REG - LSL Property Svcs. - Half Year Results
27/09/2023 07:00
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RNS Number : 8106N LSL Property Services PLC 27 September 2023
27 September 2023
LSL Property Services plc ("LSL" or "Group")
HALF YEAR RESULTS TO 30 JUNE 2023
SIGNIFICANT STRATEGIC PROGRESS MADE TOWARDS CREATING A SIMPLER, HIGHER MARGIN
PLATFORM BUSINESS
LSL reports its results for the six month period ended 30 June 2023 during
which it made significant strategic progress towards creating a higher margin,
higher cash converting business that will perform more consistently through
market cycles. The Group has a strong balance sheet with a net cash position
of £36.3m at 30 June 2023, and the Board has maintained the interim dividend
at 4p per share.
David Stewart, Group Chief Executive commented:
"It has been a period of significant strategic progress to simplify the Group
and create a more focused business that will perform more consistently through
market cycles. I'm proud of how the team has worked tirelessly to reshape LSL
while navigating significant macroeconomic headwinds and thank them for their
focus and dedication - it is a significant achievement.
"During the period we have successfully executed the transition of Estate
Agency to a Franchise business. We have similarly focused our Financial
Services Division to become an exclusively business-to-business service
provider, completing the transfer of each of our direct-to-consumer businesses
to Pivotal Growth. In August, we also announced the acquisition of TenetLime,
which adds up to 278 advisers to our network, subject to FCA approval.
"Our strong balance sheet continues to provide opportunities to consider
value-enhancing M&A and invest in organic growth initiatives in our core
segments, whilst maintaining our interim dividend at 4p per share."
STRATEGIC PROGRESS
· Focusing of our Financial Services Division exclusively on
business-to-business services, reducing costs and operating a scalable
platform business
· Sale of our four direct-to-consumer financial service advice
businesses to Pivotal Growth, our joint venture with Pollen Street Capital was
completed in April 2023
· Announced acquisition of TenetLime network in August 2023, subject to
FCA approval, adding up to 278 advisers to our Financial Services network
· Conversion of entire owned estate agency network of 183 branches to
franchisees announced on 4 May 2023. LSL is now one of the leading providers
of estate agency franchise services in the UK, supplying services to a network
of over 300 branches
· Disposal of Marsh & Parsons in January 2023 for £29m gross
proceeds(1), boosting further LSL's already strong balance sheet, which at 30
June 2023 included Net Cash of £36.3m (H1 2022: £30.7m)
FINANCIAL HIGHLIGHTS
The strategic transformation of the Group means that our financial results are
less directly comparable against the same period in 2022. Our key financial
highlights are:
H1 financial metrics 2023 2022 Var
Group Revenue (£m) 72.5 110.2 (34)%
Group Underlying Operating Profit from continuing operations(2,3) (£m) 4.3 14.7 (71)%
Group Underlying Operating Profit from total operations(2,3) (£m) 3.3 14.2 (76)%
Group Underlying Operating margin (%) 3% 9% (560)bps
Exceptional Gains (£m) 8.6 - nm
Exceptional Costs (£m) (4.3) (2.0) (116)%
Group statutory operating profit (£m) 7.2 9.9 (27)%
Profit before tax (£m) 7.1 8.9 (20)%
Loss from discontinued operations(3) (42.9) (1.7) nm
Basic Earnings per Share(4) (pence) 5.0 7.3 (32)%
Adjusted Basic Earnings per Share(4) (pence) 2.7 10.7 (75)%
Net Cash(5) at 30 June (£m) 36.3 30.7 18%
Interim Dividend (pence) 4.0 4.0 -
Notes:
1 Refer to note 8 and 18 to the Financial Statements
2 Group (and Divisional) Underlying Operating Profit is
before exceptional items, contingent consideration assets & liabilities,
amortisation of intangible assets and share-based payments. Refer to note 5 of
the Financial Statements for reconciliation of Group and Divisional Underlying
Operating Profit to statutory operating (loss)/profit for continuing,
discontinued and total operations
3 Following the conversion of the entire owned estate agency
network to franchises in H1 2023, this was classified as a discontinued
operation and is now presented as such in the Financial Statements. Refer to
notes 2 and 6 to the Financial Statements
4 Refer to note 7 to the Financial Statements for the
calculation
5 Refer to note 5 to the Financial Statements for the
calculation
nm not meaningful
· Group Statutory Operating Profit was £7.2m (H1 2022: £9.9m)
· Group Underlying Operating Profit from continuing operations(1,2) was
£4.3m (H1 2022: £14.7m)
· Group Underlying Operating Profit from total operations was £3.3m
(H1 2022: £14.2m), broadly in line with our expectations as reported in the
pre-close trading update on 7 August 2023
· Group Underlying Operating Loss from discontinued operations was
£1.0m (H1 2022: £0.5m loss)
· Unallocated central costs reduced by 14% to £3.5m (H1 2022: £4.0m)
· Net Exceptional gains(3) of £4.3m were recognised during the first
half of the year, including the net gain on disposals of £7.2m partly offset
by re-structuring activity and non-recurring corporate costs of £2.9m
· Net Cash(4) of £36.3m at 30 June 2023
· Agreed new RCF of £60m, extending maturity two years to May 2026,
with existing mainstream UK lenders, providing further financial flexibility
to the Group
DIVISIONAL PERFORMANCE
Financial Services Division
· Financial Services Network business traded resiliently in difficult
market conditions and more heavily weighted than usual to product transfers,
reporting Underlying Operating Profit(2) of £5.5m (H1 2022: £7.5m)
· Performance of independent mortgage broker firms that are members of
LSL's FS Network was particularly strong, increasing share of the purchase and
remortgage market from 6.2% to 6.6%. The combined distribution of LSL's
previously owned direct-to-consumer businesses, which are now owned by Pivotal
Growth but still members of the LSL network, and LSL's mortgage club, was
stable at 3.8%. Overall share(5) of the UK purchase and remortgage market was
10.4% (H1 2022: 10.1%)
· LSL's network protection sales were robust despite the market
conditions and the squeeze on household incomes, with revenue unchanged
compared to H1 2022
· The challenging market background led to caution by network members
on adviser levels, and adviser numbers fell by 5% during the period (from
2,867 to 2,718). However, the recruitment pipeline at 30 June was the highest
since September 2021, which will benefit future periods, as will the
acquisition of TenetLime, following FCA approval
· Share of losses of Pivotal Growth was £0.2m (H1 2022: £0.2m loss),
reflecting the smaller UK mortgage market and continuing investment to build
the business. Following the transfer of LSL assets, Pivotal Growth has
achieved critical mass with over 300 advisers, the majority of which operate
within our Financial Services network
Surveying & Valuation Division
· Surveying & Valuation Division performance was impacted by
significant reductions in valuation instructions across the market due to the
interest rate environment significantly increasing the proportion and volume
of Product Transfers (which do not require a lender valuation) and the
disproportionate impact of higher interest rates on specialist markets such as
buy-to-let and equity release. As a result, Underlying Operating Profit(2)
fell to £3.4m (H1 2022: £13.1m)
· Self-help cost measures were put in place in the Surveying &
Valuation Division, including a modest reduction in the number of employed
surveyors since the year end, achieved by way of voluntary redundancy.
However, our principal focus remains to retain sufficient capacity to meet the
requirements of more normal market conditions, which means that the business
continues to carry material excess costs over the current level of demand,
with a consequent impact on profitability in H2
Estate Agency Division
· Estate Agency performance reflects the market-wide reduction of 18%
in house sales and the conversion of the 183 owned branches to franchisees
which was announced on 4 May 2023. Underlying Operating Profit from
continuing operations(1,2) for the Division was £0.6m (H1 2022: £0.4m loss).
We expect Estate Agency to report a profit in H2
· Operating margins following the strategic change have been above 25%,
with the transformation and cost programme ahead of schedule
ECONOMIC AND MARKET ENVIRONMENT
· Market conditions during H1 were challenging, with the expected
improvements in consumer confidence hindered by stubbornly high inflation and
interest rate increases
· The mortgage lending market(5) remained suppressed in H1, purchase
lending fell by 30% compared to H1 2022, while remortgage lending decreased by
21%. We estimate there was a 28% increase in product transfer cases. LSL's
total lending was 4% lower than H1 2022, reflecting an increased market share
in each of the purchase, remortgage and product transfer markets, and more
heavily weighted than usual to product transfers. LSL's share of the total
purchase and remortgage market was 10.4%(5) (H1 2022: 10.1%)
· Total market mortgage approvals(6) were 31% lower than H1 2022, with
the shift to product transfer business particularly affecting our Surveying
business. Total jobs performed by our Surveying & Valuation Division fell
by 27%, which reflects a small increase in market share(5)
· Total UK HMRC recorded transactions were 18% lower in H1 2023 at 482k
(H1 2022: 591k). Our Estate Agency national market share remained broadly flat
at 1.9%(7) (H1 2022: 2.0%)
· The unexpectedly high interest rate rise in June has been followed by
a further increase in product transfer mortgages and reduced levels of
purchase and remortgage activity. The more specialised equity release and
buy-to-let segments continue to lag materially behind 2022. The effect of
these market developments is most pronounced in Surveying, with a lesser
impact on Financial Services
OUTLOOK
As we noted in our Trading Update issued on 7 August, changes in the supply
and demand of mortgage products have had a significant impact on parts of our
business, most notably in Surveying but also Financial Services. Since then,
trading has stabilised, and the recent decision to hold base rates unchanged
is expected to provide further stability and the steadying of market
sentiment. The Board currently expects Underlying Operating Profit for FY 2023
to be in line with its expectations as revised at the time of the Trading
Update on 7 August.
The independent mortgage broker business model continues to demonstrate
resilience and agility, with LSL members increasing their share in each of the
sub-segments of the mortgage market during H1, as well as performing strongly
in protection advice. Our Estate Agency Franchise business is performing well
and is expected to contribute a profit in the second half of the year, which
represents an improvement under current market conditions when compared to our
expectations for the previous, predominantly wholly-owned model.
The Group has made significant progress to date in 2023, and although market
conditions remain challenging, our strong balance sheet gives the ability to
invest for future growth. LSL remains very well-positioned to benefit when
market conditions improve, and the Board remains confident of our
profitability over the business cycle.
H1 non-financial metrics 2023 2022 Var
UK Lending Market excl. Product Transfers (£bn) 110.5 150.6 (27)%
LSL Lending Market Share(5) 10.4% 10.1% +30bps
LSL Network Advisers at June 30 2,718 2,930 (7)%
Mortgage Approvals Market excl. AVMs ('000s) 537 776 (31)%
LSL Surveying Jobs Market Share(6) 39.4% 37.1% +230bps
LSL Operational Surveyors at June 30 510 497 3%
UK Residential Transactions ('000s)(7) 482 591 (18)%
LSL Exchanges Market Share(7) 1.9% 2.0% (10)bps
Number of operational territories 308 318 (3)%
Notes:
1 Following the conversion of the entire owned estate agency
network to franchises in H1 2023, this was classified as a discontinued
operation and is now presented as such in the Financial Statements. Refer to
notes 2 and 6 to the Financial Statements
2 Group Underlying Operating Profit is including
discontinued operations, before exceptional costs, contingent consideration
assets & liabilities, amortisation of intangible assets and share-based
payments (as set out in note 5 to the Financial Statements)
3 Refer to note 8 to the Financial Statements
4 Refer to note 5 to the Financial Statements for the
calculation
5 Mortgage lending excluding product transfers - New
mortgage lending by purpose of loan, UK (BOE) - Table MM23
6 Number of Approvals for lending secured on dwellings, BoE
via UK Finance
7 Number of residential property transaction completions
with value £40,000 or above, HMRC
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
Helen Tarbet
Simon Compton
George Beale
Buchanan 0207 466 5000 / LSL@buchanan.uk.com
Notes on LSL
LSL is one of the largest providers of services to mortgage intermediaries and
estate agent franchisees.
Its c.2,700 advisers represent around 10% of the total purchase and remortgage
market. PRIMIS was named Best Network, 300+ appointed representatives at the
2022 Mortgage Strategy Awards.
Its 61 estate agency franchisees operate in 308 territories making it one of
the leading providers of estate agency franchise services in the UK with
leading local brands.
LSL is also one of the UK's largest providers of surveying and valuation
services, supplying seven out of the ten largest lenders in the UK. e.surv
was named Best Surveying Firm at the 2022 Mortgage Finance Gazette Awards.
For further information please visit LSL's website: lslps.co.uk
(http://www.lslps.co.uk/)
GROUP CHIEF EXECUTIVE'S REVIEW
The first six months of the year mark a period of significant progress by the
Group in its transformation to a higher margin, lower capital intensity
business that will perform more consistently through market cycles. We have
delivered significant restructuring in both our Financial Services Network and
our Estate Agency Divisions which are now exclusively focused on
business-to-business services with a significantly lower cost base. We
estimate that this transformation has resulted in annual cost savings of
c.£140m.
Through this transformation, we have strengthened our balance sheet and
enhanced our financial flexibility, with disposal proceeds and put in place a
new bank facility.
Against a difficult market backdrop of rapidly increasing interest rates and
higher mortgage costs which reduced the number of housing transactions, our
financial performance was adversely affected. However, our strong financial
position will allow us to take advantage of opportunities arising from market
disruption. For example, in August we announced the acquisition of TenetLime,
subject to FCA approval, and we will continue to assess other opportunities to
grow our Financial Services Network business.
I would like to thank all my colleagues for their continued hard work and
exceptional support in the transformation of the Group.
Strategic priorities and developments
The Group has made substantial progress implementing the strategy we set out
in 2020 to simplify the business, reduce our exposure to future housing market
cycles, and focus investment on high-growth areas, notably our Financial
Services Network business.
Whilst our Estate Agency Division has successfully gained market share over
recent years, its high fixed cost base meant that it remained exposed to even
relatively small changes in the number of housing transactions, giving rise to
a cyclical business model that was constraining shareholder value.
The Board undertook a detailed review that considered a range of options and
concluded that the optimum strategy would be to convert our owned estate
agency network to franchises. Operating a franchise network offers
significant advantages, including:
· A higher-margin business with a significantly smaller fixed cost
base, resulting in improved and substantially less volatile earnings through
housing market cycles
· The continued distribution of related products and services,
including long-term provision of financial services
· The potential to grow network footprint without significant
additional investment by supporting the expansion of franchisees and
recruiting new franchisees.
· The opportunity to benefit from the entrepreneurship and agility of
independent franchisees, resulting in a more productive, flexible and
resilient business model
We decided to dispose of our Marsh & Parsons London estate agency, in view
of its size and the relatively low penetration of financial services products.
This plan was completed on 26 January 2023 when we announced its sale to
Dexters London Limited for gross proceeds of £29m(1). Marsh & Parsons
contributed an Underlying Operating Profit of £1.6m in the 2022 financial
year.
The conversion of the remaining owned estate agency network of 183 branches to
franchises was announced on 4 May 2023. This represented the culmination of
a major programme of work with the newly franchised branches being
supplemented by the existing network of 120 franchise branches, making LSL one
of the largest providers of property franchise services in the UK. The new
franchise agreements were negotiated with existing LSL franchisees and
experienced senior members of the LSL Estate Agency management team, and we
believe they are well-placed to be successful.
This programme allowed us to realise significant cost reductions immediately
with further savings to be made over time, although the net impact on 2023
Underlying Operating Profit(3) from total operations was expected to be
neutral. The recent deterioration in market conditions will increase the
advantage of the franchise model in H2. We expect the change will be accretive
to Group profits through housing market cycles from the beginning of 2024
onwards. Average operating profit margins from Estate Agency franchises since
the conversion have been over 25%.
Franchising the owned branches allows us to rationalise central functions.
These changes will continue during 2023 and 2024, delivering incremental
phased benefits. We estimate that this change in business model, combined with
the sale of Marsh & Parsons, eliminates over £110m of a cost base of
c.£125m that supported the Estate Agency Division, with the largest reduction
taking place immediately.
The first half of 2023 also saw us complete the disposal of our four
direct-to-consumer financial services brokerages: RSC, Group First, Embrace
Financial Services ("EFS") and First2Protect, to Pivotal Growth, our joint
venture. The disposal of these direct-to-consumer financial services
businesses collectively will allow us to realise further cost reductions of
c.£32m, in addition to those gained through the restructure of Estate Agency,
with a total annualised cost reduction of c.£140m.
The transfer of these businesses to Pivotal Growth continues the steps taken
to simplify the Group in line with our strategy to focus financial services
activity on business-to-business services, through LSL's PRIMIS mortgage
network through which we distribute over 10% of all new mortgages in the UK.
We also believe that Pivotal Growth is better placed to increase the value of
these businesses, whilst the transactions have substantially increased the
number of Pivotal Growth advisers and established a significant presence in
the new build and estate agency sectors and provided additional capability in
the general insurance market. LSL will retain the ability to capitalise on
opportunities in direct-to-consumer financial services through its 47.8%
equity share in Pivotal Growth.
More recently, in August 2023 we announced the acquisition of TenetLime from
the Tenet Group, subject to FCA approval, in a deal that would add up to 278
advisers working in 157 firms to our Financial Services Network business.
Alongside our strategic change activities, a significant programme of work was
also completed during H1 as part of the preparation for the implementation of
the FCA's Consumer Duty on 31 July 2023. Our teams have engaged closely with
members of the PRIMIS network and collaborated with industry bodies as part of
this delivery. The Board and relevant governance committees have also
monitored the progress of this work to ensure readiness for this
implementation. We believe that the Consumer Duty initiative will provide long
term benefits to the financial services industry as a whole, by raising
industry standards and improving customer confidence.
Following completion of these strategic projects, our Estate Agency and
Financial Services businesses are now well-placed to deliver margins that are
structurally higher than delivered historically, whilst significantly reducing
their exposure to future housing and mortgage market cycles.
Divisional Performance Review
The first half of 2023 was a period of significant change for LSL. Given the
significantly challenging economic and market backdrop, I am pleased to
confirm that the Group traded resiliently and profitably, maintaining, and
improving its position in key markets.
The restructuring activity undertaken does mean that our financial results are
less directly comparable against the same period in 2022.
Financial Services Network & Financial Services Other
The Financial Services Network business is at the heart of the Group's growth
strategy, and I am pleased to report continuing growth in market share and
resilient financial performance.
It is in more challenging market conditions that the advantages of the small
independent client-focused broker business model are best demonstrated. The
services provided by our Financial Services Network help our member firms
respond quickly to changing market conditions, by providing added-value
solutions to clients and maximising the income opportunities available.
Evidence for this can be seen in the market share gains achieved. Our advisers
increased their share of each of the purchase, remortgage and product transfer
markets, with total mortgage completion lending reducing only slightly to
£19.6bn (H1 2022: £20.5bn) whilst recording a record market share(2) of
10.4% (H1 2022: 10.1%). Also encouraging has been the robust performance in
protection cases, with the Network increasing by 1% to c.64k with average
premium also up by 2%.
The rise in mortgage rates has resulted in an increase in lower margin product
transfer cases, as lenders remain conservative with respect to new borrowers,
and this has naturally had some impact on Revenue and Profits. Financial
Services Network Revenue totalled £19.6m (H1 2022: £20.5m) and Underlying
Operating Profit(3) was £5.5m (H1 2022: £7.5m).
Financial Services Other performance was in-line with our expectations as we
continue to re-focus our Mortgage Gym and DLPS technology businesses with work
ongoing to adapt and develop their technology capability for deployment across
our Financial Services Network.
Financial Services highlights include:
· Total Financial Services Division reported revenue was £28.0m (H1
2022: £39.8m), with core Financial Services Network Revenue down 4%
year-on-year despite a significant change in market dynamics towards lower
margin Product Transfers with insurance related product revenues +1%
· Financial Services Other revenue was 56% below H1 2022. After
adjusting for disposal of the direct-to-consumer businesses, revenue in the
remaining businesses was 3% below last year
· Network Underlying Operating Profit(3) was £5.5m (H1 2022: £7.5m),
impacted by the increase in lower margin product transfers which were 48%
higher than H1 2022
· Total Financial Services Division Underlying Operating Profit(3) was
£3.8m (H1 2022: £6.1m), which included £0.6m losses within the D2C
businesses, impacted particularly by the lower purchase market, prior to their
sale to Pivotal Growth
· Total lending of £19.6bn, down 4% (H1 2022: £20.5bn) with 41% of
mortgage businesses being lower margin Product Transfers (H1 2022: 27%), the
increased proportion being driven by cost of living and affordability criteria
· Gross purchase and remortgage completion lending reduced by 23% to
£11.5bn (H1 2022: £15.1bn)
· Further increase in share of UK purchase and remortgage market to
10.4%(2) (H1 2022: 10.1%), reflecting strength of Network mortgage advisers in
remortgages
· Product transfer volumes deliver significantly lower margin than
purchase and remortgage activity, resulting in overall margin reduction, with
gross revenues generated by the Financial Services Network business (including
the TMA mortgage club) 8% lower than H1 2022 at £134.2m (H1 2022: £146.1m)
· Gross revenue per adviser(4) down 1% with completions per adviser
+16% above H1 2022 driven by the material increase in margin dilutive product
transfer volumes
· Total LSL advisers reduced by 7% to 2,718 (H1 2022: 2,930) as network
firms remained cautious about growing adviser numbers during a time of
economic and political uncertainty, instead focusing on productivity
· We expect adviser numbers to start to increase as a result of the
largest adviser pipeline at 30 June 2023 since September 2021 and the
TenetLime acquisition
Surveying & Valuation
The Surveying & Valuation market has been particularly affected by reduced
appetite on the part of lenders, with the most significant impacts being felt
in equity release and buy-to-let instructions, sectors where both supply and
demand have been reduced by the rapid rise in interest rates. I can, however,
report that the Group increased further its share of lender valuations(5),
which is a testament to the quality of service provided by our team.
Surveying & Valuation Revenue fell to £35.5m (H1 2022: £50.5m) and
Surveying & Valuation Underlying Operating Profit to £3.4m (H1 2022:
£13.1m). Self-help measures were put in place, including a modest reduction
in the number of employed surveyors. However, our principal focus remains to
retain sufficient capacity to meet the requirements of more normal market
conditions, which means that we continue to carry material excess costs over
the current level of demand, with a consequent anticipated impact on
profitability in H2.
We have identified medium-term opportunities to increase our diversification
and reduce reliance on lender valuations and our exposure to mortgage market
cycles, by growing our revenue streams from new products such as
direct-to-consumer services. H1 2023 income of £1.8m for these revenue
streams grew slightly, in difficult markets, and have increased 100% since H1
2019.
Surveying & Valuation highlights include:
· Revenue of £35.5m (H1 2022: £50.5m) was 30% down compared to prior
year, but as the half progressed, volumes strengthened, with the exit run rate
at the end of June on an upward trajectory as we increased our market share
during the period(5)
· The total number of jobs performed during the period was 212,000
which was 27% lower than in H1 2022, with Q1 36% lower and Q2 improving to 17%
lower
· Underlying Operating Profit(3) of £3.4m (H1 2022: £13.1m) with Q2
materially higher than Q1 and exiting the half with June in-line with prior
year, benefiting from improving trading and the benefit of cost actions taken
during the period
· Income per job reduced by 4% to £168 (H1 2022: £175), due to
volume within the higher margin specialist sector disproportionately impacted
by the change in market conditions
Estate Agency
The comparative performance of Estate Agency was significantly impacted by the
completion of the strategic restructuring projects during the first half of
2023. We announced on 4 May that the entire owned estate of 183 branches would
be converted to franchises. This announcement followed the disposal in January
of our London estate agent, Marsh & Parsons, for gross consideration of
£29m(1).
Trading within the business was impacted by the market-wide fall of 18% in
house sales and by the temporary disruption and additional costs arising from
the conversion of the owned branches to franchisees. Against this backdrop, we
experienced only a very small reduction in national market share(8) which
reduced slightly to 1.9% (H1 2022: 2.0%).
On a reported continuing basis, Estate Agency and Franchise business revenue
was £9.0m (H1 2022: £19.9m) and Underlying Operating Profit(3) from
continuing operations was £0.6m (H1 2022: £0.4m loss). The revenue
comparison primarily reflects the disposal of Marsh & Parsons in the
period, and the conversion of owned branches to franchises announced towards
the end of the period. Estate Agency and Franchise business revenue including
discontinued operations was £41.3m, and Underlying Operating Loss from total
Estate Agency operations was £(0.3)m (H1 2022: £1.0m loss).
Estate Agency highlights include:
· Following the conversion of 183 owned branches to franchisees LSL is
one of the leading providers of estate agency franchise services in the UK,
supplying services to a network of just over 300 branches
· Disposal of London estate agent, Marsh & Parsons, for gross
consideration of £29.0m(1)
· Annualised cost reduction of c.£110m due to disposals and
franchising of 183 branches
· Underlying Operating Profit on continuing operations(3,7) of £0.6m
(H1 2022: £0.4m loss) in a reduced purchase market with May and June c.£1m
ahead of operating profit from same period in prior year after the franchising
of the branch Network
· Estate Agency national market share(8) reduced slightly to 1.9% (H1
2022: 2.0%)
· Strong lettings performance with c.10% increase in average income per
managed property
Pivotal Growth Joint Venture
The first half of 2023 also saw us complete the disposal of our four
direct-to-consumer financial services brokerages: RSC, Group First, EFS and
First2Protect, to Pivotal Growth, our joint venture. The disposal of our
direct-to-consumer financial services businesses collectively will enable us
to realise further cost reductions of c.£32m, in addition to those gained
through the restructure of Estate Agency. Following the transfer of these
businesses, Pivotal Growth has now achieved critical mass with over 300
advisers, improving its ability to win new distribution agreements and making
it a more compelling proposition for future acquisition partners.
Strong balance sheet
Our balance sheet remains strong as at 30 June 2023, including in a Net
Cash(9) balance of £36.3m, supported by proceeds received of £35.4m during
the period for disposals made. The strength of our balance sheet together with
continuing strong cash generation over the financial year enables us to
continue to invest with confidence throughout the economic cycle. During the
remainder of 2023, we will continue to invest in capability and technology,
consider potential acquisition targets to build our Financial Services Network
business, as well as support Pivotal Growth in its acquisition of D2C
brokerages.
To provide further flexibility to our balance sheet, during February 2023 we
agreed a new banking facility with a maturity date of May 2026, arranged on
materially the same terms, replacing the previous £90m with a £60m revolving
credit facility with major mainstream UK lenders, available on request at any
time, subject to meeting drawdown requirements of the facility.
The Board will continue to actively review its capital allocation policy
considering economic conditions and the risk of further deterioration, whilst
noting the greater resilience of its restructured Group.
Dividend
The Board has considered the interim dividend considering the Group's policy
to pay out 30% of Group Underlying Operating Profit(3) after finance and
normalised tax charges, such that dividend cover is held at approximately
three times earnings over the business cycle. This policy was designed to
provide clarity to shareholders and ensure the Group retained a strong balance
sheet for all market conditions.
As part of our strategic shift and the associated rationalisation of certain
businesses such as the sales of Marsh & Parsons and First2Protect during
the period, we have built significant Net Cash balances, which at 30 June
2023, stood at £36.3m. Considering this very strong cash position and
reflecting the Board's confidence in the future prospects of the Group, the
Board has declared an interim dividend of 4.0 pence per share, unchanged from
last year.
The ex-dividend date for the interim dividend is 5 October 2023 with a record
date of 6 October 2023 and a payment date of 10 November 2023. Shareholders
can elect to reinvest their cash dividend and purchase additional shares in
LSL through a dividend reinvestment plan. The election date is 20 October
2023.
Living Responsibly
The Board is clear that success is about more than just profits and our Living
Responsibly programme is at the centre of our sustainability strategy. Put
simply, our objective is to have a positive effect on the communities in which
we operate, whether that is measured by the impact we have on the environment,
the opportunities we provide to colleagues, the way we serve our customers or
the work we undertake in our communities.
In our ESG and our Living Responsibly reports published in April 2023, we set
out some of the steps we have taken to limit our environmental impact, help
ensure LSL is a supportive and inclusive workplace, and provide support to
good causes.
It is vital that our Living Responsibly programme has real substance and is
reflected in everything we do. We are helped in achieving this by a number of
independent colleague forums and working groups which provide additional
insight in key areas. Steps taken in 2023 include the establishment of LSL
Voices, a colleague driven initiative to provide help and support to
colleagues right across the Group. Further information on this important
development is included in our Living Responsibly Report. I am grateful to the
very many colleagues who have willingly given their time and energy to support
this work. I am also pleased to report that all colleagues receive at least
the Real Living Wage.
I am equally grateful for the hard work and commitment of all our colleagues
during what has been a hugely challenging period. They have helped ensure LSL
is well-positioned to thrive in all market conditions and would like to take
this opportunity to thank them for their effort and support.
Outlook
As we noted in our Trading Update issued on 7 August, changes in the supply
and demand of mortgage products have had a significant impact on parts of our
business, most notably in Surveying but also Financial Services. Since then,
trading has stabilised, and the recent decision to hold base rates unchanged
is expected to provide further stability and the steadying of market
sentiment. The Board currently expects Underlying Operating Profit for FY 2023
to be in line with its expectations as revised at the time of the Trading
Update on 7 August.
The independent mortgage broker business model continues to demonstrate
resilience and agility, with LSL members increasing their share in each of the
sub-segments of the mortgage market during H1, as well as performing strongly
in protection advice. Our Estate Agency Franchise business is performing well
and is expected to contribute a profit in the second half of the year, which
represents an improvement under current market conditions when compared to our
expectations for the previous predominantly wholly-owned model.
The Group has made significant progress to date in 2023, and although market
conditions are more challenging than previously expected, our strong balance
sheet gives the ability to invest for future growth. LSL remains very
well-positioned to benefit when market conditions improve, and the Board
remains confident of our profitability over the business cycle.
David Stewart
Group Chief Executive Officer
26 September 2023
Notes:
1 Refer to note 8 and 18 to the Financial Statements
2 Mortgage lending excluding product transfers - New
mortgage lending by purpose of loan, UK (BOE) - Table MM23
3 Group (and Divisional) Underlying Operating Profit is
before exceptional items, contingent consideration assets & liabilities,
amortisation of intangible assets and share-based payments. Refer to note 5 of
the Financial Statements for reconciliation of Group and Divisional Underlying
Operating Profit to statutory operating (loss)/profit for continuing,
discontinued and total operations
4 Gross revenue per adviser is calculated as Financial
Services Network gross revenue (excluding the TMA mortgage club) per active
adviser
5 Number of Approvals for lending secured on dwellings, BoE
via UK Finance
6 Full Time Equivalent (FTE)
7 Following the conversion of the entire owned estate agency
network to franchisees in H1 2023, this was classified as a discontinued
operation and is now presented as such in the financial statements. Refer to
notes 2 and 6 to the Financial Statements
8 Number of residential property transaction completions
with value £40,000 or above, HMRC
9 Refer to note 5 to the Financial Statements for the
calculation
H1 P&L (£m) 2023 2022 Var
Divisional Group Revenue
Financial Services Network (net revenue) 19.6 20.5 (4)%
Financial Services Other 8.4 19.3 (56)%
Financial Services 28.0 39.8 (30)%
Surveying & Valuation 35.5 50.5 (30)%
Estate Agency 9.0 19.9 (55)%
Group Revenue 72.5 110.2 (34)%
Estate Agency - discontinued operations 32.3 50.7 (36)%
Group Revenue (incl. discontinued operations) 104.8 160.9 (35)%
Divisional Underlying Operating Profit(1)
Financial Services Network 5.5 7.5 (27)%
Financial Services Other (1.7) (1.3) (30)%
Financial Services 3.8 6.1 (38)%
Surveying & Valuation 3.4 13.1 (74)%
Estate Agency 0.6 (0.4) 248%
Unallocated Central Costs (3.5) (4.0) 14%
Group Underlying Operating Profit from continuing operations 4.3 14.7 (71)%
Estate Agency - discontinued operations (1.0) (0.5) (81)%
Group Underlying Operating Profit 3.3 14.2 (76)%
from total operations
H1 P&L (£m) 2023 2022 Var
Divisional statutory operating (loss)/profit(1)
Financial Services 9.9 4.9 103%
Surveying & Valuation 1.3 12.9 (90)%
Estate Agency (0.3) (3.1) 90%
Unallocated Central Costs (3.7) (4.7) +21%
Group statutory operating (loss)/profit 7.2 9.9 (27)%
Notes:
1 Refer to note 5 of the Financial Statements for
reconciliation of Group and Divisional Underlying Operating Profit to
statutory operating (loss)/profit
FINANCIAL REVIEW
Group Highlights
· Group Revenue from continuing operations(3) was £72.5m (H1 2022:
£110.2m) on a reported basis. After adjusting for disposals and discontinued
operations in Estate Agency, revenue was 17% below prior year in a housing
market 18% lower and in a smaller lending market. Including discontinued
operations(1) in Estate Agency, adjusted revenue was £104.8m (H1 2022:
£160.9m)
· Group Underlying Operating Profit from total operations(2) of £3.3m
includes c.£2m from losses in businesses disposed of in the period and a
cost-of-living payment for lower-paid staff. Group Underlying Operating Profit
from continued operations was £4.3m (H1 2022: £14.7m)
· Operating costs were c.30% lower in H1 compared to prior year,
exiting the period over 50% lower than prior year, reflecting an annualised
cost reduction of c.£140m following the execution of all the strategic
programmes and also very careful cost management particularly in the Surveying
& Valuation Division where headcount was reduced
· Loss on discontinued operations(3) of £42.9m (net of tax) in
relation to the previously owned network (H1 2022: £1.7m), including
exceptional restructuring costs in relation to the conversion of the Estate
Agency network (£12.7m) and write down of associated disposed goodwill
(£38.1m), offset in part by the exceptional gain on recognition of intangible
franchise agreements of £10.7m. The discontinued operations in Estate Agency
contributed an Underlying Operating Loss of £1.0m during the period
Financial Statements Review
Income Statement
Revenue & Operating profit
Group Revenue from continuing operations for the 6 months to 30 June 2023 of
£72.5m was 34% below last year (H1 2022: £110.2m) on a reported basis. Like
for like revenue(1) after adjusting for disposals and franchising of the
Estate Agency branch Network was 17% below prior year with the housing market
18% lower and a smaller lending market. Including discontinued operations in
Estate Agency, adjusted revenue was £104.8m (H1 2022: £160.9m) reflecting
the previously owned network revenues.
Group Underlying Operating Profit from total operations(2,3) for the 6 months
to 30 June 2023 of £3.3m (H1 2022: £14.2m), after charging £1.0m losses
from businesses which were disposed in the period and a one-off £0.9m cost of
living award to lower-paid staff.
On a statutory continuing basis(3), Group operating profit was £7.2m (H1
2022: £9.9m) including the net gain on disposals of £7.2m, offset in part by
£2.9m of exceptional costs primarily relating to restructuring activity and
corporate costs.
Other operating income
Total other operating income was £0.3m (H1 2022: £1.1m).
(Loss) / income from joint ventures and associates
Losses from our equity share of Pivotal Growth was £0.2m (H1 2022: £0.2m
loss).
Share-based payments
The share-based payment charge of £0.4m (H1 2022: £1.5m) consists of a
charge in the period of £1.5m, offset by lapses and adjustments for leavers
and options exercised in the period. The prior year included a higher charge
of £1.8m, offset by lower lapse and leaver adjustments.
Amortisation of intangible assets
The amortisation charge for H1 2023 was £1.0m (H1 2022: £1.4m) being
amortisation of intangible software investment and amortisation of franchise
agreements.
Exceptional items(4)
The exceptional gain of £8.6m (H1 2022: £nil) relates to the gain on
disposal during the period of the Embrace Financial Services and First2Protect
businesses to Pivotal Growth. Consideration of £9.3m was received on
completion of First2Protect, with contingent consideration to be received in
2025 for Embrace Financial Services based upon 7x 2024 EBITDA performance.
Exceptional costs of £4.3m (H1 2022: £2.0m), primarily related to
restructuring activity and corporate transaction costs of £2.9m and the net
loss on disposals of Group First, RSC and Marsh & Parsons of £1.4m.
Contingent consideration
There was £nil contingent consideration recognised in the period (H1 2022:
£0.1m).
Net finance costs
Finance income increased to £0.8m (H1 2022: £nil) resulting from increased
interest received on funds held on deposit. Net finance costs amounted to
£0.9m (H1 2022: £1.1m) and related principally to the unwinding of the IFRS
16 lease liability of £0.4m (H1 2022: £0.7m), which reduced as a result of
the disposal of Marsh & Parsons, and commitment and non-utilisation fees
on the revolving credit facility of £0.5m (H1 2022: £0.5m).
Profit before tax
Profit before tax was £7.1m (H1 2022: profit before tax of £8.9m). The
year-on-year movement is primarily due to the lower Group Underlying Operating
Profit offset in part by the net exceptional gain in the period.
Taxation
The tax charge of £2.1m (H1 2022: £1.4m) represents an effective tax rate of
29%, which is slightly higher than the headline UK tax rate of 25%. Deferred
tax assets and liabilities are measured at 25% (2022: 25%), the tax rate that
came into effect from 1 April 2023.
Discontinued operations(3)
The loss on discontinued operations of £42.9m (net of tax) (H1 2022: £1.7m),
was in relation to the previously owned Estate Agency network, including
exceptional restructuring costs in relation to the conversion of the Estate
Agency network (£12.7m) and write down of associated disposed goodwill
(£38.1m), offset by the exceptional gain on recognition of intangible
franchise agreements of £10.7m.
Earnings per Share(5)
Basic Earnings per Share from total operations was a loss of (36.8) pence (H1
2022: 5.6 pence), with diluted Earnings per Share from total operations being
a loss of (36.8) pence (H1 2022: 5.6 pence). Basic Earnings per Share from
continuing operations was 5.0 pence (H1 2022: 7.3 pence), with diluted
Earnings per Share from continuing operations of 4.9 pence (H1 2022: 7.3
pence). Basic Earnings per Share from discontinued operations was a loss of
(41.7) pence (H1 2022: loss of (1.7) pence), with diluted Earnings per Share
from continuing operations being a loss of (41.7) pence (H1 2022: loss of
(1.7) pence). The Adjusted Basic Earnings per Share from total operations was
2.7 pence (H1 2022: 10.7 pence) and adjusted diluted Earnings per Share from
total operations was 2.7 pence (H1 2022: 10.7 pence).
Balance Sheet
Goodwill(6)
The carrying value of goodwill is £16.9m (31 December 2022: £55.0m(7), H1
2022: £153.7m(7)). Following the conversion of the entire owned Estate Agency
network to franchises during the period, and its classification as a
discontinued operation, the goodwill associated with Your Move, Reeds Rains
and LSLi owned branches (£38.1m) has been disposed and reduced to £nil.
Goodwill previously included within held for sale assets of £17.3m was
disposed as part of the sales of Marsh & Parsons (£12.6m), Group First
(£3.6m) and RSC (£1.1m) which completed in January 2023.
Other intangible assets(8) and property, plant and equipment
Total capital expenditure in the first half of the year amounted to £1.6m (H1
2022: £2.2m), primarily reflecting ongoing investment in Financial Services
and Surveying, and a reduction in Estate Agency following the franchising
transformation during the period. The capital expenditure includes £1.1m in
intangible software development, particularly in Financial Services. New
intangible franchise agreements of £10.7m were recognised during the period
following the conversion of the entire owned Estate Agency network to
franchises. The fair value of all franchise agreements(7) was £12.2m at 30
June 2023 ((31 December 2022: £1.5m(7), H1 2022: £1.6m(7)).
Prior year restatements(7)
Franchising of previously owned branches
During the current period, the Group franchised its entire owned estate agency
network (183 branches). In accounting for this significant transaction, the
Group re-examined the accounting treatment that had been applied to a much
smaller transaction in H1 2019, when 39 owned estate agency branches were
franchised. The impact of this was to restate the goodwill associated with
these owned branches written down by £5.2m and to recognise a franchise
intangible of £2.1m, with the cumulative non-cash impact on retained earnings
at 1 January 2022 of £4.0m.
Adjustments to assets held for sale
At 31 December 2022 the Group reported Marsh & Parsons as held for sale.
Marsh & Parsons was written down to its fair value less cost to sell
(FVLCTS), which was calculated as the initial consideration received less
transaction costs (£28.9m). The Group has re-examined the judgements made and
has determined that an adjustment to consideration for debt-like items of
£2.0m could have been reliably estimated at 31 December 2022. Rather than
recognising this adjustment as an increase in the loss on disposal in H1 of
2023, the prior year financial information has been restated, in accordance
with IAS 8.
Financial assets and investments in joint ventures
Financial assets
Financial assets of £8.5m at 30 June 2023 (31 December 2022: £1.0m, H1 2022:
£6.1m) comprise investments in equity instruments in unlisted companies and
contingent consideration assets. The fair value of units held in The Openwork
Partnership LLP was reassessed at 30 June 2023 as £0.5m (31 December 2022:
£0.7m, H1 2022: £0.8m).
In January 2023, the Group agreed to sell its shares in Yopa for £nil
consideration, which was in line with its carrying value as at 31 December
2022.
In March 2023, the Group agreed to sell its shares in VEM for £0.2m
consideration, received on completion, which was in line with its carrying
value as at 31 December 2022.
Contingent consideration assets
During the period, the Group disposed of the Group First, RSC and EFS
businesses to Pivotal Growth, its joint venture, with contingent consideration
receivable in 2025 based upon 7x 2024 EBITDA performance. As at 30 June 2023,
this is recorded at £8.0m (31 December 2022: £nil, H1 2022: £nil).
Joint ventures
In April 2021 the Group established the Pivotal Growth joint venture and holds
a 47.8% interest at 30 June 2023. The joint venture is accounted for using the
equity method and is held on the balance sheet at £9.6m as at 30 June 2023
(31 December 2022: £5.1m, H1 2022: £2.3m), representing the Group's equity
investment in Pivotal Growth during the period, less our share of losses after
tax for the period.
Loans to franchisees
As part of the initial support provided to the new franchisees of the
previously owned Estate Agency branches, working capital loan facility
agreements were put in place, of which £1.3m had been drawn down as at 30
June 2023 (31 December 2022: £nil, 30 June 2022: £nil).
Financial liabilities
Contingent consideration liabilities
Contingent consideration liabilities at 30 June 2023 were £0.03m (31 December
2022: £2.3m, H1 2022: £2.9m). Contingent consideration liabilities relate
solely to the cost of acquiring the remaining shares in Direct Life Quote
Holdings Limited. The year-on-year reduction reflects an update to forecasts
in both RSC and Direct Life Quote Holdings Limited, and the full settlement of
the contingent consideration liability of £2.3m in RSC ahead of its disposal
in January 2023.
Bank facilities/ Liquidity
In February 2023, LSL agreed an amendment and restatement of our banking
facility, with a £60m committed revolving credit facility, and a maturity
date of May 2026, which replaced the previous £90m facility due to mature in
May 2024. The terms of the facility have remained materially the same as the
previous facility. The facility is provided by the same syndicate members as
before, namely Barclays Bank plc, NatWest Bank plc and Santander UK plc.
In arranging the banking facility, the Board took the opportunity to review
the Group's borrowing requirements, considering our strong cash position and
the Group's aim of reducing its reliance on the housing market. We therefore
reduced the size of the committed facility and the costs associated with it.
To provide further flexibility to support growth, the facility retains a £30m
accordion, to be requested by LSL at any time, subject to bank approval.
At 30 June 2023, Net Cash(9) was at a record high at a half year at £36.3m
(31 December 2022: Net Cash £40.1m, H1 2022: £30.7m), providing flexibility
to make further investments to support growth. The net decrease in cash and
cash equivalents of £3.8m during H1 2023 included further investment in
Pivotal Growth (£4.7m), capital expenditure of £1.6m (H1 2022: £2.2m),
exceptional costs in relation to divisional restructure and transformation
programmes of £3.8m and payment of the 2022 final dividend of £7.6m (H1
2021: £7.7m dividends paid) and the settlement of contingent consideration in
RSC of £2.3m ahead of its disposal to Pivotal Growth. There were reduced
corporation tax payments (£nil) as a result of the loss before tax position
(H1 2022: £4.1m). Marsh & Parsons and First2Protect businesses were sold
for net consideration received during the period of £26.1m and £9.3m
respectively, with contingent consideration for the disposals of Group First,
RSC and EFS receivable in 2025 based upon 7x 2024 EBITDA performance. Total
cash balances in the disposed businesses at the point of sale were £9.0m.
The Financial Services Network business has a regulatory capital requirement
associated with its regulated revenues. The regulatory capital requirement was
£6.1m at 30 June 2023 (31 December 2022: £5.9m, H1 2022: £5.9m), with a
surplus of £24.4m (31 December 2022: £24.9m, H1 2022: £13.4m).
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
2022.
International Accounting Standards (IAS)
The Interim Condensed Consolidated Group Financial Statements for the period
ended 30 June 2023 have been prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act
2006 and UK-adopted IAS.
Notes:
1 Like for like revenue: £66.3m in H1 2023 with statutory
revenue of £72.5m less £6.2m revenue from businesses disposed in H1 2023, as
compared to £79.5m in H1 2022 with statutory revenue of £110.2m less £30.7m
revenue from businesses disposed in H1 2023
2 Refer to note 5 of the Financial Statements for
reconciliation of Group and Divisional Underlying Operating Profit to
statutory operating (loss)/profit for continuing, discontinued and total
operations
3 Following the conversion of the entire owned Estate Agency
network to franchisees in H1 2023, this was classified as a discontinued
operation and is now presented as such in the Financial Statements. Refer to
notes 2 and 6 to the Financial Statements
4 Refer to note 8 of the Financial Statements
5 Refer to note 7 of the Financial Statements for the
calculation
6 Refer to note 12 of the Financial Statements
7 Refer to note 18 of the Financial Statements
8 Refer to note 11 of the Financial Statements
9 Refer to note 5 of the Financial Statements for the
calculation
Principal Risks and Uncertainties
The principal risks and uncertainties relating to the Group's operations
remain consistent with those disclosed on pages 25 to 28 of the Group's Annual
Report and Accounts 2022 (which can be accessed on the Group's website:
www.lslps.co.uk). Having reconsidered these principal risks and uncertainties,
the Board has concluded that these remain the same as those included within
the Annual Report and Accounts 2022.
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 2023 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
26 September 2023
26 September 2023
Interim Group Income Statement
for the six months ended 30 June 2023
Unaudited Audited
Six Months Ended
Year Ended
30 June Restated* 30 June Restated * 31 December 2022
2023
2022
Continuing operations Note £'000 £'000 £'000
Revenue 4 72,494 110,173 217,472
Operating expenses:
Employee costs (51,534) (73,616) (145,325)
Depreciation on property, plant and equipment and right-of-use assets (1,644) (3,851) (7,612)
Other operating costs (15,099) (18,868) (35,083)
Other operating income 264 1,085 1,334
Loss on sale of property, plant and equipment - (2) -
Share of post-tax loss from joint ventures and associates (167) (208) (494)
Share-based payments (377) (1,456) (1,860)
Amortisation of intangible assets (987) (1,428) (2,866)
Exceptional gains 8 8,583 - 694
Exceptional costs 8 (4,317) (2,000) (48,316)
Contingent consideration 14 1 115 696
Group operating profit/(loss) 7,217 9,944 (21,360)
Finance income 752 6 76
Finance costs (884) (1,075) (2,147)
Net finance costs (132) (1,069) (2,071)
Profit/(loss) before tax from continuing operations 7,085 8,875 (23,431)
Taxation charge 10 (2,063) (1,384) (3,020)
Profit/(loss) for the period from continuing operations 5,022 7,491 (26,451)
Discontinued operations
Loss for period from discontinued operations 6 (42,940) (1,718) (36,026)
(Loss)/profit for the period (37,918) 5,773 (62,477)
Attributable to:
Owners of the parent (37,842) 5,824 (62,384)
Non-controlling interest (76) (51) (93)
( ) ( ) (37,918) 5,773 (62,477)
( ) ( ) ( ) ( ) ( )
(Loss)/earnings per share from total operations (expressed as pence per
share):
Basic 7 (36.8) 5.6 (60.8)
Diluted 7 (36.8) 5.6 (60.8)
(Loss)/earnings per share from continuing operations (expressed as pence per
share):
Basic 7 5.0 7.3 (25.7)
Diluted 7 4.9 7.3 (25.7)
*See note 18 for details regarding the restatement.
Interim Group Statement of Comprehensive Income
for the six months ended 30 June 2023
Unaudited Audited
Six Months Ended
Year Ended
30 June Restated * Restated *
2023
30 June 31 December 2022
2022
Note £'000 £'000 £'000
Loss/(profit) for the period (37,918) 5,773 (62,477)
Items not to be reclassified to profit and loss in subsequent periods:
Revaluation of financial assets not recycled through income statement 13 (116) (370) (5,096)
Tax on revaluation (1) - 130
(117) (370) (4,966)
Total comprehensive (expense) / income, net of tax (38,035) 5,403 (67,443)
Attributable to:
Owners of the parent (37,959) 5,454 (67,350)
Non-controlling interest (76) (51) (93)
(38,035) 5,403 (67,443)
*See note 18 for details regarding the restatement.
Interim Group Balance Sheet
as at 30 June 2023
Unaudited Audited
30 June Restated * 30 June Restated*
2023
2022
31 December 2022
Note £'000 £'000 £'000
Non-current assets
Goodwill 12 16,855 153,654 54,997
Other intangible assets 11 26,010 30,389 17,280
Property, plant and equipment 6,295 33,550 15,570
Financial assets 13 8,488 6,095 1,045
Investment in sublease 2,256 - -
Investments in joint venture 16 9,582 2,338 5,068
Contract 409 521 431
assets
Loans to franchisees 13 1,335 - -
Total non-current assets 71,230 226,547 94,391
Current assets
Trade and other receivables 32,032 38,944 26,608
Contract assets 219 424 348
Investment in sublease 2,152 - -
Current tax asset - 3,499 3,063
Cash and cash equivalents 36,300 30,708 36,755
70,703 73,575 66,774
Assets held for sale - - 54,402
Total current assets 70,703 73,575 121,176
Total assets 141,933 300,122 215,567
Current liabilities
Financial liabilities 14 (3,170) (10,462) (6,949)
Trade and other payables (35,777) (58,380) (47,030)
Current tax liabilities (292) - -
Provisions for liabilities 15 (3,987) (870) (660)
(43,226) (69,712) (54,639)
Liabilities held for sale - - (21,930)
Total current liabilities (43,226) (69,712) (76,569)
Non-current liabilities
Financial liabilities 14 (5,274) (18,088) (6,277)
Deferred tax liability (2,549) (2,334) (2,392)
Provisions for liabilities 15 (6,890) (3,037) (1,695)
Total non-current liabilities (14,713) (23,459) (10,364)
Total liabilities (57,939) (93,171) (86,933)
Net assets 83,994 206,951 128,634
Equity
Share capital 210 210 210
Share premium account 5,629 5,629 5,629
Share-based payment reserve 6,264 5,830 5,331
Shares held by EBT (5,404) (6,814) (5,457)
Treasury shares (3,983) (1,767) (3,983)
Fair value reserve (385) (15,643) (20,239)
Retained earnings 81,986 219,036 146,715
Equity attributable to the owners of the parent 84,317 206,481 128,206
Non-controlling interest (323) 470 428
Total Equity 83,994 206,951 128,634
*See note 18 for details regarding the restatement.
Interim Group Cash Flow Statement
for the six months ended 30 June 2023
Unaudited Audited
Six Months Ended
Year Ended
30 June Restated * 30 June Restated* 31 December 2022
2022
2023
Note £'000 £'000 £'000
Profit / (loss) before tax from continuing operations 7,085 8,875 (23,431)
Loss before tax from discontinued operations 6 (41,647) (1,511) (34,189)
(Loss) / profit before tax (34,562) 7,364 (57,620)
Adjustments for:
Exceptional costs 44,422 2,000 87,255
Exceptional gains (8,583) - (694)
Contingent consideration (1) (115) (696)
Depreciation of tangible assets 2,794 5,871 11,629
Amortisation of intangible assets 1,389 2,120 4,249
Share-based payments 432 1,500 1,977
Loss /(profit) on disposal of fixed assets (2) 2 (8)
Loss/(profit) from joint ventures 167 208 494
Recognition of investments at fair value through the income statement 180 - (678)
Decrease in contract assets 151 - 378
Finance income (752) (6) (80)
Finance costs 994 1,310 2,497
Operating cash flows before movements in working capital 6,629 20,254 48,703
Movements in working capital
Increase in trade and other receivables (7,066) (5,653) (1,491)
(Decrease) / increase in trade and other payables (6,663) (5,486) (11,243)
Increase / (decrease) in provisions 158 (59) (799)
(13,571) (11,198) (13,533)
Cash (used in) / generated from operations (6,942) 9,056 35,170
Interest paid (244) (1,277) (2,342)
Income taxes paid 0 (4,052) (6,109)
Exceptional costs paid (3,780) - (384)
Net cash generated (used in) / generated from operating activities (10,966) 3,727 26,335
Cash flows generated from / (used in) in investing activities
Disposal of businesses, net of cash disposed 26,537 - -
Payment of contingent consideration 14 (2,280) (76) (76)
Investment in joint venture (4,681) (936) (3,952)
Proceeds from sale of financial assets 13 206 - -
Receipt of lease income 116 33 68
Purchase of property, plant and equipment and intangible assets (1,575) (2,231) (4,907)
Proceeds from sale of property, plant and equipment - 6 1,304
Franchisee loans granted (1,335) - -
Net cash generated / (expended) on investing activities 16,988 (3,204) (7,563)
Cash flows used in financing activities
Purchase of LSL shares by the EBT - (5,026) (5,026)
Purchase of treasury shares - (1,767) (3,983)
Proceeds from the exercise of share options 20 263 825
Payments of lease liabilities (2,250) (4,095) (7,170)
Dividends paid (7,601) (7,654) (11,773)
Net cash used in financing activities (9,831) (18,279) (27,127)
Net (decrease) / increase in cash and cash equivalents (3,809) (17,756) (8,355)
Cash and cash equivalents at the beginning of the period / year 40,109 48,464 48,464
Cash and cash equivalents at the end of the period / year 36,300 30,708 40,109
The closing cash and cash equivalents for the year ended 31 December 2022
includes £3.4m which is presented in assets held for sale on the Group
Balance Sheet. Total cash and cash equivalents less assets held for sale was
£36.8m.
*See note 18 for details regarding the restatement.
Interim Group Statement of changes in equity
Unaudited - for the six months ended 30 June
2023
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 2023 210 5,629 5,331 (5,457) (3,983) (20,239) 146,715 128,206 428 128,634
Other comprehensive (expense) / income for the period
Loss for the year - - - - - - (37,842) (37,842) (76) (37,918)
Revaluation of financial assets - - - - - (116) - (116) - (116)
Tax on revaluations - - - - - (1) - (1) - (1)
Total comprehensive (expense) / income for the period - - - - - (117) (37,842) (37,959) (76) (38,035)
Acquisition of subsidiary 675 675 (675) -
Exercise of options - - (43) 53 - - 10 20 - 20
Dividend paid - - - - - - (7,601) (7,601) - (7,601)
Share-based payments - - 432 - - - - 432 - 432
Tax on share-based payments - - 544 - - - - 544 - 544
Fair value reclassification following disposals - - - - - 19,971 (19,971) - - -
At 30 June 2023 210 5,629 6,264 (5,404) (3,983) (385) 81,986 84,317 (323) 83,994
During the six-month period to 30 June 2023 a total of 17,984 share options
were exercised relating to LSL's various share option schemes resulting in the
shares being sold by the Trust. LSL received £20,000 on exercise of these
options.
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
Prior year restatements (net of tax), note 18 - - - - - - (3,959) (3,959) - (3,959)
Restated total equity at the beginning of the financial period 210 5,629 5,263 (3,063) - (15,273) 220,873 213,639 521 214,160
Revaluation of financial assets - - - - - (370) - (370) - (370)
Profit for the period (restated) - - - - - - 5,824 5,824 (51) 5,773
Total comprehensive income for the period (restated) - - - - - (370) 5,824 5,454 (51) 5,403
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 (restated) 210 5,629 5,830 (6,814) (1,767) (15,643) 219,036 206,481 470 206,951
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.
Group Statement of Changes in
Equity
for the year ended 31 December 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
Prior year restatements (net of tax), note 18 - - - - - - (3,959) (3,959) - (3,959)
Restated total equity at the beginning of the financial year 210 5,629 5,263 (3,063) - (15,273) 220,873 213,639 521 214,160
Loss for the year (restated) - - - - - - (62,384) (62,384) (93) (62,477)
Revaluation of financial assets - - - - - (5,096) - (5,096) - (5,096)
Tax on revaluations - - - - - 130 - 130 - 130
Total comprehensive income for the year (restated) - - - - - (4,966) (62,384) (67,350) (93) (67,443)
Shares repurchased into treasury - - - (3,983) - - (3,983) - (3,983)
Shares repurchased into EBT - - - (5,026) - - - (5,026) - (5,026)
Exercise of options - - (1,806) 2,632 - - (1) 825 - 825
Dividend paid - - - - - - (11,773) (11,773) - (11,773)
Share-based payments - - 1,977 - - - - 1,977 - 1,977
Tax on share-based payments - - (103) - - - - (103) - (103)
At 31 December 2022 (restated) 210 5,629 5,331 (5,457) (3,983) (20,239) 146,715 128,206 428 128,634
During the year ended 31 December 2022, the Trust acquired 1,351,000 LSL
Shares. During the period, 890,146 share options were exercised relating to
LSL's various share option schemes resulting in the Shares being sold by the
Trust. LSL received £0.8m 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 2023 were approved by the LSL Board on 26 September 2023. The
interim Financial Statements are not the statutory accounts. The financial
information for the year ended 31 December 2022 is extracted from the audited
statutory accounts for the year ended 31 December 2022, which have been filed
with the Registrar of Companies. The auditor's report on those 2022 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 2023 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 2022 which are included in LSL's Annual Report and Accounts
2022. The Group's annual Financial Statements for the year ending 31 December
2023 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 cashflows generated by its trading activities and
available cash resources (30 June 2023: £36.3m). The Group's banking
facility, a £60 million committed revolving credit facility has a maturity
date of May 2026, having been amended and restated in February 2023. As shown
in Note 5 to these interim condensed consolidated Group Financial Statements,
the Group have not currently utilised the facility leaving £60 million of
available undrawn committed borrowing facilities in respect of which all
conditions precedent had been met. The facility agreement contains financial
covenants, including minimum net debt to EBITDA ratio, which mean under the
base case and downside scenarios the full facility would not be available
within the going concern period.
LSL has continued to run a variety of scenario models throughout the year to
help the ongoing assessment of risks and opportunities. The Group considered
both current trading and external reference points in developing a base case
forecast and has assumed inflation and interest rates of 5% and 5.5%
respectively in 2024. The base case forecast prudently assumes a continuation
of current trading throughout the going concern period to 31 December 2024. A
severe downside scenario has been modelled as part of the Going Concern
assessment, which includes the pessimistic assumption that there is a
significant reduction in market transaction volumes reducing below the low
point experienced during the Global Financial Crisis and in turn reducing
Group revenue by over 25%. The scenario modelling includes certain mitigating
actions, within the Group's control, however there are further cost
mitigations that could be applied in such a severe scenario. Underpinned by
LSL's strong balance sheet and multiple 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 2024 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 2024.
The Board have therefore continued to adopt the Going Concern basis in
preparing the Interim Condensed consolidated Financial Statements.
2. Significant accounting policy information
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 2022, with the exception of the following amended and new
accounting policies:
Investment in subleases (new)
In scenarios where the Group is an intermediate lessor, the sublease is
classified as a finance lease if substantially all of the risk and rewards
incidental to the ownership of the leased asset have transferred to the
sublessee, otherwise the sublease is classified as an operating lease. The
Group accounts for finance subleases by derecognising the existing
right-of-use asset at the effective date of the sublease and recognising a
receivable for the Group's net investment in the sublease, with any resultant
gain/(loss) recognised in the income statement. The net investment in the
leases equals remaining fixed payments, discounted at the interest rate
implicit in the lease. After initial recognition, the Group recognising
finance income over the remaining lease using the amortised cost method. The
net investment in sublease is subsequently reviewed for impairment under IFRS
9.
Loans to franchisees (new)
The Group issues loans to its franchisees, the Group's objective is to hold
these loans to collect contractual cash flows and the contractual cash flows
are solely payments of principal and interest. They are initially recognised
at fair value plus transaction costs that are directly attributable to their
issue, and are subsequently carried at amortised cost, less provision for
impairment.
Impairment provisions against loans to franchisees are recognised based on an
expected credit loss model. The methodology used to determine the amount of
provision is based on whether there has been a significant increase in credit
risk since initial recognition of these financial assets and is calculated by
considering the cash shortfalls that would be incurred and probability of
these cash shortfalls using the Group's model. Where a significant increase in
credit risk is identified, lifetime expected credit losses are recognised;
alternatively, if there has not been a significant increase in credit risk, a
twelve-month expected credit loss is recognised. Such provisions are recorded
in a separate allowance account with the loss being recognised within
operating expenses in the statement of comprehensive income. On confirmation
that the franchisee loan will not be collectable, the gross carrying value of
the asset is written off against the associated provision.
Gain or loss on disposal to a joint venture (new)
In circumstances where a former subsidiary is sold to a joint venture through
a downstream transaction, the Group recognises a full gain or loss in the
Income Statement, consistent with IFRS 10. The resultant gain or loss is
calculated as consideration received less the net assets of the subsidiary.
Discontinued operations (new)
The Group has classified its previously owned network of estate agency
branches as a discontinued operation for the reporting period ending 30 June
2023. A discontinued operation is a component of the Group's business, the
operations and cash flows of which can be clearly distinguished from the rest
of the Group and which:
- represent a separate major line of business or geographic area
of operations;
- is part of a single co-ordinated plan to dispose of a separate
major line of business or geographic area of operations; or
- is a subsidiary acquired exclusively with a view to resale.
Classification as a discontinued operation occurs at the earlier of disposal
or when the operation meets the criteria to be classified as held for sale.
When an operation is classified as a discontinued operation, the comparative
income statement and statement of comprehensive income are presented as if the
operation had been discontinued from the start of the earliest comparative
period disclosed.
Discontinued operations are presented in the Group Income Statement as a
single line which comprises the post-tax profit or loss of the discontinued
operation along with the post-tax gain or loss recognised on the
re-measurement to fair value less costs to sell on disposal of the assets or
disposal groups constituting discontinued operations.
Franchise intangible assets (new)
Franchise agreements entered into by the Group (as franchisor) as part of
contractual arrangements concerning the disposal of previously owned branches
are recognised as intangible assets. Franchise intangible assets are initially
recognised at fair value, level 3 and subsequently amortised on a straight
line basis over their useful economic lives, being the term of the agreement.
The agreements are being written off over a remaining life of 15 years as
based on the agreements, this is the most likely minimum term. The life of the
relationship is assessed annually. Refer to note 6 for disclosure on
assumptions and valuations inputs.
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 2022 (as disclosed
in the Group's 2022 Annual Report and Accounts) with the exception of new
sources of estimation uncertainty detailed below:
Judgements and estimates
· Exceptional items (judgement)
· Deferred tax (judgement and estimate)
· Carrying value of goodwill and intangible assets (estimate)
· Valuation of financial assets (estimate)
· Lapse provision (estimate)
· Professional Indemnity (PI) claims (estimate)
· Contingent consideration assets (estimate)
· Income tax (estimate)
· Valuation of franchise intangible assets (new)
When valuing franchise intangible assets associated with the franchising of
previously owned estate agency branches, management estimate the expected
future cash flows under the agreement and choose a suitable discount rate to
calculate the present value of those cash flows. The budgets and forecasts are
based on various assumptions relating to the future performance of franchised
branches including assumptions relating to market outlook and observable
trends. A sensitivity analysis has been performed allowing for possible
changes to assumptions in the valuation of franchise intangible assets, see
notes 6 and 18 for details.
· Dilapidation provisions (new)
When valuing dilapidation provisions the Group estimates the potential future
liability based on an average dilapidations rate per square foot or a cost
estimate provided for each property which has satisfied the Group's
recognition criteria. The future liability is then discounted to present value
based on the estimated timing of the outflow. A sensitivity analysis has been
performed allowing for possible changes to assumptions in the dilapidation
provision, see note 15 for details.
4. Segment analysis of revenue and operating profit
LSL reports three segments: Financial Services, Surveying and Valuation, and
Estate Agency:
· The Financial Services segment provides services to mortgage
intermediaries through PRIMIS, one of the UK's largest mortgage and insurance
networks, and TMA;
· The Surveying & Valuation segment provides valuations and
surveys of residential properties to UK mortgage lenders and individual
customers;
· The Estate Agency segment provides services to a network of
estate agency franchisees. The segment previously operated a network of both
owned and franchised branches before transitioning to a fully franchised model
during 2023.
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 followed by profit information regarding
the Group's operating segments for the six months ended 30 June 2023, for the
six months ended 30 June 2022 and for the year ended 31 December 2022.
Revenue by Stream:
Unaudited - Six months ended 30 June 2023
Revenue Split by Stream - Unaudited - Six Months ended 30 June 2023
Financial Services Surveying & Valuation Residential Sales exchange* (EA) Lettings* (EA) Franchise Income (EA) Asset Management (EA) Other (EA) £'000
£'000 £'000 £'000 £'000 £'000 £'000 Total
£'000
Timing of revenue recognition
Services transferred at a point in time 28,027 35,508 2,209 950 3,279 1,644 622 72,239
Services transferred over time - - - 170 - 85 - 255
Total revenue from contracts with customers 28,027 35,508 2,209 1,120 3,279 1,729 622 72,494
*Continuing operations residential and lettings revenues include Marsh &
Parsons prior to sale, and revenue from the Land & New Homes business
Unaudited - Six months ended 30 June 2022
Revenue Split by Stream - Unaudited - Six Months ended 30 June 2022
Financial Services £'000 Surveying & Valuation Residential Sales exchange (EA) Lettings (EA) Franchise Income (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 39,814 50,451 7,900 7,601 1,265 1,318 81 108,430
Services transferred over time - - - 1,150 - 593 - 1,743
Total revenue from contracts with customers 39,814 50,451 7,900 8,751 1,265 1,911 81 110,173
Audited - Year ended 31 December 2022
Revenue Split by Stream - Audited - Year ended 31 December 2022
Financial Services £'000 Surveying & Valuation Residential Sales exchange (EA) Lettings (EA) Franchise Income (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 81,681 93,228 15,532 16,876 2,656 2,811 1,201 213,985
Services transferred over time - - - 2,337 - 1,150 - 3,487
Total revenue from contracts with customers 81,681 93,228 15,532 19,213 2,656 3,961 1,201 217,472
Revenue and Operating Profit by segment:
Unaudited - Six months ended 30 June 2023
Income statement information
Financial Services Surveying
£'000 & Valuation Estate Agency Unallocated Total
£'000 £'000 £'000 £'000
Revenue from external customers 29,619 35,508 39,709 - 104,836
Introducers fee (1,592) - 1,592 - -
Total revenue 28,027 35,508 41,301 - 104,836
Discontinued operations:
Revenue from external customers - - (30,759) - (30,759)
Introducers fee - - (1,583) - (1,583)
Total revenue 28,027 35,508 8,959 - 72,494
Segmental result:
Underlying Operating Profit 3,764 3,367 643 (3,460) 4,314
Operating profit / (loss) 9,928 1,282 (261) (3,732) 7,217
Finance income 752
Finance costs (884)
Profit before tax 7,085
Loss before tax from discontinued operations (41,647)
Loss before tax (34,562)
Taxation (3,356)
Loss for the period (37,918)
Group Underlying Operating Profit is as defined in note 5 to these condensed
financial statements.
Estate Agency Unallocated Total
Surveying
Financial Services & Valuation
Balance sheet information £'000 £'000 £'000 £'000 £'000
Segment assets - intangible 11,417 11,397 19,979 71 42,864
Segment assets - other 27,194 13,329 17,982 40,564 99,069
Total Segment assets 38,611 24,726 37,961 40,635 141,933
Total Segment liabilities (12,537) (13,446) (22,600) (9,356) (57,939)
Net assets 26,074 11,280 15,361 31,279 83,994
The joint venture interests of the Group are recorded in the Financial
Services segment.
Unallocated net assets comprise other intangibles £0.1m, PPE £0.8m, cash
£36.0m, other assets £3.7m, accruals £(6.6)m, payables £(0.1)m, and
current and deferred tax £(2.7)m. Unallocated result comprises costs relating
to the Parent Company.
Unaudited - Six months ended 30 June 2022
Income statement information (restated) Financial Services Surveying Estate Agency Unallocated Total
£'000 & Valuation £'000 £'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
Discontinued operations:
Revenue from external customers - - (47,946) - (47,946)
Introducers fee - - (2,750) - (2,750)
Total revenue 39,814 50,451 19,908 - 110,173
Segmental result:
Underlying Operating Profit 6,104 13,066 (433) (4,024) 14,713
Operating profit / (loss) 4,890 12,865 (3,101) (4,710) 9,944
Finance income 6
Finance costs (1,075)
Profit before tax 8,875
Loss before tax from discontinued operations (1,511)
Profit before tax 7,364
Taxation (1,591)
Profit for the period 5,773
Surveying Unallocated Total
&Valuation
Financial Services
Estate Agency
Balance sheet information (restated) £'000 £'000 £'000 £'000 £'000
Segment assets - intangible 20,328 11,116 152,527 72 184,043
Segment assets - other 11,322 15,148 51,077 38,532 116,079
Total Segment assets 31,650 26,264 203,604 38,604 300,122
Total Segment liabilities (21,385) (20,219) (46,791) (4,776) (93,171)
Net assets 10,265 6,045 156,813 33,828 206,951
The joint venture interests of the Group are recorded in the Financial
Services segment.
Unallocated net assets comprise other intangibles £0.1m, PPE £2.8m, cash
£30.7m, other assets £1.6m, current tax £3.5m, accruals £(2.4)m, payables
£(0.1)m and deferred tax £(1.9)m. Unallocated result comprises costs
relating to the Parent Company.
Audited - Year ended 31 December 2022
Financial Services Surveying Estate Agency Unallocated Total
& Valuation
Income Statement information (restated) £'000 £'000 £'000 £'000 £'000
Revenue from external customers 87,437 93,228 141,073 - 321,738
Introducers fee (5,756) - 5,756 - -
Total revenue 81,681 93,228 146,829 - 321,738
Discontinued operations:
Revenue from external customers - - (98,680) - (98,680)
Introducers fee - - (5,586) - (5,586)
Total revenue 81,681 93,228 42,563 - 217,472
Segmental result:
Underlying Operating Profit 13,260 20,378 3,949 (7,295) 30,292
Operating profit / (loss) (6,839) 20,799 (26,822) (8,498) (21,360)
Finance Income 76
Finance costs (2,147)
Loss before tax (23,431)
Loss before tax from discontinued operations (34,189)
Loss before tax (57,620)
Taxation (4,857)
Loss for the year (62,477)
Financial Services Surveying Estate Agency Unallocated Total
& Valuation
Balance sheet information (restated) £'000 £'000 £'000 £'000 £'000
Segment assets - intangible 11,932 11,217 49,056 72 72,277
Segment assets - other 24,182 9,236 64,915 44,957 143,290
Total Segment assets 36,114 20,453 113,971 45,029 215,567
Total Segment liabilities (20,983) (14,926) (46,824) (4,200) (86,933)
Net assets 15,131 5,527 67,147 40,829 128,634
Unallocated net assets comprise intangible assets and plant and equipment
£2.0m, other assets £6.2m, cash £36.8m, accruals and other payables £2.2m,
current and deferred tax liabilities £2.0m. Unallocated result comprises
costs relating to the Parent Company.
5. Adjusted performance measures
Group and Divisional Underlying Operating Profit are alternative performance
measures (APMs) used by the Directors and Group Management to monitor
performance of operating segments against budget. It is calculated as
profit/(loss) before tax adjusted for the items set out below.
Period ended 30 June 2023
Financial Services Surveying Estate Agency Unallocated IFRS reported total from
& Valuation continuing
operations
Total including discontinued operations
Discontinued Operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Profit/(loss) before tax 10,242 1,545 (371) (4,331) 7,085 (41,647) (34,562)
Net finance cost (314) (263) 110 599 132 110 242
Operating profit/(loss) per income statement 9,928 1,282 (261) (3,732) 7,217
(41,537) (34,320)
Operating Margin 35.4% 3.6% (2.9%) - 10% (128.4)% (32.7)%
Adjustments:
Share-based payments 25 81 (2) 273 377 55 432
Amortisation of intangible assets 908 10 69 - 987 402 1,389
Exceptional gains (8,583) - - - (8,583) - (8,583)
Exceptional costs 1,486 1,994 837 - 4,317 40,105 44,422
Contingent consideration - - - (1) (1) - (1)
Underlying Operating profit/(loss) 3,764 3,367 643 (3,460) 4,314
(975) 3,339
Underlying Operating Margin 13.4% 9.5% 7.2% - 5.9% (3.0)% 3.2%
Period ended 30 June 2022
Financial Services Surveying Estate Agency Unallocated IFRS reported total from
& Valuation continuing
operations
Total including discontinued operations
Discontinued Operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Profit/(loss) before tax 4,881 12,880 (3,529) (5,357) 8,875 (1,511) 7,364
Net finance cost 9 (15) 428 647 1,069 235 1,304
Operating profit/(loss) per income statement 4,890 12,865 (3,101) (4,710) 9,944
(1,276) 8,668
Operating Margin 12.3% 25.5% (15.6%) - 9.0% (2.5)% 5.4%
Adjustments:
Share-based payments (95) 185 656 710 1,456 44 1,500
Amortisation of intangible assets 1,308 16 104 - 1,428 692 2,120
Exceptional gains - - - - - - -
Exceptional costs - - 2,000 - 2,000 - 2,000
Contingent consideration - - (92) (23) (115) - (115)
Underlying Operating profit/(loss) 6,103 13,066 (433) (4,023) 14,713
(540) 14,173
Underlying Operating Margin 15.3% 25.9% (2.2%) - 13.4% (1.1)% 8.8%
Year ended 31 December 2022
Financial Services Surveying Estate Agency Unallocated IFRS reported total from
& Valuation continuing
operations
Total including discontinued operations
Discontinued Operations
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Profit/(loss) before tax (6,843) 20,921 (27,731) (9,778) (23,431) (34,189) (57,620)
Net finance cost 4 (122) 909 1,280 2,071 346 2,417
Operating profit/(loss) per income statement (6,839) 20,799 (26,822) (8,498) (21,360) (33,843) (55,203)
Operating Margin (8.4%) 22.3% (63.0%) - (9.8%) (32.5)% (17.2)%
Adjustments:
Share-based payments 16 237 80 1,527 1,860 117 1,977
Amortisation of intangible assets 2,625 36 205 - 2,866 1,383 4,249
Exceptional gains - (694) - - (694) - (694)
Exceptional costs 17,458 - 30,858 - 48,316 38,939 87,255
Contingent consideration - - (372) (324) (696) - (696)
Underlying Operating profit/(loss) 13,260 20,378 3,949 (7,295) 30,292
6,596 36,888
Underlying Operating Margin 16.2% 21.9% 9.3% - 13.9% 6.3% 11.5%
In reporting financial information, the Group presents APMs which are not
defined or specified under the requirements of IFRS. The Group believes that
the presentation of APMs provides stakeholders with additional helpful
information on the performance of the business but does not consider them to
be a substitute for or superior to IFRS measures. Definitions and
reconciliations of the financial APMs used in IFRS measures, are included
below.
The Group reports the following APMs:
a) Group and Divisional Underlying Operating Profit
Underling Operating Profit represents the profit/(loss) before tax for the
period before net finance cost, share-based payments, amortisation of
intangible assets, exceptional items and contingent assets and liabilities.
This is the measure reported to the Directors as it considered to give a
better and more consistent indication of both Group and Divisional underlying
performance.
The closest equivalent IFRS measure Underlying Operating Profit is
profit/(loss) before tax. Refer to note 5 for a reconciliation between
profit/(loss) before tax and Group and Divisional Underlying Operating Profit.
b) Group and Divisional Underlying Operating Margin
Underlying Operating Margin is defined as Underlying Operating Profit divided
by revenue. Refer note to 5 for the calculation of both Group and Divisional
Underling Operating Margin. The closest equivalent IFRS measure to Underlying
Operating Margin is Operating Margin, refer to note 5 for a reconciliation
between Operating Margin and Group Underlying Operating Margin.
c) Adjusted basic earnings per share, adjusted diluted earnings per
share and adjusted profit after tax
Adjusted basic earnings per share is defined as Group Underlying Operating
Profit adjusted for profit/(loss) attributed to non-controlling interests, net
finance cost (excluding exceptional and contingent consideration items and
discounting on leases) less normalised tax (to arrive at adjusted profit after
tax), divided by the weighted average number of shares in issue during the
financial period. The effect of potentially dilutive ordinary shares is
incorporated into the diluted measure.
The closest equivalent IFRS measures are basic and diluted earnings per share.
Refer to note 7 for a reconciliation between earnings/(loss) per share and
adjusted earnings per share.
d) Adjusted operating expenditure
Adjusted operating expenditure is defined as the total of employee costs,
depreciation on property, plant and equipment and other operating costs and is
considered to give a better and more consistent indication of the Group's
underlying operating expenditure.
30 June 2023 30 June 2022 31 December2022
£'000 £'000 £'000
Total operating expenditure (65,277) (100,229) (238,832)
Add back:
Other operating income (264) (1,085) (1,334)
Gain/(loss) on sale of property, plant and equipment - 2 -
Share of post-tax (loss)/profit from joint ventures and associates 167 208 494
Share-based payments 377 1,456 1,860
Amortisation of intangible assets 987 1,428 2,866
Exceptional gains (8,583) - (694)
Exceptional costs 4,317 2,000 48,316
Contingent consideration (1) (115) (696)
Adjusted operating expenditure from continuing operations (68,277) (96,335) (188,020)
Discontinued operations (33,320) (51,236) (97,678)
Adjusted operating expenditure (101,597) (147,571) (285,698)
e) Net cash/debt
Net cash/ debt is defined as current and non-current borrowings, less cash on
short term deposits, IFRS 16 financial liabilities, deferred and contingent
consideration and where applicable cash held for sale.
30 June 2023 30 June 2022 31 December 2022
Net Cash:
£'000 £'000 £'000
Interest-bearing loans and borrowings (including loan notes, overdraft, IFRS
16 Leases, contingent and deferred consideration)
- Current 3,170 10,462 6,949
- Non-current 5,274 18,088 6,277
8,444 28,550 13,226
Less: cash and short term deposits (36,300) (30,708) (36,755)
Less: IFRS 16 lessee financial liabilities (8,412) (25,700) (10,915)
Less: deferred and contingent consideration (32) (2,851) (2,311)
Less: cash included in held for sale - - (3,355)
Net Cash (36,300) (30,709) (40,110)
6. Discontinued operations
On 4 May 2023, the Group announced that its entire owned estate agency network
of 183 branches would become franchises. The operations of the previously
owned network were franchised to a combination of new and existing franchisees
between 4 May and 31 May. The operations of the branches were sold to the
franchisees through either asset or share sales.
Following completion of these franchise agreements, LSL became one of the
largest providers of estate agency franchise services in the UK, supplying
services to a network of just over 300 branches. The Group previously operated
both franchised and owned branch business models, and by disposing of all
owned branches the Group now no longer operates as a principal in an estate
agency business and has changed to solely operating as the franchisor of
estate agents.
The disposal of the remaining owned estate agency network meets the definition
of a discontinued operation because it was a component of the Group. Further,
the owned estate agency network constituted a separate major line of business
which has been discontinued.
At 30 June 2023, the owned branch network of estate agencies was classified as
a discontinued operation and presented as such within the financial
statements. The financial performance and cash flow information presented here
are for the five months ended 31 May 2023, the six months ended 30 June 2022
and year ended 31 December 2023.
Financial performance and cash flow information
Period ended 30 June For the year ended 31 December
2023 2022 2022
£'000 £'000 £'000
Revenue 32,342 50,696 104,266
Operating expenses:
Employee and subcontractor costs (20,660) (31,235) (61,244)
Depreciation on property, plant and equipment (1,150) (2,020) (4,017)
Other operating costs (11,509) (17,981) (32,417)
(Loss) / gain on sale of property, plant and equipment 2 - 8
Share-based payments (55) (44) (117)
Amortisation of intangible assets (402) (692) (1,383)
Exceptional costs* (6,097) - (38,939)
Group operating (loss)/profit (7,529) (1,276) (33,843)
Finance income - - 4
Finance costs (110) (235) (350)
Net finance costs (110) (235) (346)
Loss before tax (7,639) (1,511) (34,189)
Taxation credit/(charge) (1,255) (207) (1,837)
Loss for the year (8,894) (1,718) (36,026)
Loss on sale of discontinued operation (34,008)
Attributable tax expense (38)
Loss on sale of discontinued operation (34,046)
Loss after tax for the period from discontinued operation (42,940)
The net cash flows generated/(incurred) by discontinued operations are, as
follows:
Period ended 30 June For the year ended 31 December
2023 2022 2022
£'000 £'000 £'000
Operating (1,973) (639) 7,087
Investing (122) (399) (672)
Financing (935) (1,590) (2,887)
Net cash inflow/(outflow) (3,030) (2,628) 3,528
Loss on disposal
Details of the sale of the operations:
Period ended 30 June
2023
£'000
Consideration received or receivable:
Cash 144
Franchise intangible 10,707
Directly attributable costs (2,587)
Total disposal consideration 8,264
Carrying amount of net assets sold (42,272)
Loss on sale before tax (34,008)
Tax (38)
Loss on sale after tax (34,046)
The net cash flows generated from the of discontinued operations are, as £'000
follows:
Cash received from sale of the discontinued operations 144
Cash sold as a part of discontinued operations (693)
Disposal costs paid (153)
Net cash outflow on date of disposal (702)
The total disposal consideration recognised includes cash of £0.1m, a
franchise intangible asset of £10.7m, less directly attributable costs of
£2.6m. A franchise intangible asset of £10.7m has been calculated using
expected future cash flows that will be generated from the agreement,
discounted using a post-tax discount rate of 11.8%. A term of 15 years has
been applied to the cash flows, consistent with managements estimate of most
likely minimum term per the franchise agreement. Market growth assumptions
have been applied to 2024 and 2025, with a long-term growth rate of 2.0%
applied thereafter.
The directly attributable costs incurred of £2.6m, including legal, advisory
and support costs of £1.2m (of which £0.9m relates to a provision for the
novation of property leases to new franchisees) and committed branch works
costs of £1.0m, plus other provisions of £0.2m.
The carrying amount of net assets sold relates mostly to the goodwill
associated with Your Move and Reeds Rains (£15.3m), LSLi (£22.5m) and other
(£0.3m). The entire balance of goodwill held by Your Move and Reeds Rains and
LSLi and other related to the owned branch network and has therefore been
disposed of as part of the transition to a fully franchised business model.
The loss also included the disposal of assets with a net book value of £1.9m
and lettings contracts of £1.2m relating to asset sales and net assets of
£0.5m associated with share sales.
*Restated - refer to note 18
Franchise intangible - sensitivity analysis
The fair value of franchise intangible assets are calculated based on a
discounted future cash flow model, the cash flows are based on management's
future assumptions of franchise performance and considers market outlook and
observable trends. If the discount rate was to be increased by 1%, this would
result in a decrease in the asset of £0.6m, similar if the rate was to
decrease by 1%, this would result in an increase in the franchise intangible
of the same amount. If the net cash flows from future franchise operations
were to decrease by 10% this would result in a reduction in the asset of
£1.1m, if they were to increase by 10% this would result in a increase in the
value of the same amount. A reasonable change in the long-term growth rate
would not result in a material difference to the value of the franchise
intangible.
Exceptional costs
Period ended Audited Year ended
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Exceptional costs:
Estate Agency restructuring costs 6,097 - 632
Goodwill and intangible asset impairment* - - 38,307
6,097 - 38,939
Estate Agency restructuring costs
The Group has provided for future dilapidation costs of £4.4m related to
previously owned branches, consistent with the recognition criteria per the
Group's accounting policy, please refer to note 15 for detail of how the
provision has been calculated. The other costs incurred are redundancy and
office closure costs totalling £1.8m offset by a gain of £0.4m recognised on
derecognition of the right-of-use for previously owned branches and
recognition of investment in sublease.
Investment in sublease
As part of franchising the Group's remaining owned estate agency branches,
where the Group has disposed of a branch through an asset sale it has become
the intermediate lessor, maintaining the head lease with original lessor, and
entering a sublease with the franchisee until the headlease transfers or
expires.
The Group, in its capacity as lessor, has determined that the subleases with
franchisees are finance leases and on the commencement date of the sublease,
the Group has derecognised the right-of-use assets previously associated with
these leases and has recognised a net investment in the sublease.
7. 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.
Total EPS:
Unaudited - Six months ended 30 June
Weighted average number of shares 2023 Weighted average number of shares 2022
Loss after tax Per share amount Profit Per share amount
£'000 Pence after tax (restated) Pence (restated)
£'000
Basic EPS (37,842) 102,937,398 (36.8) 5,824 103,099,292 5.6
Effect of dilutive share options - 401,613
Diluted EPS (37,842) 102,937,398 (36.8) 5,824 103,500,905 5.6
Audited - Year ended 31 December 2022
Loss Weighted 2022
after tax (restated) average number of shares Per share
£'000 Amount (restated)
Pence
Basic EPS (62,384) 102,659,027 (60.8)
Effect of dilutive share options -
Diluted EPS (62,384) 102,659,027 (60.8)
Total EPS from continuing operations:
Unaudited - Six months ended 30 June
Weighted average number of shares 2023 Weighted average number of shares 2022
Profit after tax Per share amount Profit Per share amount
£'000 Pence after tax Pence
£'000
Basic EPS 5,098 102,937,398 5.0 7,542 103,099,292 7.3
Effect of dilutive share options 1,250,962 401,613
Diluted EPS 5,098 104,188,360 4.9 7,542 103,500,905 7.3
Audited - Year ended 31 December 2022
Loss Weighted 2022
after tax average number of shares Per share
£'000 (restated) amount
Pence (restated)
Basic EPS (26,358) 102,659,027 (25.7)
Effect of dilutive share options -
Diluted EPS (26,358) 102,659,027 (25.7)
Total EPS from discontinued operations:
Unaudited - Six months ended 30 June
Weighted average number of shares 2023 Weighted average number of shares 2022
Loss after tax Per share amount Loss Per share amount
£'000 Pence after tax Pence
£'000
Basic EPS (42,940) 102,937,398 (41.7) (1,718) 103,099,292 (1.7)
Effect of dilutive share options
Diluted EPS (42,940) 102,937,398 (41.7) (1,718) 103,099,292 (1.7)
Audited - Year ended 31 December 2022
Loss Weighted 2022
after tax average number of shares Per share
£'000 (restated) amount
Pence (restated)
Basic EPS (36,026) 102,659,027 (35.1)
Effect of dilutive share options -
Diluted EPS (36,026) 102,659,027 (35.1)
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 2023 30 June 2022 31 December
£'000 £'000 2022
£'000
Group Underlying Operating Profit from total operations 3,339 14,173 36,888
Loss attributable to non-controlling interest 76 51 93
Net finance costs (excluding exceptional items, contingent consideration items 203 (549) (968)
and discounting on lease liabilities)
Normalised taxation (tax rate 23.5% (2022: 19%)) (850) (2,599) (6,843)
Adjusted profit after tax before exceptional items, share-based payments and 2,768 11,076 29,170
amortisation
Unaudited - Six months ended 30 June
Adjusted profit after tax Weighted average number of shares 2023 Adjusted profit after tax Weighted average number of shares 2022
£'000 Per share amount £'000 Per share amount
Pence
Pence
Adjusted basic EPS 2,768 102,937,398 2.7 11,076 103,099,292 10.7
Effect of dilutive share options - 1,250,962 401,613
Adjusted diluted EPS 2,768 104,188,360 2.7 11,076 103,500,905 10.7
Audited - Year ended 31 December 2022
Adjusted Weighted average number of shares 2022
profit after tax Per share amount
£'000 Pence
Adjusted basic EPS 29,170 102,659,027 28.4
Effect of dilutive share options 1,275,216
Adjusted diluted EPS 29,170 103,934,243 28.1
This represents adjusted profit after tax attributable to equity holders of
the parent. Tax has been adjusted to exclude the prior year tax adjustments,
and the tax impact of exceptional items, amortisation, and share-based
payments. The effective tax rate used is 23.5% (30 June 2022: 19.00% and 31
December 2022: 19.00%).
8. Exceptional items
Unaudited Audited Year ended
Six months ended
30 June 2023 30 June 31 December
2022 2022
£'000 £'000 £'000
Exceptional costs:
Estate Agency restructuring costs - - 1,108
Surveying restructuring costs 1,993 - -
Financial Services restructuring costs 906 - -
Loss on sale of disposal groups 1,418 - -
Goodwill and intangible asset impairment - 2,000 47,208
4,317 2,000 48,316
Exceptional gains:
Gain on sale of disposal groups 8,583 - -
Exceptional gain in relation to historic PI costs - - 694
8,583 - 694
Gain or Loss on sale of disposal groups
Group First RSC M&P EFS F2P Total
£'000 £'000 £'000 £'000 £'000 £'000
Goodwill 3,638 1,064 10,557 - 15,259
-
Other Intangible assets 396 43 12,070 - 12,970
461
Property, plant and equipment and RoU assets 294 71 15,704 57 16,427
301
Trade and other receivables 231 220 6,332 462 8,138
893
Bank balances and cash 1,438 986 1,494 2,652 8,303
1,733
Deferred tax asset/(liability) 14 14 47 - 72
(3)
Current tax asset/(liability) (379) (197) 94 171 (639)
(328)
Trade and other payables (846) (663) (4,928) (3,115) (9,982)
(430)
Financial Liabilities - (74) (14,668) - (15,017)
(275)
Net assets disposed 4,786 1,464 26,702 227 35,531
2,352
Consideration
Cash and cash equivalents - - 26,100 - 35,389
9,289
Deferred consideration 4,367 1,454 - 2,404 8,225
-
Disposal costs (75) (75) (230) (501) (912)
(31)
Total consideration (less transaction costs) 4,292 1,379 25,870 1,903 9,258 42,702
Gain/loss on disposal (494) (85) (832) 1,676 7,171
6,906
Net cash inflow arising on disposal:
Consideration received in cash and cash equivalents - - 26,100 - 35,389
9,289
Less: cash and cash equivalents disposed (1,438) (986) (1,494) (2,652) (8,303)
(1,733)
Less: disposal costs paid (75) (75) (230) (496) (907)
(31)
Cash inflow/(outflow) (1,513) (1,061) 24,376 (3,148) 26,179
7,525
Exceptional costs:
Estate Agency restructuring costs
The costs incurred as a result of estate agency restructuring during 2023 are
included within discontinued operations. The costs included in continuing
operations in 2022 relate to the closure of branches in Marsh & Parsons.
Surveying & Valuation restructuring costs
The Group initiated a restructuring program in response to the difficult
market conditions which followed the UK mini-budget Q3 2022. The exceptional
costs related to redundancy costs £1.8m and office closure costs £0.2m.
Financial Services restructuring costs
Financial Services restructuring costs relate to corporate activity.
Loss on sale of disposal groups
The loss on disposal groups relates to the sale of Marsh & Parsons, Group
First and RSC during January 2023.
Group First & RSC
The Group announced the sale of Group First and RSC on 13 January 2023 to
Pivotal Growth for consideration payable of 7x the combined Group First and
RSC EBITDA in calendar year 2024, subject to working capital adjustments,
capped at a maximum of £20m. Group First & RSC were classified as held
for sale at 31 December 2022 and were written down to their fair value less
cost to sell (FVLCTS) of £5.3m, calculated as the present value of
consideration receivable less costs to dispose. The Group recognised losses on
the disposal of Group First and RSC of £0.5m and £0.1m respectively as a
result of adverse working capital adjustments during the period 1 January 2023
to 13 January 2023 and an update to expected consideration of £0.3m.
Marsh & Parsons
The Group announced the sale of Marsh & Parsons on 26 January 2023 to
Dexters for an initial consideration of £29.0m, subject to adjustments for
working capital and debt-like items. Marsh & Parsons was classified as
held for sale at 31 December 2022 and was written down to its fair value less
cost to sell (FVLCTS) of £26.9m*, calculated as consideration received
(£29.0m), less estimated adjustments for debt-like items (£2.0m) and costs
to sell (£0.1m). A loss on disposal of £0.8m has been recognised at 30 June
2023 and this is a result of adverse working capital movements during the
period 1 January 2023 to 26 January 2023 of £0.3m and an additional
adjustments to consideration of £0.3m.
*Restated - refer to note 18
Exceptional gains:
Gain on sale of disposal groups
On 11 April 2023, the Group announced the disposal of two further
subsidiaries, Embrace Financial Services ("EFS") and First2Protect (F2P) to
Pivotal Growth. The consideration payable for EFS will be 7x the EBITDA in
calendar year 2024, subject to working capital adjustments, capped at a
maximum of £10m and payable in H1 2025. The consideration for F2P was £7.8m.
The Group recognised a on gain disposal of EFS and F2P of £2.1m and £6.9m
respectively. This EFS gain has been calculated as contingent consideration of
£2.4m less transaction costs of £0.05m and net assets disposed of £0.3m.
The gain recognised on F2P has been calculated as consideration received of
£9.3m, less transaction costs of £0.05m and net assets disposed of £2.3m.
9. Dividends paid and declared
A final dividend in respect of the year ended 31 December 2022 at 7.4 pence
per share (December 2021: £7.4 pence per share) was paid in the period ended
30 June 2023. An interim dividend has been announced amounting to 4.0 pence
per share (June 2022: 4.0 pence per share). Interim dividends are recognised
when paid.
10. 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 2022
2023 2022
£'000 £'000 £'000
UK corporation tax:
- current year charge 4,661 1,480 3,959
- adjustment in respect of prior years - - (788)
4,661 1,480 3,171
Deferred tax:
Origination and reversal of temporary differences (2,024) (78) (218)
Adjustment in respect of prior year - (18) 126
Changes in tax rates (574) - (59)
Deferred tax disposed of - - -
(2,598) (96) (151)
Total tax charge in the income statement 2,063 1,384 3,020
The headline UK rate of corporation tax for the period is 23.5% (2022: 19%),
and the rate at which deferred tax has been provided is 25% (2022: 25%). The
expected impact on deferred tax balances of the rate increase is estimated to
be £(0.1)m.
Deferred tax charged directly to other comprehensive income relating to the
revaluation of financial assets is £nil. In the six months ended 30 June
2022 £nil and year ended 31 December 2022 credit of £0.1m.
During the period the Group franchised its owned branches. An intangible asset
of £10.7m has been recognised in relation to the Franchise agreement. This
has resulted in a deferred tax liability of £2.7m being recognised in the
period. In addition, the 2022 accounts have been restated to recognise an
intangible asset of £1.5m in relation to owned branches which were franchised
in 2019. This has resulted in a deferred tax liability of £0.4m being
recognised.
11. Other intangible assets
Brand Customer contracts Lettings Franchise agreements Total
names contracts Software
£'000 £'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2022 19,265 625 21,770 22,558 - 64,218
Additions - - - 2,881 - 2,881
Reclassified as HFS (12,163) - - (1,128) - (13,291)
Disposals - - - - - -
At December 2022 (as previously reported) 7,102 625 21,770 24,311 - 53,808
Restated - - - - 2,059 2,059
At January 2023 (Restated) 7,102 625 21,770 24,311 2,059 55,867
Additions - - - 1,068 10,707 11,775
Disposals - - (21,770) - - (21,770)
Reclassified as held for sale - - - (493) - (493)
At 30 June 2023 7,102 625 - 24,886 12,766 45,379
Amortisation and impairment
At 1 January 2022 191 286 19,037 15,100 - 34,614
Amortisation - 313 1,163 2,636 - 4,112
Other Intangible Impairment - - - 117 - 117
Reclassified as HFS - - - (782) - (782)
At December 2022 (previously reported) 191 599 20,200 17,071 - 38,061
Restated 526 526
At 1 January 2023 (restated) 191 599 20,200 17,071 526 38,587
Amortisation - 26 283 1,011 69 1,389
Held for Sale Adjustment - - - (115) - (115)
Disposals - - (20,483) (9) - (20,492)
At 30 June 2023 191 625 - 17,958 595 19,369
Net book value
At 30 June 2023 6,911 - - 6,928 12,171 26,010
At 31 December 2022 (previously reported) 6,911 26 1,570 7,240 - 15,747
At 31 December 2022 (restated) 6,911 26 1,570 7,240 1,533 17,280
Other intangible assets have been restated to include £1.5m of intangible
assets associated with franchise agreement, refer to note 18 for further
information. Further franchise intangible assets (£10.7m) have been
recognised during H1 relating to the Group's remaining owned estate agency
branch network, refer to note 6 for detail of how the franchise intangibles
recognised have been valued.
12. Goodwill
£'000
Cost 160,865
At 1 January 2022 (As previously reported)
Restatement (5,211)
At 1 January 2022 (restated) 155,654
Impairment (restated) (83,363)
Reclassified as HFS (17,294)
At 31 December 2022 (restated) 54,997
Disposed (38,142)
At 30 June 2023 16,855
Net book value
At 30 June 2023 16,855
At 31 December 2022 (restated) 54,997
The carrying amount of goodwill by cash generating unit is given below:
2023 (Restated)
2022
£'000 £'000
Financial Services
Group First - -
RSC New Homes - -
First Complete 3,998 3,998
Advance Mortgage Funding 2,604 2,604
Personal Touch Financial Services 348 348
Direct Life and Pension Services - -
6,950 6,950
Surveying and Valuation segment company
e.surv 9,569 9,569
Estate Agency segment companies
Your Move & Reeds Rains (restated) - 15,282
Marsh & Parsons - -
LSLi - 22,512
Templeton LPA 336 336
Others - 348
336 38,478
Total 16,855 54,997
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 First Complete
o Advance Mortgage Funding
o Personal Touch Financial Services
o Direct Life and Pensions Services Limited
· Surveying & Valuation company
o e.surv
· Estate Agency companies
o Templeton LPA
During the period to 30 June 2023, goodwill associated with Your Move, Reeds
Rains, LSLi and other (£38.1m) has been disposed and reduced to nil. Goodwill
previously included within held for sale assets of £17.3m was disposed as
part of the sales of Marsh & Parsons (£12.6m), Group First (£3.6m) and
RSC (£1.1m) which completed in January 2023.
The remaining goodwill balance of £16.9m relates primarily to the Surveying
(£9.6m) and Financial Services (£7.0m) divisions, with a small amount
remaining in Estate Agency. The recoverable amount of the Surveying Financial
Services and Estate Agency companies has been determined based on financial
budgets approved by the Board and in the three-year plan. The discount rate
applied to cash-flow projections is 15.6% for Financial Services and Surveying
(December 2022: 14.2%) and 15.8% for Estate Agency (December 2022: 14.2%), on
a pre-tax basis and cash-flows beyond the three-year plan are extrapolated
using a 2.0% growth rate (2022: 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 Management's experts 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 25.0%) of 15.6%-15.8% (2022: 14.2% -
applied to all CGUs).
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.
13. Financial assets
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Investment in equity instruments - at fair value
Unquoted shares at fair value (FVOCI) - 5,049 322
Unquoted shares at fair value (FVPL) 498 751 678
IFRS 16 lessor financial assets 7 295 45
Contingent consideration receivable 7,983 - -
Loans to franchisees 1,335 - -
Total Financial Assets 9.823 6,095 1,045
Opening balance 1,045 5,748 5,748
Additions 9,560 - 678
Fair value adjustment (OCI) (116) (370) (5,096)
Fair value adjustment (P&L) (460) 751 (68)
Disposals (206) (34) (217)
Closing balance 9,823 6,095 1,045
Non-current assets 9,823 6,095 1,045
Current assets - - -
9,823 6,095 1,045
Contingent Consideration Receivable
£4.2m and £1.4m of contingent consideration relates to Group First and RSC
New Homes respectively, which were both sold in January 2023. The
consideration payable will be 7x the combined Group First and RSC EBITDA in
calendar year 2024, subject to working capital adjustments, capped at a
maximum of £20m and payable in H1 2025.
£2.4m of contingent consideration relates to EFS, which was sold in April
2023. The consideration payable for EFS will be 7x the EBITDA in calendar year
2024, subject to working capital adjustments, capped at a maximum of £10m and
payable in H1 2025. All three entities were sold to the Group's joint venture,
Pivotal Growth Limited.
The value of the contingent consideration receivable has been calculated for
each of the three disposals noted above based on forecast profitability in
calendar year 2024, discounted at 15.7% (the Group weighted average cost of
capital). The future cash flow and discount rate assumptions are key to the
calculation, if FY24 profitability was to reduce by 10% this would result in a
reduction in the receivable of £0.7m, if profitability was to increase, this
would result in an increase in the receivable of the same amount. If the
discount rate was to increase by 1%, the receivable would decrease by £0.1m,
and if the discount rate was to reduce by 1%, this would result in an increase
in the receivable of the same amount.
Loans to franchisees
The franchisee loans reflect drawdowns on agreed facilities which have
availability over a range of periods from 31 December 2024 to 31 December
2025, are repayable in full within 24 months from the respective period end
and bear interest at 8.5%.
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
2022 Group Financial Statements).
Vibrant Energy Matters Limited (VEM)
LSL sold the shareholding of VEM in H1 2023 for £206,000, which was the
carrying value at 31 December 2022 (June 2022: £729,000)
NBC Property Master Limited
The carrying value of the Group's investment at 30 June 2022 has been assessed
as £nil (June 2022: £78,000 and December 2022: £nil).
Global Property Ventures Limited
The carrying value of the Group's investment in Global Property Ventures
Limited at 30 June 2023 has been assessed as £nil (June 2022: £0.1m and
December 2022: £0.1m).
Yopa Property Limited
During H1, the Group sold its shares in Yopa for £nil consideration based on
third party valuations provided to the existing shareholders. (June 2022:
£4.1m and December 2022: £nil).
Openwork Units
The carrying value of the units held in The Openwork Partnership LLP was
reassessed as £498,000 (31 December 2022: £678,000, 30 June 2022:
£751,000).
14. Financial liabilities
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December 2022
2023 2022
£'000 £'000 £'000
Current
IFRS 16 lessee financial liabilities 3,170 7,925 4,669
Contingent consideration liabilities - 2,537 2,280
3,170 10,462 6,949
Non-current
IFRS 16 lessee financial liabilities 5,242 17,775 6,246
Contingent consideration liabilities 32 313 31
5,274 18,088 6,277
Contingent consideration liabilities-
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December 2022
2023 2022
£'000 £'000 £'000
RSC - 2,537 2,280
DLPS 32 313 31
32 2,850 2,311
Opening balance 2,311 3,008 3,008
Cash paid (2,280) (76) (76)
Acquisition - - -
Amounts recorded though income statement 1 (82) (621)
Closing balance 32 2,850 2,311
£32,000 of contingent consideration liability 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 2023 £2,280,000 (June 2022: £76,000 and
December 2022: £76,000) of contingent consideration was paid to former
shareholders.
The table below shows the allocation of the contingent consideration
liabilities balance and income charge between the various categories:
Unaudited Audited
Six Months Ended Year Ended
30 June 30 June 31 December 2022
Contingent consideration liabilities balances relating to amounts accounted 2023 2022
for as:
£'000 £'000 £'000
Arrangement under IFRS 3 (1) (115) (696)
Unwinding of discount on contingent consideration 2 33 75
Charge / (credit) 1 (82) (621)
The contingent consideration charged to the Income Statement in the period
relates to previous acquisitions and relates to the acquisition of RSC New
Homes credit of £nil (June 2022: credit £92,000 and December 2022: credit
£371,000) and Direct Life and Pension Services credit of £1,000 (June 2022:
credit £23,000 and December 2022: credit £324,000).
15. Provisions for liabilities
2023
PI claim provision Onerous Lease Dilapidation Provision Restructuring Provision Total
£'000 £'000 £'000 £'000 £'000
Balance at 1 January 2,341 14 - - 2,355
Additional provision in the year - - 4,485 3,752 8,237
Amount utilised (207) (51) - - (258)
Amount released 382 127 34 - 543
Balance at 30 June 2,516 90 4,519 3,752 10,877
Current liabilities 717 85 466 2,719 3,987
Non-current liabilities 1,799 5 4,053 1,033 6,890
2,516 90 4,519 3,752 10,877
2022
PI claim provision Onerous Total
leases
£'000 £'000 £'000
Balance at 1 January 3,907 59 3,966
Amount utilised (762) (38) (800)
Amount released (804) (7) (811)
Provided in financial year - 107 107
Reclassified to held for sale - (107) (107)
Balance at 31 December 2,341 14 2,355
Current liabilities 647 13 660
Non-current liabilities 1,694 1 1,695
2,341 14 2,355
The Group has recognised a dilapidations provision relating to the branches in
the Estate Agency network which are being occupied by franchisees as a result
of the disposal during the year. The calculation of the Group's future
dilapidation provision is based on an average rate per square foot depending
on the dilapidation obligation and is discounted using a risk free discount
rate based on term. If the average rates applied were to increase by 10% this
would result in an increase in the overall provision of £0.4m, if they were
to decrease by 10% this would result in a reduction of the same amount. If
the discount rate was to increase by 1.0% this would result in a decrease in
the provision of £0.1m, if the discount rate was to decrease by 1.0% this
would result in an increase in the provision of the same amount.
The restructuring provision recognised relates to costs associated with the
disposal of the owned branch network (£2.2m), including committed branch
works (£1.0m), legal costs for the novation of leases to franchisees (£0.9m)
and other provisions (£0.3m), plus a provision for corporate activity of
£0.7m. The provision also includes £0.6m which was reported in accruals as
at 31 December 2022, the amount relates to an indemnity provision the Group
provided on the sale of a former subsidiary, see further detail below.
Claims indemnity provision and contingency
Included in the sale agreement of LMS was a claims indemnity of £2.0m, for
which the Company has provided £0.6m, which it considers to be the most
likely outcome. Further cases exist and are considered possible, not probable,
therefore no further provision has been made for these cases in the Financial
Statements. Should these claims succeed the estimated further costs would be
£1.4m.
16. Investments in joint ventures and associates
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £000
Investment in joint ventures and associates 9,582 2,338 5,068
Investment in joint ventures
Opening balance (1 January) 5,068 1,610 1,610
Equity investment in Pivotal Growth 4,681 936 3,952
Equity accounted (loss) / profit (167) (208) (494)
Closing balance 9,582 2,338 5,068
During H1 2023, the group invested a further £4.7m, in Pivotal Growth and
maintains a 47.8% holding in the entity.
17. Financial Instruments
Risk management
The financial risks the Group faces, and the methods used to manage these
risks have not changed since 31 December 2022. 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 2022.
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 2023, 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 2023 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Assets measured at fair value
Financial assets 8,668 - - 8,668
Liabilities measured at fair value
Contingent consideration 32 - - 32
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
Audited - 31 December 2022 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Assets measured at fair value
Financial assets 1,045 - - 1,045
Liabilities measured at fair value
Contingent consideration 2,311 - - 2,311
Of the investments totalling £8,668,000, the entire total is valued using
Level 3 valuation techniques. The Directors reviewed the fair value of the
financial assets at 30 June 2023. The underlying value of the investments will
be driven by the profitability of these businesses.
The contingent consideration amounts rate mostly to contingent consideration
receivable (£8.7m), with a small amount (£0.03)m which relates to contingent
consideration payable. Key assumptions and sensitivity analysis for contingent
consideration receivable has been disclosed in note 13.
18. Prior year restatements
Franchising of previously owned branches
During the current period, the Group franchised its entire owned estate agency
network (183 branches). In accounting for this significant transaction, the
Group re-examined the accounting treatment that had been applied to a much
smaller transaction in H1 2019, when 39 owned estate agency branches were
franchised. The Group has re-examined certain judgements made in accounting
for the 2019 transaction, which were deemed appropriate at the time, and has
determined that restatement of the prior year financial information, in
accordance with IAS 8, is appropriate. The cumulative impact on retained
earnings on 1 January 2022 was a reduction of £4.0m and was not
cash-adjusting. The restatements are discussed in points 1-3 below:
1. Disposal of goodwill
When the transaction in 2019 was originally accounted for, it was considered
not necessary to dispose of goodwill associated with the previously owned
branches which were franchised. Having re-examined the accounting treatment
applied; the Group has determined that goodwill of £5.2m, associated with the
previously owned Your Move and Reeds Rains branches, should have been
derecognised in 2019. Restatement of the prior year financial information in
this regard results in a decrease in non-current assets only and has no impact
on cash.
2. Recognition of franchise intangible and subsequent amortisation
The franchise agreements entered upon disposal of the previously owned
branches were not considered to represent assets of the Group and were not
recognised in 2019 when the transaction was accounted for. Having re-examined
the accounting treatment applied; the Group has determined that an intangible
asset of £2.1m, associated with the franchise agreements, will be
retrospectively recognised in 2019. Restatement of the prior year financial
information in this regard results in an increase in non-current assets and
subsequent amortisation and has no impact on cash.
The fair value of the franchise intangible asset has been calculated based on
the assumptions that would have been made had it been determined in 2019. This
was calculated using the expected future cashflows (at the date of the
agreement), discounted using a post-tax discount rate of 8.2% (the Group's
WACC at the date of the agreement). A term of 15 years has been applied,
consistent with managements estimate of most likely minimum term per the
franchise agreement. Market growth rates, consistent with the Group's
assumptions in 2019 were applied to 2020 and 2021, with a long-term growth
rate of 1.8% applied thereafter.
3. Revision to goodwill impairments
In light of point 1 above, the impairment charged to the goodwill of Your Move
and Reeds Rains at 31 December 2022 (£42.0m) has been re-examined to take
account of the restated disposal of goodwill in 2019, resulting in increased
headroom. The impact of this assessment is a reduction to the impairment
charge of £3.7m. Restatement of the prior year financial information in this
regard results in an increase in non-current asset and has no impact on cash.
Adjustments to assets held for sale
At 31 December 2022 the Group reported Marsh & Parsons, a single CGU as
held for sale. Marsh & Parsons was written down to its fair value less
cost to sell (FVLCTS), which was calculated as the initial consideration
received less transaction costs (£28.9m). The sale agreement included
provisions for adjustments to the initial consideration for debt-like items
and working capital adjustments. Such amounts were subject to negotiation and
judgement and were not reflected in the fair value assessment at 31 December
2022. The Group has re-examined the judgements made and has determined that an
adjustment to consideration for debt-like items of £2.0m could have been
reliably estimated at 31 December 2022. Rather than recognising this
adjustment as an increase in the loss on disposal in H1 of 2023, the prior
year financial information has been restated, in accordance with IAS 8.
Restatement of the prior year financial information in this regard results in
a decrease in current assets, an increase in exceptional costs and has no
impact on cash.
Earnings per share
Basic and diluted earnings per share for prior periods have also been
restated, as a result of the items above. On a continuing operations basis,
for the year to 31 December 2022, the amount of the correction for both basic
and diluted earnings per share was an increase of 1.5 pence. For the six
months to 30 June 2022, the amount of the correction for both basic and
diluted earnings per share was a decrease of 0.1 pence.
Balance sheet (extract)
Reported year ended 31 December 2021 1. Disposal of goodwill 2. Recognition of franchise intangible and subsequent amortisation Restated year ended 31 December 2021 Reported six months ended 30 June 2022 1. Disposal of goodwill 2. Recognition of franchise intangible and subsequent amortisation Restated six months ended 30 June 2022
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Non-current assets
Goodwill 160,865 (5,211) - 155,654 158,865 (5,211) - 153,654
Franchise intangible - - 1,670 1,670 - - 1,601 1,601
Current assets
Assets held for sale - - - - - - - -
Non-current liabilities
Deferred tax liability (2,073) - (418) (2,491) (1,933) - (401) (2,334)
Net assets 218,119 (5,211) 1,252 214,160 210,962 (5,211) 1,200 206,951
Equity
Retained earnings 224,832 (5,211) 1,252 220,873 223,047 (5,211) 1,200 219,036
Total equity 218,119 (5,211) 1,252 214,160 210,962 (5,211) 1,200 206,951
Reported year ended 31 December 2022 1. Disposal of goodwill 2. Recognition of franchise intangible and subsequent amortisation 3. Revision of goodwill impairments 4. Adjustments to assets held for sale Restated year ended 31 December 2022
£'000 £'000 £'000 £'000 £'000 £'000
Non-current assets
Goodwill 56,530 (5,211) - 3,678 - 54,997
Franchise intangible - - 1,533 - - 1,533
Current assets
Assets held for sale 56,437 - - - (2,035) 54,402
Non-current liabilities
Deferred tax liability (2,008) - (384) - - (2,392)
Net assets 131,053 (5,211) 1,149 3,678 (2,035) 128,634
Equity
Retained earnings 149,134 (5,211) 1,149 3,678 (2,035) 146,715
Total equity 131,053 (5,211) 1,149 3,678 (2,035) 128,634
Income statement (extract)
Reported six months ended 30 June 2022 2. Recognition of franchise intangible and subsequent amortisation Restated six months ended 30 June 2022 Continuing operations Discontinued operations Reported year ended 31 December 2022 2. Recognition of franchise intangible and subsequent amortisation 3. 4. Adjustments to assets held for sale Restated year ended 31 December 2022 Continued operations Discontinued operations
Revision of goodwill impairments
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Amortisation of intangible assets (2,051) (69) (2,120) (1,428) (692) (4,112) (137) - - (4,249) (2,866) (1,383)
Exceptional costs (2,000) - (2,000) (2,000) - (88,898) - 3,678 (2,035) (87,255) (48,316) (38,939)
Group operating profit / (loss) 8,737 (69) 8,668 9,944 (1,276) (56,709) (137) 3,678 (2,035) (55,203) (21,360) (33,843)
Taxation charge (1,608) 17 (1,591) (1,384) (207) (4,891) 34 - - (4,857) (3,020) (1,837)
Profit / (loss) for the year 5,825 (52) 5,773 7,491 (1,718) (64,017) (103) 3,678 (2,035) (62,477) (26,451) (36,026)
Statement of comprehensive income (extract)
Profit / (loss) for the year 5,825 (52) 5,773 (64,017) (103) 3,678 (2,035) (62,477)
Other comprehensive income / (expense) for the period, net of tax (370) - (370) (4,966) - - - (4,966)
Total comprehensive income / (loss) for the period, net of tax 5,455 (52) 5,403 (68,983) (103) 3,678 (2,035) (67,443)
19. Related Party Transactions
LSL have one joint venture partner, Pivotal Growth (Pivotal).
Transactions with Pivotal Growth and its subsidiaries
Unaudited Audited
Six Months Ended Year end
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Gross commission received 5,608 1,736 3,833
Commissions paid to broker businesses (4,506) (1,551) (3,421)
Sales 1,188 - -
Revenue recognised 2,290 186 412
Creditor 1,614 17 (3)
20. Events after the reporting period
On 21 August 2023, the Group announced it had agreed to acquire TenetLime
Limited ("TenetLime") from Tenet Group Limited, subject to FCA approval.
TenetLime operates a network providing services to 231 mortgage and protection
advisers, operating within 133 appointed representative (AR) firms, the
acquisition advances the Group's strategy to develop our Financial Services
Network business. TenetLime's advisers will join the PRIMIS network and the
increased membership will allow the Group to further invest in its service
offering and deliver economies of scale.
The consideration payable is expected to be up to £12.9m and will include: an
initial payment of up to £5.6m, calculated by reference to the number of
appointed representative (AR) firms at completion and their 2022 turnover; a
further payment of up to £4.5m, calculated by reference to the number AR
firms 12 months following completion and their 2022 turnover and an expected
payment of £2.8m for assets which form part of TenetLime's regulatory
capital. The total consideration payable on completion will be subject to
adjustments based on the net asset value of TenetLime at the completion date.
The Group will begin the process of allocating the purchase price
consideration in accordance with IFRS 3 once FCA approval has been obtained.
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 2022 (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
consolidated financial information in the half-yearly financial report for the
six months ended 30 June 2023 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 20. 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 consolidated financial
information.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of consolidated financial information in the
half-yearly financial report for the six months ended 30 June 2023 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" (ISRE) 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 consolidated financial information 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 for 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 consolidated financial
information 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
London
26 September 2023
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