REG - LSL Property Svcs. - HALF YEAR RESULTS TO 30 JUNE 2022
03/08/2022 07:15
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RNS Number : 6911U LSL Property Services PLC 03 August 2022
3 August 2022
LSL Property Services plc ("LSL" or "The Group")
HALF YEAR RESULTS TO 30 JUNE 2022
HIGHLIGHTS
Record revenue in Financial Services Network and Surveying & Valuation
highlighting benefits of diversification strategy and reduced exposure to
housing market cycles
· Financial Services Network Underlying Operating Profit(1,2) in line
with 2021 record
· Highest first half Underlying Operating Profit(1,2) in Surveying
& Valuation for 10 years
· Financial Services Network revenue up 10% year-on-year in
substantially smaller mortgage and protection markets
· Record Surveying revenue of £50.5m, up 9% over the previous record
in H1 2021
· LSL's share of the total UK purchase and re-mortgage market increased
to 10.1%(3) (H1 2021: 9.0%)
· Financial adviser numbers increased to 2,930 at 30 June 2022 (30 June
2021: 2,744) with strong financial advisor recruitment pipeline
· Significant further progress in strategic objective of developing
income from private surveys and data, which increased by 73% to £1.9m
Estate Agency retained market share gains made in 2021, building a record
pipeline to carry into H2
· The Estate Agency Division consolidated the market share gains made
during 2021, maintaining share of instructions in the locations we trade, and
growing our market share of housing transactions on a national level
· Residential sales exchange pipeline conversion speed remained
extremely slow across the market principally due to the continuing
industry-wide capacity issues in conveyancing, which impacted residential
exchange income which contributed to an Underlying Operating Loss(1,2) of
£1.0m in H1 2022. Had the residential pipeline exchanged at its normal
conversion speed, it is estimated that Estate Agency Underlying Operating
Profit would have been over £6m higher
· The residential sales exchange pipeline grew significantly and now
stands at a record level of £26.7m (31 December 2021: £20.7m, 30 June 2021:
£21.2m)
Resilient financial performance reflects expected return to usual phasing,
with momentum established and Group well positioned for strong H2. The impact
on H1 profits of delayed residential sales conversion in Estate Agency is
estimated at over £6m with additional amounts in Financial Services
· The split of H1:H2 profit in 2022 is expected to revert to a more
typical profile with a significant skew to H2, after record housing
transactions in H1 2021, and this is reflected in Group Underlying Operating
Profit(4) in H1 2022 of £14.2m (H1 2021: £27.3m). On a statutory basis,
Group operating profit was £8.7m (H1 2021: £26.7m)
· Surveying & Valuation Division delivered an extremely strong
performance with Underlying Operating Profit(1,2) up 14% to £13.1m (H1 2021:
£11.4m), and Underlying Operating Margin(1) improving to 26% (H1 2021: 25%)
· Financial Services Network business reported Underlying Operating
Profit(1,2) of £7.5m in line with the 2021 record (H1 2021: £7.4m) which was
a very robust performance in substantially smaller mortgage and protection
markets, and delivered during a period of ongoing investment in the business
· Estate Agency Division comparative financial performance reflected
the significantly reduced market activity against 2021 which was boosted
substantially by the Stamp Duty deadline, the significant delays in conversion
of residential sales exchange pipelines and cost-inflationary pressures. This
led to an Underlying Operating Loss(1,2) of £1.0m in H1 2022 (H1 2021: profit
of £12.5m). The estimated profit impact in Estate Agency in H1 2022 of the
delayed conversion is over £6m, which highlights the strong underlying
performance of the Group as a whole
· Notwithstanding the significant impact on profits of delayed
residential sales conversions, Group Underlying Operating Profit in H1 2022
was 17% above H1 2019, whilst residential market transaction volumes were at
more similar levels with conversion much slower, highlighting the Group's
reduced exposure to housing market volatility
Strategy remains on track with Group well placed to deliver increased
profitability in H2 and beyond
· Momentum in both the Financial Services Network business and
Surveying & Valuation, with a record residential sales exchange pipeline
expected to support H2 2022 profit materially ahead of H1 2022
· Net cash at 30 June 2022 of £30.7m (30 June 2021: £17.0m),
providing flexibility to make further investments to support growth
· We will continue to invest in capability and technology across the
Financial Services Division in the second half of the year with new technology
to be rolled out to member firms
· Pivotal Growth, LSL's financial services Joint Venture with Pollen
Street Capital, has now announced four acquisitions and with a strong deal
pipeline in place, we remain excited about its potential
· The trajectory in the Financial Services Network business and the
opportunities we have identified in Surveying & Valuation continue to
offer opportunities for growth and we remain confident that our strategy
remains on track
Current trading and outlook
· The Financial Services Network business is trading strongly with
mortgage completions in July beating the previous monthly record set in June
2021
· Very strong performance continues in Surveying & Valuations
· Estate Agency front end sales activity remains stable with a good
level of buyer demand
· The conversion of residential sales pipeline remains very slow, a
trend we expect to continue throughout H2
· The consequence of continuing slow pipeline conversion will be to
delay profit on some H2 activity into 2023 and as result we now anticipate
full year profits to be lower than our previous expectations whilst remaining
significantly above the pre-COVID 19 performance reported in 2019
· The benefits of the pipeline built up at 30 June 2022 will be
realised in the second half of the year and we expect that H2 Operating
Profits will be substantially stronger than H2 2021 and H2 2019
Commenting on today's announcement, David Stewart, Group Chief Executive said:
"These results show that our strategy is on track and that LSL continues to
trade strongly. Our Surveying & Valuation and Financial Services
businesses delivered record revenues and our Estate Agency Division retained
the market share gains made in 2021, in doing so building a strong residential
sales pipeline as significant profits were delayed by the continuing slow
speed of exchange experienced across the market. We are well placed to deliver
a strong performance in the second half of the year and to grow in 2023 as we
increasingly reap the benefits of our financial services led growth strategy."
This announcement has been determined to contain inside information.
Notes:
1 Divisional Underlying Operating Profit and Divisional
Underlying Operating Margin are stated on the same basis as Group
2 Refer to note 4 of the Financial Statements for
reconciliation of Divisional Underlying Operating Profit to statutory
operating profit
3 New mortgage lending by purpose of loan, UK (BOE) - Table
MM23
4 Group Underlying Operating Profit is before exceptional
items, contingent consideration, amortisation of intangible assets and
share-based payments (see note 5 of the Financial Statements)
FINANCIAL RESULTS
H1 2022 2021 Var
Group Revenue (£m) 160.9 166.5 (3)%
Group Underlying Operating Profit(1) (£m) 14.2 27.3 (48)%
9% 16% -760bps
Group Underlying Operating margin (%)
Exceptional Gains (£m) - 4.3 nm
Exceptional Costs (£m) (2.0) (1.7) (21)%
Group operating profit (£m) 8.7 26.7 (67)%
Profit before tax (£m) 7.4 25.5 (71)%
Basic Earnings per Share(2) (pence) 5.7 21.8 (74)%
Adjusted Basic Earnings per Share(2) (pence) 10.7 20.9 (49)%
Net Cash(3) at 30 June (£m) 30.7 17.0 80%
Interim Dividend (pence) 4.0 4.0 -
Notes:
1 Group Underlying Operating Profit is before exceptional
costs, contingent consideration, amortisation of intangible assets and
share-based payments (as set out in Note 5 of the financial statements)
2 Refer to Note 6 of the Financial Statements for the
calculation
3 Refer to Note 14 to the Financial Statements for the
calculation
nm not meaningful
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
Simon Compton
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
mortgage and protection advice to estate agency customers,
completing around £41bn of mortgages in 2021. It represents around 10% of
the total purchase and re-mortgage market with over 2,900 financial advisers.
PRIMIS was named Best Network by Money Marketing in their 2021 awards and Best
Network, 300+ appointed representatives at the 2022 Mortgage Strategy Awards.
LSL is one of the UK's largest providers of surveying and valuation
services, supplying seven out of the ten largest lenders in the UK,
employing around 500 operational surveyors, and performing over 500,000
valuations and surveys per annum for key lender clients. e.surv was named
Best Surveying Firm at the 2022 Mortgage Finance Gazette Awards and Best
Surveyor at the 2022 Equity Release Awards with Mortgage Solutions.
LSL also operates a network of 225 owned and 127 franchised estate agency
branches.
For further information please visit LSL's website: lslps.co.uk
(http://www.lslps.co.uk/)
Group Chief Executive's Review
Our financial performance in the first half of 2022 highlights the benefits of
our strategy to further reduce the Group's exposure to housing market cycles.
Although our H1 2022 results were impacted significantly by continuing
market-wide delays in the rate of residential sales exchanges, the result of
which was to delay profits by over £6m, Group Underlying Operating Profit(1)
of £14.2m was significantly higher than the £12.2m we reported in H1 2019,
the most recent year when housing market conditions were comparable.
We expect that the H1:H2 profit split will revert to its long-term profile, in
which we earn the majority of profits in the second half of the year. As a
result of this re-phasing, and the delay in residential sales conversion, the
first half Underlying Operating Profit was below the £27.3m reported in H1
2021, when volumes were boosted significantly by the Stamp Duty holiday. On a
statutory basis, Group operating profit was £8.7m (H1 2021: £26.7m).
Our Financial Services Network business is at the heart of our strategy. The
number of advisers in our Network has increased consistently over many years,
illustrated by the growth from 2,321 to 2,858 over the three years to 31
December 2021. The number of advisers increased further to 2,930 at 30 June
with a strong pipeline in place for further growth during the rest of the
year. This total is yet to reflect benefit from acquisitions by Pivotal
Growth, our joint venture "buy-and-build" mortgage broker, which we expect to
boost membership further.
Small, independent mortgage brokers typically perform well in more difficult
market conditions, and this can be seen in the strong performance of our
Financial Services Network business. Our brokers arranged purchase and
re-mortgage completions totalling £15.2bn, representing an increase of 11%
over 2021 in a smaller overall market (H1 2022: £151.4bn, H1 2021:
£168.5bn). This represents our highest-ever market share(2) of 10.1%, up from
9.0% last year. There was a general shift away from house purchase to
re-mortgage business, as consumers sought to secure their payments in the
light of increased economic uncertainty and rising interest rates. Across the
market, this was reflected in lower protection sales, but we estimate that LSL
advisers increased their protection market share further, building on past
success we have had in increasing the focus on this area.
This strong revenue performance and further growth in membership helped our
Financial Services Network businesses deliver a half year Underlying Operating
Profit(3) of £7.5m, in line with the record performance in H1 2021 of £7.4m,
and ahead of the £6.9m reported in H2 2021, indicating the continued momentum
in this business. These results would have been stronger had the mortgage and
protection cases relating to delayed residential sales exchanges been
reflected in the half year.
Given the significant potential for further growth offered by the Financial
Services Network business, we have continued to invest in building our
capability, including developing Mortgage Gym technology for our Financial
Services Network members. We will start to roll out this enhanced
functionality later this year.
In our AGM statement, we noted that Pivotal Growth had been slower to complete
deals than we initially expected, and, in the short term, this had increased
costs and limited its contribution to our Financial Services Network business.
I am pleased to report that Pivotal Growth has now announced four acquisitions
and we remain excited about its prospects.
I am delighted to say that our Surveying & Valuation business performed
very strongly, delivering record half-year performance. In a flat valuations
market, we carried out more jobs whilst continuing to build on the efficiency
improvements reported in 2021. Underlying Operating Profits(3) increased by
14% to £13.1m (H1 2021: £11.4m), with an Underlying Operating Profit
Margin(3) of 25.9% (H1 2021: 24.7%). This is a very significant increase on
the 14.8% we reported in 2019, demonstrating the material improvements we have
made in this business.
I am particularly encouraged by the rapid growth in our Direct-to-Consumer and
data services revenue streams in our Surveying & Valuation business, with
income increasing by 73% to £1.9m (H1 2021: £1.1m) and further growth
targeted. A key element of this improvement to date has been referrals from
our Financial Services Network members, demonstrating the opportunities we
have to benefit more widely from our market-leading distribution position. We
will shortly launch a new Direct-to-Consumer survey website and will continue
to develop our new data revenue streams, which we believe has exciting
potential for further growth.
Our Estate Agency business also traded very well, maintaining lettings income,
and holding on to the residential sales market share gains made in 2021 in the
areas in which we trade and increasing our national market share. However,
continued market-wide delays in completing agreed sales means that much of the
benefit of this good trading is yet to be reflected in income. The Division
reported an Underlying Operating Loss(3) of £1.0m (H1 2021 Profit: £12.5m).
The prior year performance was significantly boosted by the exceptional volume
generated by the Stamp Duty holiday. This performance should be assessed in
light of the very substantial increase in the residential sales pipeline to
£26.7m at 30 June, above our previous record of £26.4m in May 2021, just
prior to the Stamp duty deadline. Had agreed sales exchanged at a more usual
rate, Underlying Operating Profit would have been over £6m higher, a result
which would have been better than the Underlying Operating Profit of £4.0m
for the same period in 2019, where market conditions and the split between H1
and H2 profitability was relatively similar to the current year.
Strong Balance Sheet
Our balance sheet and strong cash generation enables further investment to
deliver the Group's ambitious growth strategy, including continued investment
in capability and technology, expected investment in Pivotal Growth D2C
brokerage acquisitions, and potential acquisition targets to build our
Financial Services Network business. The Board will continue to actively
review capital allocation regularly to ensure we maintain an efficient balance
sheet.
Dividend & Share Buy Back
Our Dividend policy is to pay out 30% of Group Underlying Operating Profit(1)
after finance and normalised tax charges and the Board has declared an interim
dividend of 4.0 pence per share (H1 2021: 4.0p).
The ex-dividend date for the interim dividend is 11 August 2022, with a record
date of 12 August 2022 and a payment date of 16 September 2022. Shareholders
can elect to reinvest their cash dividend and purchase existing shares in LSL
through a dividend reinvestment plan. The election date is 25 August 2022.
In April 2022, we announced the commencement of a share buyback programme of
up to £10.0m, which has been extended to 30 Sept 2022, with repurchased
shares placed into Treasury. At 30 June 2022, there were 504,273 shares being
held in Treasury for a total consideration of £1.8m.
Looking Ahead
I am encouraged by the strong growth we have reported in Surveying &
Valuation and by the very resilient performance of our Financial Services
Network business in smaller markets. Our Estate Agency business has also
performed very well, retaining previous market share gains, and we enter the
second half of the year with a record pipeline of pending exchanges.
Current trading is also encouraging. In July, mortgage completions in our
Financial Services Network business were at their highest level ever. The
Surveying & Valuations division continues to perform strongly and
front-end sales activity within Estate Agency is stable with good levels of
buyer demand.
The conversion of residential sales pipeline remains very slow, a trend we
expect to continue throughout the second half. The consequence of this will be
to delay expected profit on some H2 activity into 2023 and as a result we now
anticipate full year profits to be lower than our previous expectations whilst
remaining significantly above the pre- COVID 19 performance reported in 2019.
The benefits of the pipeline built up at 30 June 2022 will be realised in the
second half of the year and we expect that H2 Operating Profits will be
substantially stronger than H2 2021 and H2 2019.
LSL has an exciting future. Our Estate Agency business is trading well having
gained market share and built a record pipeline. The Financial Services
Network business continues to grow and is now responsible for over 10% of
mortgage advice in the UK providing an unrivalled distribution capability,
offering significant opportunities to grow in existing and new markets. In
Surveying & Valuation we have been able to win new business and
significantly improve efficiency whilst emerging data services provide an
exciting opportunity for growth.
I believe that our resilient performance and the growth expected over the
second half of the year and beyond demonstrates that we have the right
strategy in place. I am clear that the Group has significant potential and I
look forward to reporting further progress in the future.
David Stewart
Group Chief Executive Officer
2 August 2022
Notes:
1 Group Underlying Operating Profit is before exceptional
items, contingent consideration, amortisation of intangible assets and
share-based payments (see note 5 of the Financial Statements)
2 Mortgage lending excluding product transfers - New mortgage
lending by purpose of loan, UK (BOE) - Table MM23
3 Divisional Underlying Operating Profit and Divisional
Underlying Operating Margin are stated on the same basis as Group
FINANCIAL REVIEW
H1 (£m) 2022 2021 Var
Divisional Group Revenue
Financial Services Network (net revenue) 20.5 18.7 10%
19.4 20.4 (5)%
Financial Services Other
Financial Services 39.8 39.1 2%
Surveying & Valuation 50.5 46.2 9%
Estate Agency 70.6 81.2 (13)%
Group Revenue 160.9 166.5 (3)%
Divisional Underlying Operating Profit(1, 3)
Financial Services Network 7.5 7.4 0%
Financial Services Other (1.3) 0.4 nm
Financial Services 6.1 7.8 (22)%
Surveying & Valuation 13.1 11.4 14%
Estate Agency (1.0) 12.5 nm
Unallocated Central Costs (4.0) (4.5) 10%
Group Underlying Operating Profit(2) 14.2 27.3 (48)%
H1 (£m) 2022 2021 Var
Divisional operating profit (3)
Financial Services 4.9 3.9 24%
Surveying & Valuation 12.9 12.4 4%
Estate Agency (4.3) 15.5 nm
Unallocated Central Costs (4.7) (5.0) 6%
Group operating profit 8.7 26.7 (67)%
Notes:
1 Divisional Underlying Operating Profit and Divisional
Underlying Operating margin are stated on the same basis as Group
2 Group Underlying Operating Profit is before exceptional
items, contingent consideration, amortisation of intangible assets and
share-based payments (see note 5 of the Financial Statements)
3 Refer to note 4 of the Financial Statements for
reconciliation of Divisional Underlying Operating Profit to statutory
operating profit
nm Not meaningful
Group summary
In the context of the H1 residential exchange transactions market being down
29% year on year and the mortgage lending market being down 10%, the Group
results in the first half demonstrated the resilience of our Financial
Services Network business and the significant progress made in Surveying &
Valuation. The Financial Services Network business profit was in line with the
very strong performance in H1 2021. The Surveying & Valuation Division
delivered the highest ever revenues in a single half and the highest profit in
over 10 years. The financial performance in H1 across Financial Services and
Surveying & Valuation is in line with the Board's expectations.
The Estate Agency Division and, to a lesser extent, our Financial Services D2C
businesses were impacted by lower activity levels in the new purchase market
and continued delays in conversion of our residential sales pipelines caused
by conveyancing issues in the market. We have yet to see evidence of an
improvement in these issues which we had expected to ameliorate during H1.
We have absorbed inflationary increases in operating expenditure, particularly
in the Estate Agency Division, and we have continued to invest in our
Financial Services Division businesses.
Group results
Group Revenue for the 6 months to 30 June 2022 was £160.9m, only slightly
behind the record revenue last year (H1 2021: £166.5m). Financial Services
Network Revenue increased by 10% and Surveying & Valuation Revenue
increased by 9% on the same period in 2021. These increases were offset by a
13% reduction in Estate Agency and 5% reduction in Financial Services Other
Revenue, both impacted by lower new purchase activity and conveyancing delays.
If the residential sales pipeline had converted at pre-COVID 19 rates, Revenue
would have been at record levels of c.£169m.
Group Underlying Operating Profit(1) for the 6 months to June 2022 was
£14.2m, which whilst materially lower than the record results posted last
year (H1 2021: £27.3m), was 17% higher than the equivalent period in 2019,
the most recent comparable market, and would have been over £6m higher had
residential sales conversion been at historical rates, which would have been a
profit over £20m, behind only the record-breaking profit in H1 2021. On a
statutory basis, Group operating profit was £8.7m (H1 2021: £26.7m).
Total adjusted operating expenditure
Total adjusted operating expenses increased in the 6 months to 30 June 2022,
by 5% to £147.6m (H1 2021: £140.9m). The majority of this increase was due
to a growth of more than £4m in employee costs particularly in headcount
investment in the Financial Services Network business to support growth,
annual pay awards across the Group and reflecting the increase in employers
NIC from April 2022. Additionally, during H1 2022, the Group returned to a
more normalised level of operating expenses following the disruption of
COVID-19 on ways of working over the previously reported periods. Furthermore,
there have been cost increases in other areas, notably, utilities.
Other operating income, gain on sale of property, plant, and equipment
Other income was £1.1m (H1 2021: £0.5m). Rental income was £0.3m (H1 2021:
£0.5m), reducing year on year following the disposal during 2021 of several
freehold properties previously leased out. During the period the fair value of
units held in The Openwork Partnership LLP was reassessed to £0.8m and is
recognised in other operating income.
Income / (loss) from joint ventures and associates
Losses from joint ventures and associates of £0.2m (H1 2021: £0.9m profit)
primarily relate to our share of set up costs of Pivotal Growth. The prior
year income mainly comprised our share of LMS and TM Group profits prior to
the disposal of our investments.
Share-based payments
The share-based payment charge of £1.5m (H1 2021: £0.5m) consists of a
charge in the period of £1.8m, offset by lapses and adjustments for leavers
and options exercised in the period. The lower relative charge in 2021 largely
resulted from scheme lapses offsetting existing scheme charges.
Amortisation of intangible assets
The amortisation charge for H1 2022 was £2.1m (H1 2021: £2.7m). The
year-on-year decrease was as a result of some Lettings books and intangible
software investments reaching full amortisation during 2021.
Exceptional items
There were exceptional costs of £2.0m in H1 2022 (H1 2021: £1.7m),
reflecting an impairment of goodwill in Marsh & Parsons(2). Prior year
exceptional gains of £4.3m (H1 2022: £nil) related to the disposal of the
Group's joint venture holding in LMS and a release in the PI Costs provision,
netted off against the Shareholder circular and restructuring costs.
Contingent consideration
The credit to the income statement in H1 2022 of £0.1m (H1 2021: charge
£0.04m), relates mainly to the reassessment of the contingent consideration
liability for RSC, due to be paid in 2023.
Net finance costs
Net finance costs amounted to £1.3m (H1 2021: £1.3m) and related principally
to unwinding of the IFRS 16 lease liability of £0.7m (H1 2021: £0.7m) and
interest and fees on the revolving credit facility of £0.5m (H1 2021:
£0.5m).
Profit before tax
Profit before tax was £7.4m (H1 2021: £25.5m). This decrease was largely
driven by the reduction in Group Operating Profit, and the prior year
exceptional gain on the sale of the investment in the LMS.
Taxation
The tax charge of £1.6m (H1 2021: £2.9m) represents an effective tax rate of
21.6%, slightly higher than the headline UK tax rate of 19% largely as a
result of disallowable expenses. Deferred tax assets and liabilities are
measured at 25% (2021: 25%), the tax rate effective from 1 April 2023.
Earnings Per Share(3)
The Basic Earnings Per Share was 5.7 pence (H1 2021: 21.8 pence), with diluted
Earnings Per Share of 5.7 pence (H1 2021: 21.4 pence). The Adjusted Basic
Earnings Per Share was 10.7 pence (H1 2021: 20.9 pence), a decrease of 49%,
with adjusted diluted Earnings Per Share of 10.7 pence (H1 2021: 20.6 pence).
Notes:
1 Group Underlying Operating Profit is before exceptional
items, contingent consideration, amortisation of intangible assets and
share-based payments (as set out in note 5 of the Financial Statements)
2 Refer to note 10 of the Financial Statements
3 Refer to note 6 of the Financial Statements for the
calculation
DIVISIONAL REVIEW
Financial Services Division
Summary
Financial Services Division reported an increase in revenue of 2% in H1 2022
compared to the same period in 2021 in a lending market which was 10% lower.
The Financial Services Network Underlying Operating Profit was in line with
the record prior year. This was offset by a decrease in Financial Services
Other profit due to a materially smaller purchase market, resulting in overall
divisional Underlying Operating Profit for the half year of £6.1m (H1 2021:
£7.8m).
Total financial advisers at 30 June 2022 were up 186 to 2,930 on the same time
last year, a 7% increase. Our share of the UK mortgage market grew to
10.1%(1), further consolidating our position as the UK's largest mortgage and
insurance network(2).
We continued to support the future growth of our Financial Services Division,
with investment during the year in technology and capability, across our
Network and D2C businesses. We also announced two acquisitions in the Pivotal
Growth joint venture in H1, and one in July taking the total to four. Whilst
suppressing profits in the short term, the investment made and future expected
Pivotal growth will start to show tangible returns, with more material
benefits expected in future periods.
Financial overview
Total revenue reported for the period was up 2% to £39.9m (H1 2021: £39.2m).
Core Financial Services Network Revenue grew by 10% year-on-year benefiting
from higher advisor numbers. Financial Services Other revenue decreased by
£1.7m versus the same period last year mainly as a result of the materially
smaller purchase market. Financial Services Division Underlying Operating
Profit(3) was £6.1m (H1 2021: £7.8m). On a statutory basis, operating profit
was £4.9m (H1 2021: £3.9m).
The Division's revenue mix by product continues to highlight the significance
of our insurance business and its success in arranging insurance products both
on a standalone basis as well as when needed at the time of a mortgage being
arranged. In H1, these remain broadly an equal split between mortgage related
and insurance related revenue. The split of Revenue by product type in H1 2022
was 39% for mortgage fees (H1 2021: 39%), 42% for insurance fees (H1 2021:
45%) and 19% in other fees (H1 2021: 16%).
Financial Services Network business
Our gross purchase and re-mortgage completion lending increased by 11% to
£15.2bn for the period (H1 2021: £13.7bn) representing an increased share of
the lending market excluding product transfers(2) to 10.1% (2021: 9.0%).
Including product transfers, total gross mortgage lending was £20.5bn in H1
2022 (H1 2021: £19.3bn).
Gross revenues generated by the Financial Services Network business (including
the TMA mortgage club) increased by 1% to £146.2m (H1 2021: £144.1m).
Gross revenue per average adviser in H1 was £43.6k (H1 2021: £46.6k). In
general, advisers joining the Financial Services Network business take some
time to reach maximum productivity, and as such make a relatively small
contribution to turnover in the year of their joining. Revenue in the rest of
2022 will therefore benefit from a full year of the advisers who joined in H2
2021 and H1 2022.
Underlying Operating Profit(3) increased marginally to £7.5m (H1 2021:
£7.4m) with Underlying Operating margin(4) decreasing to 36% (H1 2021: 40%)
as we continue to invest in our businesses and brought some cost categories in
line with pre- COVID 19 levels e.g. broker events and marketing support.
Financial Services Other
Financial Services Other generated an Underlying Operating Loss(3) of £1.3m
(H1 2022: profit £0.4m), which is stated after our continued investment in
the businesses that make it up, including costs of the TPFG contract and the
Pivotal Growth joint venture set up costs. As previously reported, the TPFG
contract will continue to act as a drag on profitability in 2022. As well as
significant investment in the Mortgage Gym platform, we continued to invest in
the Financial Services Network business technology platform (Toolbox), to
deliver benefits to firms and their advisers and create further efficiencies
and improved functionality. Financial Services Other D2C businesses were
impacted by lower activity levels in the new purchase market and continued
delays in conversion of our residential sales pipelines caused largely by
conveyancing issues in the market.
The Pivotal Growth joint venture was established in April 2021, with a net
loss in H1 2022 of £0.2m after acquisition costs and overheads. The slower
than expected momentum in acquisitions has prevented reporting a profit as
deal costs outweigh income but a positive contribution is expected in 2023.
Surveying & Valuation Division
Summary
The Surveying & Valuation Division's Underlying Operating Profit(3)
increased by 14% in the 6 months to 30 June 2022 in comparison to the same
period in 2021, in a flat market for mortgage and re-mortgage approvals.
Surveyor capacity utilisation continues to improve, with 8% more jobs
performed whilst employing similar levels of operational surveyors. Underlying
Operating margin(4) increased to 26% for the period (H1 2021: 25%), due mainly
to improved utilisation and a leading position in the growing higher margin
equity release segment.
We estimate that we increased market share in H1 2022, while maintaining
operational resilience and providing high-quality service. We were named Best
Surveying Firm at the 2022 Mortgage Finance Gazette Awards and Best Surveyor
at the 2022 Equity Release Awards with Mortgage Solutions. During the 6 months
to 30 June 2022, one key supplier contract was renewed in addition to one
renewal at the end of December 2021, increasing allocations. We also
achieved increases in allocations from some existing lender clients. More
than three quarters of our total annual volume is currently secured for two or
more years. Significant further progress was made in our strategic objective
of developing income from private surveys and data, which increased by 73% to
£1.9m.
Financial overview
Revenue increased by 9% to a record £50.5m (H1 2021: £46.2m). Underlying
Operating Profit(3) increased by 14% to £13.1m (H1 2021: £11.4m) the highest
for 10 years. On a statutory basis, operating profit was £12.9m (H1 2021:
£12.4m).
Income per job increased by 1% to £175 (H1 2021: £173), with the higher
volume of jobs performed reflecting the improved capacity management with
similar levels of operational surveyors. During H1 2022, 73% of the Division's
jobs derived from its top five lender clients. This is broadly consistent with
the concentration of mortgage lending in the UK, where it is estimated that
the six largest lenders collectively account for around 70% of the market. The
total number of jobs performed during the period was 288,000, which was 8%
greater than the same period in 2021.
At 30 June 2022, the total provision for professional indemnity (PI) costs was
£3.9m (31 December 2021: £3.9m, 30 June 2021: £5.5m). The Group continued
to make positive progress in addressing historic PI claims and the number of
new valuation claims provided for in the period remained very low.
The number of operational surveyors employed (FTE) at 30 June 2022 was 497,
which was in line with June 2021 and an increase on 31 December 2021 at 489.
The increase was as a result of our graduate and trainee mentoring programmes,
which continue to provide new productive surveyors, to alleviate any capacity
constraints in the market.
Estate Agency Division
Summary
Residential sales exchange pipeline conversion rates remained extremely slow
across the market principally due to the continuing industry-wide capacity
issues in conveyancing, which impacted residential exchange income and
contributed to an Underlying Operating Loss(3) of £1.0m in H1 2022. The
residential sales exchange pipeline grew significantly and now stands at a
record level of £26.7m, having increased by around £6m since 31 December
2021.
Financial overview
Revenue for the 6 months to 30 June 2022 at £70.6m was 13% behind the period
last year, a period of unusually high activity ahead of the end of the Stamp
Duty deadline (H1 2021: £81.2m). Underlying Operating Loss(3) was £1.0m for
the 6 months to 30 June 2022, reflecting the residential market dynamics
described above with lower new purchase activity and conveyancing issues. If
the sales pipeline had converted at pre-COVID rates, residential and ancillary
revenue would have been c.£8m higher, with a total Divisional revenue of
c.£79m. Had residential sales agreed exchanged at this more usual rate,
Underlying Operating Profits would have been over £6m higher, a £1m increase
on the £4.0m achieved in H1 2019. On a statutory basis, operating loss was
£4.3m (H1 2021: profit £15.5m).
Residential Sales
Residential Sales exchange income decreased by 24% to £30.8m (H1 2021:
£40.4m). The Estate Agency Division consolidated the market share gains made
during 2021, maintaining share of instructions in the locations we trade, and
growing our market share of housing transactions on a national level. The
residential sales pipeline increased significantly to £26.7m at 30 June 2022
(an LSL record, previous high at £26.4m in May 2021 just prior to the Stamp
Duty deadline), with no indication of a material increase in fall-throughs.
Lettings
In the Lettings market there has been a very limited supply of new
instructions. Our focus has therefore been on reletting and retaining our
managed property portfolio. The total number of managed properties at 30 June
2022 was 24,376, slightly below the same date in 2021. Therefore, total
Lettings income is flat year-on-year at £30.1m supported by average rent
increases across all brands.
Other income
Other income was down 10% to £9.7m (H1 2021: £10.8m) reflecting the impact
of the slowdown in exchange volumes as conveyancing and financial services
income directly linked to exchange volumes. Asset Management is slightly ahead
of 2021 however market repossession volumes remain very low, albeit ahead of
the exceptionally low 2021 which was severely impacted by COVID-19.
Notes:
1 New mortgage lending by purpose of loan, UK (BOE) - Table
MM23 - May YTD
2 UK's largest mortgage and insurance network based on LSL
estimates
3 Refer to note 4 of the Financial Statements
4 Divisional Underlying Operating Profit and Divisional
Underlying Operating Margin are stated on the same basis as Group
BALANCE SHEET REVIEW
Goodwill
The carrying value of goodwill is £158.9m (H1 2021: £160.9m) reflecting an
impairment of £2m which was identified and recognised in Marsh & Parsons
at 30 June 2022(1).
Other intangible assets and property, plant and equipment
We continued to invest in technology during the first half of the year and
total capital expenditure in the half amounted to £2.2m (H1 2021: £3.0m),
including £1.1m (H1 2021: £0.6m) for further development of the Toolbox
platform in the Financial Services Division and investment by the Estate
Agency Division in third-party property software.
Financial assets and investments in joint ventures and associates
Financial assets
Financial assets of £6.1m at 30 June 2022 (31 December 2021: £5.7m, 30 June
2021: £7.7m) comprise investments in equity instruments in unlisted
companies. The largest investment is an 8.8% shareholding in Yopa Property
Limited, a UK-based online hybrid estate agent. The carrying value of this
investment has been assessed and a fair value reduction of £0.4m has been
made through the Statement of Other Comprehensive Income. The carrying value
of the Group's investment at 30 June 2022 is £4.1m (31 December 2021: £4.5m,
30 June 2021: £6.5m). During the period the fair value of units held in The
Openwork Partnership LLP was reassessed to £0.8m (31 December 2021: £nil, 30
June 2021: £nil).
Joint ventures
In April 2021 the Group established the Pivotal Growth joint venture and hold
a 47.8% interest at 30 June 2022. The joint venture is equity accounted and is
held on the balance sheet at £2.3m at 30 June 2022 (31 December 2021: £1.6m,
30 June 2021: £0.3m), representing equity investment during the period less
our share of profit/losses after tax for the period. Pivotal Growth announced
two further acquisitions in H1 2022 and another during July 2022, taking the
total to four, one of which is subject to change of control approval by the
FCA.
During 2021, we disposed of our entire holding in both non-core businesses LMS
(May 2021) and TM Group (July 2021) for total proceeds of £41.3m. At 30 June
2022, TMG was held at £3.0m under non-current assets held for sale.
Bank facilities / Net Bank Cash / Liquidity
At 30 June 2022, Net Cash was at a record high at a half year at £30.7m (31
December 2021: Net Cash £48.5m, 30 June 2021: Net Cash £17.0m), providing
flexibility to make further investments to support growth. The Group has a
£90 million committed revolving credit facility, with a maturity date of May
2024, and a £30m accordion, to be requested by LSL at any time, subject to
bank approval.
The Group generated adjusted cash from operations of £6.1m (H1 2021:
£26.9m). After adjusting for tax payment deferrals agreed with HMRC relating
to 2020, the cash-flow conversion(2) rate in H1 2022 reverted to pre COVID-19
levels at 43%. H1 2021 conversion was 100% due to significantly higher EA
revenues with high immediate cash drop-through. The reported cash-flow
conversion rate before adjusting for tax deferral payments, was 37% (H1 2021:
68%).
The net decrease in cash and cash equivalents of £17.7m during H1 2022 (H1
2021: £5.6m increase) included further investment in Pivotal Growth (£0.9m),
capital expenditure of £2.2m (H1 2021: £3.0m), commencement of the share
buy-back programme (£1.8m), the purchase of £5.0m LSL shares for employee
share schemes (EBT) and payment of the 2021 Final dividend of £7.7m (H1 2021:
£nil dividends paid).
In April 2022, LSL announced the commencement of a share buyback programme of
up to £10.0m, with the repurchased shares placed into Treasury. At 30 June
2022, there were 504,273 shares being held in Treasury for a total
consideration of £1.8m.
The Financial Services Network business has a regulatory capital requirement
associated with its regulated revenues. The regulatory capital requirement was
£5.9m at 30 June 2022 (31 December 2021: £4.9m, 30 June 2021: £5.0m), with
a surplus of £13.4m (31 December 2021: £14.2m, 30 June 2021: £14.6m).
Contingent consideration liabilities
Contingent consideration liabilities at end of H1 2022 was £2.9m (H1 2021:
£5.8m, 31 December 2021 £3.0m). Contingent consideration liabilities relate
primarily to the cost of acquiring the remaining shares in RSC. The
year-on-year reduction reflects part settlement and an update to forecasts in
relation to RSC and the final settlement of the acquisition of the remaining
shares in Group First.
Treasury and Risk Management
We have 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 our Annual Report and Accounts
2021.
International Financial Reporting Standards (IFRS)
The Interim Condensed Consolidated Group Financial Statements for the period
ended 30 June 2022 have been prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act
2006 and UK adopted International Accounting Standards.
Notes:
1 Refer to note 10 of the Financial Statements
2 Adjusted cash-flow conversion defined as cash generated from
operations (pre PI and post lease liabilities) divided by Group Underlying
Operating Profit
Principal Risks and Uncertainties
The principal risks and uncertainties relating to the Group's operations
remain consistent with those disclosed on pages 23 to 25 of the Group's Annual
Report and Accounts 2021 (which can be accessed on the Group's website:
www.lslps.co.uk). Having reconsidered these principal risks and uncertainties
which are summarised below, the Board has concluded that the principal risks
and uncertainties of the Group remain the same as those included within the
Annual Report and Accounts 2021.
Responsibility statement of the Directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
· The Interim Condensed Consolidated Group Financial Statements for the
period ended 30 June 2022 have been prepared in accordance with UK adopted
International Accounting Standard 34;
· The interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements;
and a description of the principal risks and uncertainties for the remaining
six months of the financial year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related-party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the
related-party transactions described in the last annual report that could do
so.
By order of the Board
David
Stewart
Adam Castleton
Director, Group Chief Executive Officer
Director, Group Chief Financial Officer
2 August
2022
2 August 2022
Interim Group Income Statement
for the six months ended 30 June 2022
Unaudited
Six Months Ended
Audited
Year Ended
30 June 30 June 31 December 2021
2022
2021
Continuing Operations Note £'000 £'000 £'000
Revenue 4 160,869 166,456 326,832
Operating expenses:
Employee and subcontractor costs (104,851) (100,493) (202,269)
Establishment costs (4,590) (4,684) (10,071)
Depreciation on property, plant and equipment (5,871) (6,303) (12,500)
Other operating costs (32,259) (29,418) (55,339)
(147,571) (140,898) (280,179)
Other operating income 1,085 496 937
(Loss) / gain on sale of property, plant and equipment (2) 280 1,061
(Loss) / Income from joint ventures and associates (208) 934 668
Share-based payments (1,500) (454) (1,916)
Amortisation of intangible assets (2,051) (2,677) (4,534)
Exceptional gains - 4,311 31,050
Exceptional costs 7 (2,000) (1,656) (2,045)
Contingent consideration 115 (44) 710
Group operating profit 8,737 26,748 72,584
Finance income 6 - 14
Finance costs (1,310) (1,286) (2,709)
Net finance costs (1,304) (1,286) (2,695)
Profit before tax 7,433 25,462 69,885
Taxation charge 9 (1,608) (2,917) (7,985)
Profit for the period/year 5,825 22,545 61,904
Attributable to:
Owners of the parent 5,876 22,566 61,941
Non-controlling interest (51) (21) (37)
Earnings per share expressed in pence per share:
Basic 6 5.7 21.8 59.6
Diluted 6 5.7 21.4 59.2
Interim Group Statement of Comprehensive Income
for the six months ended 30 June 2022
Unaudited Audited
Six Months Ended
Year Ended
30 June 30 June 31 December 2021
2022
2021
£'000 £'000 £'000
Profit for the period 5,825 22,545 61,904
Items not to be reclassified to profit and loss in subsequent periods:
Revaluation of financial assets not recycled through income statement 11 (370) 443 (1,557)
Tax on revaluation - (119) (132)
Net other comprehensive income (370) 324 -
Total comprehensive income, net of tax 5,455 22,869 60,215
Attributable to:
Owners of the parent 5,506 22,890 60,252
Non-controlling interest (51) (21) (37)
Interim Group Balance Sheet
as at 30 June 2022
Unaudited Audited
Six Months Ended
Year Ended
30 June 30 June 31 December 2021
2022
2021
Note £'000 £'000 £'000
Non-current assets
Goodwill 10 158,865 160,865 160,865
Other intangible assets 28,788 29,908 29,604
Property, plant and equipment 33,550 40,551 37,070
Financial assets 11 6,095 7,737 5,748
Investments in joint venture 15 2,338 268 1,610
Contract 521 836 733
assets
Total non-current assets 230,157 240,165 235,630
Current assets
Trade and other receivables 38,944 38,449 33,829
Contract assets 424 424 424
Current tax asset 3,499 1,673 1,142
Cash and cash equivalents 30,708 17,039 48,464
Total current assets 73,575 57,585 83,859
Non-current assets held for sale - 3,016 -
Total assets 303,732 300,766 319,489
Current liabilities
Financial liabilities 13 (10,462) (11,083) (8,523)
Trade and other payables 12 (58,380) (73,918) (64,206)
Provisions for liabilities (870) (2,908) (775)
Total current liabilities (69,712) (87,909) (73,504)
Non-current liabilities
Financial liabilities 13 (18,088) (25,678) (22,602)
Deferred tax liability (1,933) (1,916) (2,073)
Provisions for liabilities (3,037) (2,694) (3,191)
Total non-current liabilities (23,058) (30,288) (27,866)
Total Liabilities (92,770) (118,197) (101,370)
Net assets 210,962 182,569 218,119
Equity
Share capital 210 210 210
Share premium account 5,629 5,629 5,629
Share-based payment reserve 5,830 4,483 5,263
Shares held by EBT (6,814) (4,165) (3,036)
Treasury shares (1,767) - -
Fair value reserve (15,643) (13,260) (15,273)
Retained earnings 223,047 189,135 224,832
Equity attributable to the owners of the parent 210,492 182,032 217,598
Non-controlling interest 470 537 521
Total Equity 210,962 182,569 218,119
Interim Group Cash Flow Statement
for the six months ended 30 June 2022
Unaudited Audited
Six Months Ended
Year Ended
30 June 30 June 31 December 2021
2022 2021
Note £'000 £'000 £'000
Profit before tax 7,433 25,462 68,889
Adjustments for:
Exceptional operating items and contingent consideration 1,885 (2,612) (29,716)
Depreciation of tangible assets 5,871 6,303 12,500
Amortisation of intangible assets 2,051 2,677 4,534
Share-based payments 1,500 454 1,916
Loss /(profit) on disposal of fixed assets 2 (280) (1,061)
Loss/(profit) from joint ventures 208 (934) (688)
Finance income (6) - (14)
Finance costs 1,310 1,286 2,709
Operating cash flows before movements in working capital 20,254 17,117 60,089
Movements in working capital
Increase in trade and other receivables (5,653) (9,779) (3,439)
(Decrease) / increase in trade and other payables (5,486) 1,327 (8,919)
Decrease in provisions (59) (1,576) (3,213)
(11,198) (10,028) (15,571)
Cash generated from operations 9,056 22,328 44,518
Interest paid (1,277) (1,215) (2,554)
Income taxes paid (4,052) (4,451) (8,528)
Exceptional costs paid - (2,466) (2,045)
Net cash generated from operating activities 3,727 14,196 31,191
Cash flows used in investing activities
Acquisitions of subsidiaries and other businesses - (730) (730)
Payment of contingent consideration 13 (76) (302) (2,462)
Investment in joint venture (936) (765) (2,477)
Investment in financial assets 11 - (4) (14)
Dividend received from joint venture - 1,178 1,178
Cash received on sale of joint venture - 12,000 41,349
Receipt of lease income 33 26 20
Purchase of property, plant and equipment and intangible assets (2,231) (2,957) (6,902)
Proceeds from sale of property, plant and equipment 6 431 431
Net cash (expended) / generated on investing activities (3,204) 8,877 30,393
Repayment of loans - (13,000) (13,000)
Payment of deferred consideration - (92) (122)
Purchase of LSL shares by the EBT (5,026) - -
Purchase of treasury shares (1,767) - -
Proceeds from the exercise of share options 263 429 1,447
Payments of lease liabilities (4,095) (4,814) (8,922)
Dividends paid (7,654) - (4,166)
Net cash expended in financing activities (18,279) (17,451) (24,763)
Net (decrease) / increase in cash and cash equivalents (17,756) 5,596 37,021
Cash and cash equivalents at the end of the period / year 30,708 17,039 48,464
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June
2022
Share- based payment reserve
Share premium account
Share capital Shares held by EBT Treasury Shares Fair value Reserve Retained earnings Equity attributable to owners of the parent Non- controlling interest
Total
£'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
Other comprehensive income for the period
Revaluation of financial assets - - - - - (370) - (370) - (370)
Profit for the period - - - - - - 5,876 5,876 (51) 5,825
Total comprehensive income for the period - - - - - (370) 5,876 5,506 (51) 5,455
Acquisition of subsidiary - - - - - - - - -
Shares repurchased into Treasury - - - - (1,767) - - (1,767) - (1,767)
Shares repurchased into EBT - - - (5,026) - - - (5,026) - (5,026)
Exercise of options - - (1,005) 1,275 - (7) 263 - 263
Dividend paid - - - - - - (7,654) (7,654) - (7,654)
Share-based payments - - 1,500 - - - - 1,500 - 1,500
Tax on share-based payments - - 72 - - - - 72 - 72
At 30 June 2022 210 5,629 5,830 (6,814) (1,767) (15,643) 223,047 210,492 470 210,962
During the six-month period to 30 June 2022 a total of 431,336 share options
were exercised relating to LSL's various share option schemes resulting in the
shares being sold by the
Trust. LSL received £263,000 on exercise of these options.
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June 2021
Share- based payment reserve
Share premium account
Share capital Shares held by EBT Fair value Reserve Retained earnings Non- controlling interest
Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2021 210 5,629 3,942 (5,012) (13,584) 166,569 - 157,754
Other comprehensive income for the period
Revaluation of financial assets - - - - 324 - - 324
Profit for the period - - - - - 22,566 (21) 22,545
Total comprehensive income for the period - - - - 324 22,566 (21) 22,869
Acquisition of subsidiary - - - - - - 558 558
Exercise of options - - (418) 847 - - - 429
Share-based payments - - 454 - - - - 454
Tax on share-based payments - - 505 - - - - 505
At 30 June 2021 210 5,629 4,483 (4,165) (13,260) 189,135 537 182,569
During the six-month period to 30 June 2021 a total of 241,476 share options
were exercised relating to LSL's various share option schemes resulting in the
shares being sold by the
Trust. LSL received £429,000 on exercise of these options.
Group Statement of Changes in
Equity
for the year ended 31 December 2021
Share- based payment reserve
Share premium account
Share Shares held by EBT 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
At 1 January 2021 210 5,629 3,942 (5,012) (13,584) 166,569 157,754 - 157,754
Profit for the year - - - - - 61,941 61,941 (37) 61,904
Revaluation of financial assets - - - - (1,557) - (1,557) - (1,557)
Tax on revaluations - - - - (132) - (132) - (132)
Total comprehensive income for the year - - - - (1,689) 61,941 60,252 (37) 60,215
Acquisition of subsidiary - - - - - - - 558 558
Issued share capital in the year - - - - - - - - -
Exercise of options - - (990) 1,949 - 488 1,447 - 1,447
Dividend paid - - - - - (4,166) (4,166) - (4,166)
Share-based payments - - 1,916 - - - 1,916 - 1,916
Tax on share based payments - - 395 - - - 395 - 395
At 31 December 2021 210 5,629 5,263 (3,063) (15,273) 224,832 217,598 521 218,119
During the year ended 31 December 2021, the Trust acquired nil LSL Shares.
During the period, 555,824 share options were exercised relating to LSL's
various share option schemes resulting in the Shares being sold by the
Trust. LSL received £1.4m on exercise of these options.
Notes to the Interim Condensed Consolidated Group Financial Statements
The Interim Condensed Consolidated Group Financial Statements for the period
ended 30 June 2022 were approved by the LSL Board on 2 August 2022. The
interim Financial Statements are not the statutory accounts. The financial
information for the year ended 31 December 2021 is extracted from the audited
statutory accounts for the year ended 31 December 2021, which have been filed
with the Registrar of Companies. The auditor's report on those 2021 full
year statutory accounts was unqualified and did not contain an emphasis of
matter paragraph and did not make a statement under section 498 (2) or (3) of
the Companies Act 2006.
1. Basis of preparation
The Interim Condensed Consolidated Group Financial Statements for the period
ended 30 June 2022 have been prepared in accordance with UK adopted
International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority, and
should be read in conjunction with the Group's annual Financial Statements as
at 31 December 2021 which are included in LSL's Annual Report and Accounts
2021. The Group's annual Financial Statements for the year ending 31 December
2022 will be prepared in accordance with UK adopted International Accounting
Standards.
The Interim Condensed Consolidated Group Financial Statements do not include
all the information and disclosures required for a complete set of IFRS
Financial Statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an understanding of
the changes in the Group's financial position and performance since the last
annual Financial Statements.
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 expects to continue to meet its day to day working capital
requirements through a revolving credit facility. The Group's banking
facility, a £90 million committed revolving credit facility has a maturity
date of May 2024. As shown in Note 12 to these interim condensed consolidated
Group Financial Statements, the Group have not currently utilised the facility
leaving £90 million of available undrawn committed borrowing facilities in
respect of which all conditions precedent had been met.
LSL has continued to run a variety of scenario models throughout H1 to help
the ongoing assessment of risks and opportunities. 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 close to the low point experienced during the
Global Financial Crisis. The scenario modelling also excludes further actions
that could be taken, such as cost mitigations that could be applied in 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 31 December 2023 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 31 December 2023.
The Board have therefore continued to adopt the Going Concern basis in
preparing the Interim Condensed consolidated Financial Statements.
2. Changes in significant accounting policies
The accounting policies adopted in the preparation of the Interim Condensed
Consolidated Group Financial Statements are consistent with those followed in
the preparation of the Group's annual Financial Statements for the year ended
31 December 2021.
3. Judgements and estimates
The preparation of financial information in conformity with UK adopted
International Accounting Standards and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority
requires management to make judgements, estimates and assumptions that affect
the application of policies and reporting amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and
future periods.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the balance sheet date, that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next six months are the same as those as at 31 December 2021. The
assumptions are discussed in detail in the Group's Annual Report and Accounts
2021. The assumptions discussed are as follows:
Judgements
Areas of judgement that have the most significant effect on the amounts
recognised in the consolidated Financial Statements are:
· Deferred tax
Estimates
The key assumptions affected by future uncertainty that have significant risks
of causing material adjustment to the carrying value of assets and liabilities
within the next financial year are:
· Professional Indemnity (PI) claims
· Lapse Provision
· Valuation of financial assets
· Impairment of intangible assets
· Contingent consideration
· Income tax
Goodwill
At the period ended 30 June 2022, the Management Team undertook sensitivity
analysis to determine the effect of changes in assumptions on the H1 2022
impairment reviews. Marsh & Parsons was impaired by £2.0m at the period
end. A reasonable possible change in either latest forecasts or the discount
rate applied could lead to further impairment. A reduction in the growth rate
of 1.0% would mean a further impairment of £5.0m would be required and a
reduction in each of the three years of cash-flows forecast by 7.5% (which
represents a reduction of £0.5m in the third year of cash-flow forecasts)
would lead to a further impairment of £5.0m. An increase to the discount
factor applied from 12.2% to 13.2% would lead to a further impairment of
£6.0m. Management do not consider there to be any further impairment
indicators for the Marsh & Parsons goodwill at 30 June 2022.
4. Segment analysis of revenue and operating profit
LSL reports three segments: Financial Services, Surveying and Valuation
Services, and Estate Agency:
· The Financial Services segment arranges mortgages for a number of
lenders and arranges pure protection and general insurance policies for a
panel of insurance companies. Embrace Financial Services and First2Protect,
subsidiaries within the Financial Services Division, make a commercially
agreed introducers fee to the Estate Agency Division;
· The Surveying and Valuation Services segment provides a
valuations and professional surveying service of residential properties to
various lenders and individual customers;
· The Estate Agency segment provides services related to the sale
and letting of residential properties. It operates a network of high street
branches. As part of this process, the Estate Agency Division also provides
marketing and arranges conveyancing services. In addition, it provides
repossession and asset management services to a range of lenders. Embrace
Financial Services and First2Protect, subsidiaries within the Financial
Services Division, make a commercially agreed introducers fee to the Estate
Agency Division.
The Management Team monitors the operating results of its business units
separately for the purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated based on operating
profit or loss which in certain respects, as explained in the table below, is
measured differently from operating profit or loss in the Group Financial
Statements. Head Office costs, Group financing (including finance costs and
finance income) and income taxes are managed on a Group basis and are not
allocated to operating segments.
Operating segments
The following tables presents revenue and profit information regarding the
Group's operating segments for the six months ended 30 June 2022, for the six
months ended 30 June 2022 and for the year ended 31 December 2021.
Unaudited - Six months ended 30 June 2022
Revenue Split by Stream - Unaudited - Six Months ended 30 June 2022
Financial Services Surveying and Valuation Services Residential Sales exchange (EA) Lettings (EA) Asset Management (EA) Other (EA) £'000
£'000 £'000 £'000 £'000 £'000 Total
£'000
Timing of revenue recognition
Services transferred at a point in time 42,646 50,451 30,759 15,184 1,318 4,989 145,347
Services transferred over time - - - 14,929 593 - 15,522
Total revenue from contracts with customers 42,646 50,451 30,759 30,113 1,911 4,989 160,869
Income statement information Surveying
Financial Services and Valuation Services
£'000 £'000 Estate Agency Unallocated Total
£'000 £'000 £'000
Revenue from external customers 42,646 50,451 67,772 - 160,869
Introducers fee (2,832) - 2,832 - -
Total revenue 39,814 50,451 70,604 - 160,869
Segmental result:
Underlying Operating Profit 6,104 13,066 (973) (4,024) 14,173
Share-based payments 95 (185) (700) (710) (1,500)
Amortisation of intangible assets (1,309) (16) (726) - (2,051)
Exceptional gains - - - - -
Exceptional costs - - (2,000) - (2,000)
Contingent consideration credit/(charge) - - 115 - 115
Operating profit / (loss) 4,890 12,865 (4,284) (4,734) 8,737
Finance income 6
Finance costs (1,310)
Profit before tax 7,433
Taxation (1,608)
Profit for the period 5,825
Group Underlying Operating Profit is as defined in note 5 to these condensed
financial statements.
Estate Agency Unallocated Total
Surveying
Financial Services and Valuation Services
£'000 £'000 £'000 £'000 £'000
Balance sheet information
Segment assets - intangible 20,328 11,116 156,137 72 187,653
Segment assets - other 11,322 15,148 51,077 38,532 116,079
Total Segment assets 31,650 26,264 207,214 38,604 303,732
Total Segment liabilities (21,385) (20,219) (46,390) (4,776) (92,770)
Net assets 10,265 6,045 160,824 33,828 210,962
The joint venture interests of the Group are recorded in the Financial
Services and Estate Agency segments.
Unallocated net assets comprise other intangibles £72,000, PPE £2,751,000,
cash £30,708,000, other assets £1,574,000, current tax £3,499,000, other
taxes £74,000, accruals £(2,420,000), payables £(183,000), IFRS16
liabilities (£323,000) and deferred tax £(1,933,000).
Unaudited - Six months ended 30 June 2021
Revenue Split by Stream - Unaudited - Six Months ended 30 June 2021
Financial Services £'000 Surveying and Valuation Services Residential Sales exchange (EA) Lettings (EA) Asset Management (EA) Other (EA) £'000
£'000 £'000 £'000 £'000 Total
£'000
Timing of revenue recognition
Services transferred at a point in time 42,340 46,159 40,425 16,132 1,071 5,792 151,919
Services transferred over time - - - 13,948 589 - 14,537
Total revenue from contracts with customers 42,340 46,159 40,425 30,080 1,660 5,792 166,456
Income statement information Surveying
Financial Services and Valuation Services
£'000 £'000 Estate Agency Unallocated Total
£'000 £'000 £'000
Revenue from external customers 42,340 46,159 77,957 - 166,456
Introducers fee (3,232) - 3,232 - -
Total revenue 39,108 46,159 81,189 - 166,456
Segmental result:
Underlying Operating Profit 7,823 11,419 12,527 (4,501) 27,268
Share-based payments (43) 32 (67) (376) (454)
Amortisation of intangible assets (1,374) (230) (914) (159) (2,677)
Exceptional gains (1,764) 1,131 4,944 - 4,311
Exceptional costs (714) - (942) - (1,656)
Contingent consideration credit/(charge) - - (44) - (44)
Operating profit / (loss) 3,928 12,352 15,504 (5,036) 26,748
Finance income -
Finance costs (1,286)
Profit before tax 25,462
Taxation (2,917)
Profit for the period 22,545
Surveying Unallocated Total
and Valuation Services
Financial Services
Estate Agency
£'000 £'000 £'000 £'000 £'000
Balance sheet information
Segment assets - intangible 18,834 11,051 158,634 2,254 190,773
Segment assets - other 10,890 14,956 59,275 24,872 109,993
Total Segment assets 29,724 26,007 217,909 27,126 300,766
Total Segment liabilities (25,513) (24,489) (62,131) (6,064) (118,197)
Net assets 4,211 1,518 155,778 21,062 182,569
The joint venture interests of the Group are recorded in the Estate Agency
segment, with the associate interest recorded in the Financial Services.
Unallocated net assets comprise other intangibles £2,253,000, assets held for
sale £3,016,000, cash £17,039,000, other assets £3,138,000, other taxes
£(182,000), accruals £(3,912,000), payables £(266,000), deferred and
current tax £(24,000).
Audited - Year ended 31 December 2021
Revenue Split by Stream - Audited - Year ended 31 Dec 2021
Financial Services £'000 Surveying and Valuation Services Residential Sales exchange (EA) Lettings (EA) Asset Management (EA) Other (EA) £'000
£'000 £'000 £'000 £'000 Total
£'000
Timing of revenue recognition
Services transferred at a point in time 84,818 93,699 71,737 32,268 2,217 11,162 295,901
Services transferred over time - - - 29,783 1,148 - 30,931
Total revenue from contracts with customers 84,818 93,699 71,737 62,051 3,365 11,162 326,832
Financial Services Surveying Estate Agency Unallocated Total
and Valuation Services
Income Statement information £'000 £'000 £'000 £'000 £'000
Revenue from external customers 84,818 93,699 148,315 - 326,832
Introducers fee (6,287) - 6,287 - -
Total revenue 78,531 93,699 154,602 - 326,832
Segmental result:
Underlying Operating Profit 14,787 23,609 18,430 (7,507) 49,319
Share-based payments (270) (147) (429) (1,070) (1,916)
Amortisation of intangible assets (2,496) (382) (1,656) - (4,534)
Exceptional gains - 1,641 29,409 - 31,050
Exceptional costs (2,045) - - - (2,045)
Contingent consideration credit/(charge) - - 710 - 710
Operating profit / (loss) 9,976 24,721 46,464 (8,577) 72,584
Finance Income 14
Finance costs (2,709)
Profit before tax 69,889
Taxation (7,985)
Profit for the year 61,904
Balance sheet information
Segment assets - intangible 20,779 11,086 158,531 73 190,469
Segment assets - other 9,891 12,772 55,046 51,311 129,020
Total Segment assets 30,670 23,858 213,577 51,384 319,489
Total Segment liabilities (25,343) (20,621) (50,130) (5,276) (101,370)
Net assets / (liabilities) 5,327 3,237 163,447 46,108 218,119
In the year the Group sold its interests in the two joint ventures recorded in
the Estate Agency Division, results for these joint ventures are recorded to
their disposal dates. The Group acquired an interest in a joint venture in the
Financial Services Division during April 2021.
Unallocated net assets comprise intangible assets and plant and equipment
£0.1m, other assets £3.0m, cash £48.5m, accruals and other payables £3.4m,
current and deferred tax liabilities £2.1m. Unallocated result comprises
costs relating to the Parent Company.
5. Adjusted performance measures
In addition to the various performance measures defined under IFRS, the Group
reports a number of alternative performance measures that are designed to
assist with the understanding of the underlying performance of the Group. The
Group seeks to present a measure of underlying performance which is not
impacted by the inconsistency in profile of exceptional gains and exceptional
costs, contingent consideration, amortisation of intangible assets and
share-based payments. Share based payments are excluded from the underlying
performance due to the fluctuations that can impact the charge, such as lapses
and the level of annual grants.
The three adjusted measures reported by the Group are:
· Group Underlying Operating Profit
· Adjusted Basic EPS
· Adjusted diluted EPS
The amortisation of intangible assets is not considered representative of the
underlying costs of the business and is therefore excluded from adjusted
earnings.
The Directors consider that these adjusted measures shown above could help
improve the understanding of, and is a consistent indication of, the Group's
underlying performance. These measures form part of Management's internal
financial review and are contained within the monthly management information
reports reviewed by the Board.
The calculations of adjusted basic and adjusted diluted EPS are given in Note
6 to these Interim Condensed Consolidated Group Financial Statements and a
reconciliation of Group Underlying Operating Profit is shown below:
Unaudited Audited
Six months ended Year ended
30 June 31 December
2022 2021 2021
£'000 £'000 £'000
Group operating profit 8,737 26,748 72,584
Share-based payments 1,500 454 1,916
Amortisation of intangible assets 2,051 2,677 4,534
Exceptional gains - (4,311) (31,050)
Exceptional costs 2,000 1,656 2,045
Contingent consideration (credit)/charge (115) 44 (710)
Group Underlying Operating Profit 14,173 27,268 49,319
6. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the period
attributable to ordinary equity holders of the parent by the weighted average
number of Ordinary Shares outstanding during the period.
Diluted EPS amounts are calculated by dividing the net profit attributable to
ordinary equity holders of the parent by the weighted average number of
ordinary shares outstanding during the period plus the weighted average number
of ordinary shares that would be issued on the conversion of all the dilutive
potential ordinary shares into ordinary shares.
Unaudited - Six months ended 30 June
Weighted average number of shares 2022 Weighted average number of shares 2021
Profit Per share amount Profit Per share amount
after tax Pence after tax Pence
£'000 £'000
Basic EPS 5,876 103,099,292 5.7 22,566 103,691,129 21.8
Effect of dilutive share options 401,613 1,737,509
Diluted EPS 5,876 103,500,905 5.7 22,566 105,428,638 21.4
Audited - Year ended 31 December 2021
Profit Weighted 2021
after tax average number of shares Per share
£'000 amount
Pence
Basic EPS 61,941 103,912,148 59.6
Effect of dilutive share options 688,806
Diluted EPS 61,941 104,600,954 59.2
Adjusted basic and diluted EPS
The Directors consider that the adjusted earnings shown below give a better
and more consistent indication of the Group's underlying performance:
Unaudited Audited
Six months ended Year Ended
30 June 2022 30 June 2021 31 December
£'000 £'000 2021
£'000
Group Underlying Operating Profit 14,173 27,268 49,319
Loss attributable to non-controlling interest 51 21 37
Net finance costs (excluding exceptional items, contingent consideration items (549) (511) (1,047)
and discounting on lease liabilities)
Normalised taxation (tax rate 19%) (2,599) (5,084) (9,171)
Adjusted profit after tax before exceptional items, share-based payments and 11,076 21,694 39,138
amortisation
Unaudited - Six months ended 30 June
Adjusted profit after tax Weighted average number of shares 2022 Adjusted profit after tax Weighted average number of shares 2021
£'000 Per share amount £'000 Per share amount
Pence
Pence
Adjusted basic EPS 11,076 103,099,292 10.7 21,694 103,691,129 20.9
Effect of dilutive share options 401,613 1,737,509
Adjusted diluted EPS 11,076 103,500,905 10.7 21,694 105,428,638 20.6
Audited - Year ended 31 December 2021
Adjusted Weighted average number of shares 2021
profit after tax Per share amount
£'000 Pence
Adjusted basic EPS 39,138 103,912,148 37.7
Effect of dilutive share options 688,806
Adjusted diluted EPS 39,138 104,600,954 37.4
This represents adjusted profit after tax attributable to equity holders of
the parent. Tax has been adjusted to exclude the prior year tax adjustments,
and the tax impact of exceptional items, amortisation, and share-based
payments. The effective tax rate used is 19.00% (30 June 2021: 19.00% and 31
December 2021: 19.00%).
7. Exceptional items
Unaudited Audited Year ended
Six months ended
30 June 2022 30 June 2021 31 December
2021
£'000 £'000 £'000
Exceptional costs:
Impairment to subsidiary Marsh & Parsons 2,000 - -
Exceptional costs in relation to investment in joint venture - 943 1,179
Embrace Financial Services Limited restructuring project - 713 714
Dissolution and impairment of associate Mortgage Gym Limited - - 152
2,000 1,656 2,045
Exceptional costs
Goodwill Impairment:
There was an impairment review carried out which resulted in an impairment to
goodwill in relation to Marsh & Parsons.
8. Dividends paid and declared
A final dividend in respect of the year ended 31 December 2021 at 7.4 pence
per share (December 2020: £Nil) was paid in the period ended 30 June 2022.
An interim dividend has been announced amounting to 4.0 pence per share (June
2021: 4.0 pence per share). Interim dividends are recognised when paid.
9. Taxation
The major components of income tax charge in the interim Group income
statements are:
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December 2021
2022 2021
£'000 £'000 £'000
UK corporation tax:
- current year charge 1,687 3,008 7,873
- adjustment in respect of prior years - (1) (251)
1,687 3,007 7,622
Deferred tax:
Origination and reversal of temporary differences (61) (214) (179)
Adjustment in respect of prior year (18) 1 (20)
Changes in tax rates - 123 562
(79) (90) 363
Total tax charge in the income statement 1,608 2,917 7,985
The headline UK rate of corporation tax for the period is 19% (2021: 19%), and
the rate at which deferred tax has been provided is 25% (2021: 25%). The
expected impact on deferred tax balances of the rate increase is estimated to
be £(97,000).
Deferred tax charged directly to other comprehensive income relating to the
revaluation of financial assets is £nil. In the six months ended 30 June
2021 £119,000 and year ended 31 December 2021 £132,000.
10. Goodwill
£'000
Cost
At 1 January 2021 160,865
Arising on acquisitions -
At 31 December 2021 160,865
Arising on acquisitions -
Impairment (2,000)
At 30 June 2022 158,865
Net book value
At 30 June 2022 158,865
At 31 December 2021 160,865
The carrying amount of goodwill by cash generating unit is given below:
2022 2021
£'000 £'000
Financial Services
Group First 13,913 13,913
RSC New Homes 7,128 7,128
First Complete 3,998 3,998
Advance Mortgage Funding 2,604 2,604
Personal Touch Financial Services 348 348
Direct Life and Pension Services 1,002 1,002
28,993 28,993
Surveying and Valuation segment company
e.surv 9,569 9,569
Estate Agency segment companies
Your Move & Reeds Rains 58,800 58,800
Marsh & Parsons 38,307 40,307
LSLi 22,512 22,512
Templeton LPA 336 336
Others 348 348
120,303 122,303
Total 158,865 160,865
Impairment of goodwill
Goodwill has been allocated for impairment testing purposes to statutory
companies or Groups of statutory companies which are managed as one cash
generating unit as follows:
· Financial Services companies
o Group First
o RSC New Homes
o First Complete
o Advance Mortgage Funding which includes BDS
o Personal Touch Financial Services
o Direct Life and Pensions Services Limited
· Surveying and Valuation Services 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 Marsh & Parsons
o LSLi
o Templeton LPA
o St Trinity
Recoverable amount of companies
The recoverable amount of the Financial Services, Surveying and Valuation
services and Estate Agency companies has been determined based on a
value-in-use calculation using cash-flow projections based on financial
budgets approved by the Board and in the three-year plan. The discount rate
applied to cash-flow projections is 12.2% (2021: 12.2%) and cash-flows beyond
the three year plan are extrapolated using a 2.0% growth rate (2021: 2.0%).
Key assumptions used in value-in-use calculations
The calculation of value-in-use for each of the Financial Services, Surveying
and Valuation Services and Estate Agency companies is most sensitive to the
following assumptions:
· Discount rates.
· Performance in the market.
Discount rates
Reflect the Management Team's estimate of the post-tax Weighted Average Cost
of Capital (WACC) of the Group and this is grossed up to arrive at a pre-tax
discount rate (using a tax rate of 19.0%) of 12.2% (2021: 12.2%); external
advice has been sought for certain elements of the source data. This is the
benchmark used by the Management Team to assess operating performance and to
evaluate future acquisition proposals.
Performance in the market
Reflects how the Management Team believes the business will perform over the
three-year period and is used to calculate the value-in-use of the CGUs.
There has been an impairment recorded in respect of the carrying amount of
goodwill in Marsh and Parsons of £2m within the Estate Agency segment. In
consideration of trading performance, market conditions and subsequent
revisions to cash-flow forecasts, we concluded that an impairment review was
required for Marsh and Parsons. The recoverable amount, as determined by the
Value in Use, has reduced to £52.3m (December 2021: £60.4m). The carrying
value of the brand remains unchanged at £11.7m (2021: £11.7m). Refer also to
note 3 of the Financial Statements.
11. Financial assets
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2022 2021 2021
£'000 £'000 £'000
Investment in equity instruments - at fair value
Unquoted shares at fair value (FVOCI) 5,049 7,417 5,418
Unquoted shares at fair value (FVPL) 751 - -
IFRS 16 lessor financial assets 295 320 330
Total Financial Assets 6,095 7,737 5,748
Opening balance 5,748 9,561 9,561
Additions - 14 14
Fair value adjustment (OCI) (370) 443 (1,557)
Fair value adjustment (P&L) 751 - -
Disposals (34) (2,281) (2,270)
Closing balance 6,095 7,737 5,748
Non-current assets 6,095 7,737 5,748
Current assets - - -
6,095 7,737 5,748
Investment in equity instruments
The financial assets include unlisted equity instruments which are carried at
fair value. Fair value is judgemental given the assumptions required and have
been valued using a level 3 valuation techniques (see Note 32 to the December
2021 Group Financial Statements).
Vibrant Energy Matters Limited (VEM)
The carrying value of the Group's investment in VEM at 30 June 2022 has been
assessed as £729,000 (June 2021: £729,000 and December 2021: £729,000),
following a share transaction between third party shareholders which valued
LSLs holding at £729,000.
NBC Property Master Limited
The carrying value of the Group's investment at 30 June 2022 has been assessed
as £78,000 (June 2021: £78,000 and December 2021: £78,000).
Global Property Ventures Limited
On 6 January 2020, LSL acquired 76,000 additional shares in Global Property
Ventures Limited, for a consideration of £8,275.
The carrying value of the Group's investment in Global Property Ventures
Limited at 30 June 2022 has been assessed as £115,000 (June 2021: £101,000
and December 2021: £101,000).
Yopa Property Limited
The carrying value of the Group's investment in Yopa at 30 June 2022 has been
assessed as £4,125,000 (June 2021: £6,495,000 and December 2021:
£4,495,000), resulting in a £370,000 fair value reduction. The method for
valuing the Group's investment in Yopa was changed in 2021 from a market
approach to an income-based valuation. This change was made due to the
increasing age of the most recent market transaction data previously used in
the valuation, resulting in management no longer considering this to be an
appropriate basis for the valuation.
Openwork Units
During the period the fair value of units held in The Openwork Partnership LLP
was reassessed to £751,000 (31 December 2021: £nil, 30 June 2021: £nil),
recognised in other operating income.
12. Trade and other payables
Unaudited Audited Year Ended
Six Months Ended 31 December 2021
30 June 2022 30 June 2021
£'000 £'000 £'000
Current
Trade payables 10,179 9,568 8,207
Other taxes and social security payable 12,645 19,664 12,247
Other payables 2,177 3,852 3,600
Accruals 28,634 35,873 35,222
Lapse provision 4,745 4,961 4,930
58,380 73,918 64,206
Lapse Provision
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 lapse provision is
recognised as a reduction in revenue which is based on historic lapses which
have occurred. The provision is managements best estimate of future clawed
back commission on life assurance policies, taking into account historic lapse
rates in each subsidiary.
13. Financial liabilities
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December 2021
2022 2021
£'000 £'000 £'000
Current
IFRS 16 lessee financial liabilities 7,925 9,583 8,447
Deferred consideration - 30 -
Contingent consideration 2,537 1,470 76
10,462 11,083 8,523
Non-current
IFRS 16 lessee financial liabilities 17,775 21,313 19,670
Contingent consideration 313 4,365 2,932
18,088 25,678 22,602
Contingent consideration -
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December 2021
2022 2021
£'000 £'000 £'000
Group First - 1,470 -
RSC 2,537 3,786 2,615
DLPS 313 579 393
2,850 5,835 3,008
Opening balance 3,008 5,447 5,447
Cash paid (76) (302) (2,462)
Acquisition - 579 579
Amounts recorded though income statement (82) 111 (556)
Closing balance 2,850 5,835 3,008
£2,537,000 of contingent consideration relates to RSC New Homes (June 2021:
£3,786,000 and December 2021: £2,615,000). The additional consideration will
be calculated using earnings multiples of between five and six times EBITA
(plus excess cash in the business) and has been capped at a maximum of £7.5m.
£313,000 of contingent consideration relates to Direct Life and Pension
Services Limited, acquired in January 2021. The additional consideration will
be calculated using earnings multiples of between five and six times EBITA and
has been capped at a maximum of £1.5m.
In the period ending 30 June 2022 £76,000 (June 2021: £302,000 and December
2021: £2,462,000) of contingent consideration was paid to former
shareholders.
The table below shows the allocation of the contingent consideration balance
and income charge between the various categories:
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December 2021
Contingent consideration balances relating to amounts accounted for as: 2022 2021
£'000 £'000 £'000
Arrangement under IFRS 3 (115) 44 (710)
Unwinding of discount on contingent consideration 33 67 154
Charge / (credit) (82) 111 (556)
The contingent consideration charged to the Income Statement in the period
excluding the unwinding of discount relates to previous acquisitions and
relates to the acquisition of RSC New Homes credit of £92,000 (June 2021:
credit £44,000 and December 2021: credit £417,000) and Direct Life and
Pension Services credit of £23,000 (June 2021: credit £nil and December
2021: credit £248,000).
14. Analysis of Net cash
Unaudited Audited
Six Months Ended Year Ended
30 June 2022 30 June 2021 31 December 2021
£'000 £'000 £'000
Interest bearing loans and borrowings (including loan notes, overdraft, IFRS16
lease liabilities, contingent and deferred consideration
- Current 10,462 11,083 8,523
- Non-current 18,088 25,678 22,602
28,550 36,761 31,125
Less: cash and short-term deposits (30,708) (17,039) (48,464)
IFRS 16 Lessee financial liabilities (25,700) (30,896) (28,117)
Less: deferred and contingent consideration (2,850) (5,865) (3,008)
Net (cash) / Bank Debt at the end of the period (30,708) (17,039) (48,464)
15. Investments in Joint Ventures and associates
30 June 2022 31 December 2021
£'000 £'000
Investment in joint ventures and associates 2,338 1,610
Investment in joint ventures
Opening balance (1 January) 1,610 11,406
Disposal of LMS - (8,249)
Disposal of TM Group - (3,120)
Dividend received from LMS - (1,178)
Equity investment in Pivotal Growth 936 2,477
Equity accounted (loss) / profit (208) 274
Closing balance 2,338 1,610
In February 2022, the group invested a further £0.9m in Pivotal Growth and
maintains a 47.8% holding in the entity.
16. Financial Instruments
Risk management
The financial risks the Group faces, and the methods used to manage these
risks have not changed since 31 December 2021. Further details of the risk
management policies of the Group are disclosed in Note 32 of the Group's
Financial Statements for the year ended 31 December 2021.
The business is cash generative with a low level of maintenance capital
expenditure requirement. In addition, the Group's other main priority is to
generate cash to support its operations and to fund any strategic
acquisitions.
Fair values of financial assets and financial liabilities
There is no difference in the book amounts and fair values of all the Group's
financial instruments that are carried in these interim condensed consolidated
Group Financial Statements
Fair value hierarchy
As at 30 June 2022, the Group held the following financial instruments
measured at fair value. The Group uses the following hierarchy for determining
and disclosing the fair value of the financial instruments by valuation
technique:
· Level 1: quoted (unadjusted) prices in active markets for identical
assets or liabilities;
· Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable, either directly
or indirectly; and
· Level 3: techniques which use inputs which have a significant effect
on the recorded fair value that are not based on observable market data.
Unaudited - 30 June 2022 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Assets measured at fair value
Financial assets 6,095 - 751 5,344
Liabilities measured at fair value
Contingent consideration 2,851 - - 2,851
Unaudited - 30 June 2021 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Assets measured at fair value
Financial assets 7,417 - 729 6,688
Liabilities measured at fair value
Contingent consideration 5,835 - - 5,835
Audited - 31 December 2021 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Assets measured at fair value
Financial assets 5,748 - - 5,748
Liabilities measured at fair value
Contingent consideration 3,008 - - 3,008
Of the investments totalling £6,095,000, £5,344,000 are valued using Level 3
valuation techniques. The Directors reviewed the fair value of the financial
assets at 30 June 2022. The underlying value of the investments will be driven
by the profitability of these businesses. If this was to drop by 10%, the
implied valuation is likely to also drop by around 10%, approximately £0.6m.
The £751,000 uplift in Openwork Units, has been valued using Level 2
valuation techniques. The valuation is based on recent external sales between
independent 3rd parties.
The contingent consideration relates to amounts payable in the future on
acquisitions. The amounts payable are based on the amounts agreed in the
contracts and based on the future profitability of each entity acquired. In
valuing each provision, estimates have been made as to when the options are
likely to be exercised and the future profitability of the entity at this
date. Further details of these provisions are shown in Note 13.
17. Events after the reporting period
On 8 July 2022, the Group invested an additional £1.4m in its Pivotal Growth
joint venture to fund its buy and build growth strategy.
Forward-Looking Statements
This announcement contains certain statements that are forward-looking
statements. They appear in a number of places throughout this announcement and
include statements regarding our intentions, beliefs or current expectations
and those of our officers, directors and employees concerning, amongst other
things, our results of operations, financial condition, liquidity, prospects,
growth, strategies and the business we operate. 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 update should be construed as a
profit forecast. LSL and its Directors accept no liability to third parties in
respect of this update save as would arise under English law.
Any forward-looking statements in this update speak only at the date of this
document 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 document.
Definitions
Definitions for words and expressions referred to and included in this
statement which are not expressly defined within, can be found in LSL's Annual
Report and Accounts 2021 (a copy of which is available on LSL's website at:
www.lslps.co.uk (http://www.lslps.co.uk) ). All references to 'note(s)' in
this statement are, unless expressly stated otherwise, references to the
'Notes to the Interim Condensed Group Financial Statements' included in this
statement.
INDEPENDENT REVIEW REPORT TO LSL PROPERTY SERVICES PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises the Interim Group Income Statement, the Interim
Group Statement of Comprehensive Income, the Interim Group Balance Sheet, the
Interim Group Cash Flow Statement, the Interim Group Statement of Changes in
Equity and the related Notes 1 to 17. We have read the other information
contained in the half yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
Liverpool
2 August 2022
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