - - - (4,857) (3,020) (1,837)
Profit/(loss) for the year (64,017) (103) 3,678 (2,035) (825) (63,302) (26,791) (36,511)
Forward-Looking Statement
This announcement may contain certain statements that are forward‐looking
statements. They appear in a number of places throughout this announcement and
include statements regarding LSL's intentions, beliefs or current expectations
and those of its officers, directors and employees concerning, amongst other
things, LSL's results of operations, financial condition, liquidity,
prospects, growth, strategies and the business it operates. By their nature,
these statements involve uncertainty since future events and circumstances can
cause results and developments to differ materially from those anticipated.
The forward‐looking statements reflect knowledge and information available
at the date of preparation of this update and, unless otherwise required by
applicable law, LSL undertakes no obligation to update or revise these
forward-looking statements. Nothing in this announcement should be construed
as a profit forecast. LSL and its Directors accept no liability to third
parties in respect of this announcement save as would arise under English law.
Any forward‐looking statements in this announcement speak only at the date
of this announcement and LSL undertakes no obligation to update publicly or
review any forward‐looking statement to reflect new information or events,
circumstances or developments after the date of this announcement.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR EELBLZZLXBBFRecent news on LSL Property Services
See all newsREG - LSL Property Svcs. - Transaction in own shares
AnnouncementREG - LSL Property Svcs. - Transaction in Own Shares
AnnouncementREG - LSL Property Svcs. - Director/PDMR Shareholding
AnnouncementREG - LSL Property Svcs. - Appointment of Non Executive Chair
AnnouncementREG - LSL Property Svcs. - Transaction in Own Shares
Announcement