Lsl Prop Regulatory News (LSL)

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 proceeds1, 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:

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 operations1,2 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 gains3 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 Cash4 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 Profit2 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 share5 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 Profit2 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 operations1,2 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 market5 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 approvals6 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 share5

· 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. 

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:

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 

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 £29m1. 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 Profit3 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 share2 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 Profit3 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 Profit3 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 Profit3 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 adviser4 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 valuations5, 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 period5

· 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 Profit3 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 £29m1.

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 share8 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 Profit3 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 £29.0m1

· Annualised cost reduction of c.£110m due to disposals and franchising of 183 branches

· Underlying Operating Profit on continuing operations3,7 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 share8 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 Cash9 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 Profit3 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

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 operations3 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 operations1 in Estate Agency, adjusted revenue was £104.8m (H1 2022: £160.9m)

· Group Underlying Operating Profit from total operations2 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 operations3 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 revenue1 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 operations2,3 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 basis3, 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 items4

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 operations3

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 Share5

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

Goodwill6

The carrying value of goodwill is £16.9m (31 December 2022: £55.0m7, H1 2022: £153.7m7). 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 assets8 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 agreements7 was £12.2m at 30 June 2023 ((31 December 2022: £1.5m7, H1 2022: £1.6m7).

Prior year restatements7

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 Cash9 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.

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

*See note 18 for details regarding the restatement.

Interim Group Statement of Comprehensive Income

for the six months ended 30 June 2023

*See note 18 for details regarding the restatement.

Interim Group Balance Sheet

as at 30 June 2023

*See note 18 for details regarding the restatement.

Interim Group Cash Flow Statement

for the six months ended 30 June 2023

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

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

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

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

 *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

Audited - Year ended 31 December 2022

Revenue and Operating Profit by segment:

Unaudited - Six months ended 30 June 2023