Lsl Prop Regulatory News (LSL)

LSL Property Services plc ("LSL" or "The Group")

Interim Results For the six months ended 30th june 2018

LSL Property Services plc, a leading provider of residential property services incorporating both estate agency and surveying businesses, announces its interim results for the six months ended 30th June 2018.

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 7)

2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation plant, property and equipment (as defined in Note 7)

3 Refer to Note 8 for the calculation

4 Refer to Note 15 for the calculation

Revenue growth delivered in challenging market conditions

§ Resilient revenue performance in the context of challenging residential property market conditions with Group revenue up 1%

§ Ongoing self-help measures continue to deliver organic revenue growth in the Estate Agency Division in both Lettings (+4%) and Financial Services (+5%)

§ Residential Sales exchange revenue was down by 11%, impacted by the market conditions and the closure of eight owned branches in the final quarter of 2017

§ Estate Agency Division profit was negatively impacted by a number of factors including the reduction in Residential Sales exchange revenue whilst in the previous period there was a one-off gain on the sale of a Marsh & Parsons leasehold property amounting to £0.7m

§ The Surveying Division was awarded a material five-year contract for the supply of surveying and valuation services to Lloyds Bank plc

§ Whilst Surveying Division revenue was down 6.2% impacted by market conditions and Lender mix, strong operating margins were delivered of 27.7% (2017: 28.4%) through strong cost control

§ Continued positive progress in addressing historic Professional Indemnity (PI) claims with a £1.2m exceptional provision release as claims were settled below previous expectations

Full year outlook

§ The LSL Board remains confident of delivering full year Group Underlying Operating Profit in line with expectations. As reported in the LSL AGM statement on 26th April 2018, the 2018 Group Underlying Operating Profit performance is expected to be weighted more to H2 than in 2017 and more in line with LSL's historical average. This outlook takes into consideration:

o In Estate Agency, the Residential Sales pipelines are ahead of the Board's previous expectations

o In Surveying, current trading is positive and additional volumes will come on stream from the Lloyds Bank plc surveying and valuation services contract

o Contribution from Financial Services acquisitions made during the first half of the year

o Continued self-help initiatives across the business including strong cost control

§ Interim dividend of 4.0 pence (2017: 4.0 pence) reflecting the Board's confidence in the outlook for the second half of the year

Estate Agency Division Performance

§ Revenue increased by 3% year on year with the continued self-help measures driving 4% growth in Lettings income (organic 4%) and 20% growth in Financial Services income (5% organic), both of which combined to more than offset the 11% reduction in Residential Sales exchange income

§ Residential property market share maintained at broadly stable levels with residential average fees slightly up

§ Like for like expenditure1 has been broadly maintained at the same level as prior year as costs are closely managed whilst continuing to invest in our growth businesses

§ Estate Agency Division Underlying Operating Profit2 of £5.0m (2017: £9.4m) was negatively impacted by a number of factors including the reduction in Residential Sales exchange revenue whilst in the previous period there was a one-off gain on the sale of a Marsh & Parsons leasehold property amounting to £0.7m

§ Marsh & Parsons delivered a resilient revenue performance despite a challenging London market with total revenue down 3% as Lettings revenue continued to perform positively with growth of 6% largely offsetting the 15% fall in Residential Exchange revenue

§ Continued progress with the ways of working programme with the objective of delivering improvements to the Estate Agency operational performance and enhancing market competitiveness, including the evaluation of further growth opportunities in our Financial Services business

Surveying Division Performance

§ Revenue down by 6% impacted by market conditions and lender mix

§ Strong cost control with total expenditure down 5%

§ The Surveying Division continued to deliver strong operating margins of 27.7% (2017: 28.4%)

§ Continued positive progress in addressing historic PI claims with a £1.2m exceptional provision release as claims were settled below previous expectations

Commenting on today's announcement, Simon Embley, Chairman, said:

"The Group has delivered a resilient first half revenue performance in the context of challenging residential property market conditions. Whilst Residential Sales volumes remained suppressed, revenue trends in other parts of our business are more robust due to our ongoing self-help measures. Our Lettings and Financial Services businesses continue to perform positively and Financial Services income now represents 33% of total Estate Agency Division income.

During the first half, Lloyds Bank plc awarded LSL a material five-year contract to deliver surveying and valuation services which demonstrates the market leading proposition that we are able to offer our customers and reflects well on our technology investment.

Whilst market conditions in the first half of 2018 have been softer than the Board's expectations and the equivalent period in 2017, LSL's financial performance in the first half of 2018 was in line with the Board's expectations. Given Residential Sale pipelines are above previous expectations, current trading in Surveying is positive and the range of self-help initiatives in progress, the Board is confident of delivering a full year Group Underlying Operating Profit in line with expectations."

For further information, please contact:

Notes on LSL:

LSL is a leading provider of residential property services to its key customer groups. Services to consumers include: residential sales, lettings, surveying, conveyancing and mortgage, pure protection and general insurance brokerage services. Services to mortgage lenders include: valuations and panel management services, asset management and property management services. For further information, please visit LSL's website: www.lslps.co.uk

Group Chief Executive's Review

Introduction

The Group delivered a resilient first half revenue performance with revenue up 1% to £152.9m despite challenging market conditions. Profit in both Divisions was broadly in line with Board expectations.

The UK residential housing market remained challenging in the first half of 2018 as consumer confidence continued to be impacted by uncertainty. Approvals for house purchases were 4.7% lower in the first five months of the year reported to date compared to the same period in 20173.

Financial Results

Group revenue was ahead at £152.9m (2017: £151.5m). Group Underlying Operating Profit2 was down 25% to £11.6m (2017: £15.5m) and Group Underlying Operating Profit Margin2 was 7.6% (2017: 10.2%).

Group operating profit was down 48% to £7.4m (2017: £14.3m) reflecting the decrease in margin in both Divisions, an increase in contingent consideration relating to acquisitions and a charge of £0.6m to the share based payment reserve, in contrast to the credit booked in the first half of 2017.

During the first half of 2018 net finance costs were £1.0m, slightly lower than the same period in 2017. The effective tax rate for the period was 24.2% (2017: 19.8%), compared to the current headline rate of corporation tax rate of 19.0%. The effective tax rate has increased due to a number of factors including an increase in contingent consideration and non-qualifying depreciation, as well as reduction in profit after tax from joint venture interests which are all non-deductible expenses or non-taxable income. Group profit after tax was £4.9m (2017: £10.6m). Basic Earnings Per Share were 4.7p (2017: 10.3p) and Adjusted Earnings Per Share were 8.6p (2017: 11.5p).

Cash generated from operations was £1.1m (2017: £10.5m) impacted by lower Group Underlying Operating Profit compared to the same period last year and a seasonal movement in working capital. Operating cash flow included PI Costs settlements of £0.6m (2017: £2.0m). Capital expenditure, including intangibles, was £2.1m (2017: £1.8m), including one new Marsh & Parsons branch opened during the period, in Chiswick.

During the first half of 2018 the Group acquired the entire issued share capital of Personal Touch Financial Services Limited (PTFS) and its subsidiary company, Personal Touch Administration Services Limited (PTAS). The initial consideration for the acquisition was £2.8m. The Group also acquired 60% of the share capital of RSC New Homes Limited ("RSC") for an initial consideration of £2.5m. RSC is a Financial Services business specialising in new build mortgages. In addition, the Group has restarted its accretive lettings book acquisition programme during the period with two lettings books acquired during the period for a total consideration of £0.5m.

Net assets at 30th June 2018 were £146.0m (2017: £134.5m). Net Bank Debt at 30th June 2018 was £46.0m compared to £31.7m at 30th June 2017, in part due to the £20m strategic acquisition of a 17.3% shareholding in Yopa Property Limited during September 2017. Compared to 31st December 2017, Net Bank Debt has increased by £16m driven by the normal seasonality of the Estate Agency Division cash flows, the funding of the two strategic Financial Services acquisitions (PTFS and RSC), the repayment of unsecured loan notes, the recommencement of the lettings book acquisitions and the payment of the deferred and contingent consideration in relation to previous acquisitions as well as the payment of dividends, taxes and bonuses.

The Board remains confident in the underlying fundamentals and prospects of the Group's businesses and has declared an interim dividend payment amounting to 4.0 pence per share (2017: 4.0 pence). The ex-dividend date for the interim dividend is 9th August 2018, with a record date of 10th August 2018 and a payment date of 14th September 2018. Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan. The election date is 23rd August 2018.

Estate Agency Division

The Estate Agency Division revenue was up 3% at £121.8m (2017: £118.4m) reflecting the growth in both Lettings income and Financial Services income offsetting a fall in Residential Sales exchange Income. The Estate Agency Division Underlying Operating Profit1 decreased to £5.0m (2017: £9.4m). Organic revenue was 1% down on the same period in 2017.

Residential Sales income decreased by 11% to £32.9m (2017: £37.0m) as a result of lower exchange volumes (-11%) in the context of lower market activity during the period, reduced pipelines at the start of the first half following the subdued market in the fourth quarter of 2017 and the closure of eight owned branches in the fourth quarter of 2017. In a highly competitive market, the Estate Agency Division has broadly maintained residential market share and delivered a small increase in average residential fees per unit.

The Group's Lettings income delivered growth of 4% (organic growth 4%) compared to the same period in 2017 with total Lettings income of £37.3m (2017: £35.7m). The Group has recommenced the letting books acquisitions programme with two lettings books acquired during the period.

Marsh & Parsons total revenues were down 3% to £15.9m (2017: £16.4m). Marsh & Parsons Underlying Operating Profit2 decreased to £0.7m (2017: £1.7m) with operating margins of 4.4% (2017: 10.4%). Residential Sales were down 15%, against an overall London market for sales transactions which LSL estimates was down c.20% in the first half. Lettings performance continued to deliver organic growth of 6% (total growth of 6%). One new Marsh & Parsons branch opened during the period, in Chiswick, which is trading in line with expectations. Despite the opening of two new branches since 30th June 2017, with strong cost control, total expenditure fell by 1% year on year. The prior year benefited from the gain on the sale of a leasehold property amounting to £0.7m.

Financial Services revenue increased by 20% to £40.8m (2017: £34.1m) with organic growth of 5%. Financial Services income now represents 33% of total Estate Agency Division income. Growth has been delivered across the Estate Agency brands as well in the intermediary networks. The growth in the value of mortgage completions represents an increase in LSL's market share4 to 9.0% in 2018 (2017: 6.9%). LSL continues to operate as the second largest network nationwide, measured by combined number of appointed representative firms5.

The Financial Services business continues to display good organic growth across all products including mortgage products, pure protection products and general insurance products. PTFS, which was acquired in January 2018, and RSC New Homes Limited, acquired in March 2018, are both performing in line with expectations and have contributed to the strong performance in Financial Services in the first half of 2018.

Following LSL's strategic acquisition of a 17.3% shareholding in Yopa in September 2017, Yopa has continued to expand its business, invest in marketing and build its brand.

We have continued progress with the ways of working programme with the objective of delivering improvements to the Estate Agency operational performance and enhancing market competitiveness, including the evaluation of further growth opportunities in our Financial Services business.

In the second half of 2018, the Estate Agency Division will benefit from continued self-help measures to drive organic growth in Lettings income and Financial Services revenue, pipelines which were ahead of the Board's expectations at the beginning of the period, continued cost control and the contribution from the Financial Services acquisitions completed in the first half of the year. The prior year benefited from the one-off gain on the sale of a leasehold property in Marsh & Parsons amounting to £0.7m.

Surveying Division

On 16th May 2018 LSL announced that e.surv Limited (e.surv), its residential surveying and valuation services operation was awarded a material contract to supply surveying and valuation services to Lloyds Bank plc. The initial contract period is for five years.

The contract is expected to enhance the Group's future earnings and provides a positive opportunity to leverage the LSL surveying assets to drive growth. It also demonstrates the market leading proposition that e.surv is able to offer its customers and reflects well on the technology investment which e.surv has made to enhance its proposition through the development of a market leading surveying IT platform.

Integration and transition is progressing well and includes the transfer to e.surv of the existing Lloyds Bank plc surveyors and back-office employees. The provision of valuation services by e.surv in relation to the Lloyds Bank plc contract is expected to commence in the third quarter of 2018.

Revenue in the Surveying Division in the first half was down by 6% impacted by market conditions and Lender mix. Strong cost control was maintained with total expenditure down 5%. The Surveying Division continued to deliver strong operating margins of 27.7% (2017: 28.4%). Underlying Operating Profit2 was down 8.4%.

Surveyor headcount continues to be a focus for management and whilst overall Surveyor numbers fell slightly to 314 (2017: 320), e.surv's on-going graduate programme continues to be successful with an intake of graduates in March 2018, with more cohorts planned in the year.

At 30th June 2018, the total provision for PI Costs was £14.6m (2017: £17.9m). In 2018 the Group continued to make positive progress in addressing historic claims and there has been an exceptional release of £1.2m.

So far trading in the second half in the Surveying Division has been positive and there will be a continued focus on cost control in the second half.

Strategy

LSL remains committed to delivering on its stated strategy and continues to invest for the future, positioning the Group for success across a range of market conditions:

Estate Agency

· Ambition to drive operating profit per branch to between £80,000 and £100,000 in the medium term

· Ambition to expand the number of Marsh & Parsons branches to a total of 36 in the medium term, particularly outside prime Central London

· Grow recurring and where market conditions permit counter-cyclical income streams

· Evaluate selective acquisitions of residential sales businesses and lettings books

· Progress the ways of working programme with the objective of delivering improvements to the Estate Agency operational performance and market competitiveness, including the evaluation of further growth opportunities in our Financial Services business

Surveying and Valuation Services

· Optimise contract performance and revenue generation from business to business customers

· Achieve further improvement in efficiency and capacity utilisation

· Use technology to target further improvements in customer satisfaction and performance

· Continue the graduate training programme

Outlook

Market conditions in the first half of 2018 were softer than the Board's expectations and the equivalent period in 2017, but despite this LSL's first half financial performance was in line with the Board's expectations.

As reported in the LSL AGM statement on 26th April 2018, the Board expects LSL's financial performance to be more weighted to the second half in 2018 compared to the same period in 2017 and therefore more in line with historical averages, supported by a range of initiatives including the recent Financial Services acquisitions.

LSL continues to execute on its stated strategy and is well placed to deliver increased Shareholder value. The Board is positive regarding the outlook for the business with current Residential Sales pipelines above previous expectations, current positive trading in Surveying and continued progress with the range of ongoing self-help initiatives. The Board is confident of delivering a full year Group Underlying Operating Profit in line with expectations.

LSL expects to see a reduction in the volume of house purchase transactions compared to the prior year, with modest House Price Inflation. Mortgage costs continue to be low by historic standards and mortgage availability remains good. The medium to longer term fundamentals of the UK housing market remain solid.

The Group has a robust balance sheet with relatively low levels of gearing and is highly cash generative at an operational level. The business is well placed to capitalise on market conditions to increase Shareholder value.

Ian Crabb

Group Chief Executive

31st July 2018

(1) The Estate Agency like for like expenditure comparative is after adjustments for acquisitions, share of profit/loss after tax from joint ventures and the one-off gain on sale of the leasehold property in Marsh & Parsons in H1 2017

(2) Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 7)

(3) Source: Bank of England House Purchase Approvals January-May 2017/2018

(4) Source: UK Finance new mortgages sold via intermediaries January-May 2017/2018, excluding product transfers

(5) Source: Which-Network - network performance figures for Q1 2018 showing the combined numbers for PRIMIS

Principal risks and uncertainties

The key risks and uncertainties relating to the Group's operations remain consistent with those disclosed in the Group's Annual Report and Accounts 2017 on pages 22 to 27. The Annual Report and Accounts 2017 can be accessed on the Group's website: www.lslps.co.uk. Having reconsidered these principal risks and uncertainties which are summarised below, the Board continues to consider them appropriate.

· UK housing market

· New UK housing market entrants

· Investment, acquisitions and growth initiatives

· Professional services

· Client contracts

· Information technology infrastructure

· Information security

· Regulatory and compliance

· Employees

The recent Group Risk Appetite Assessment exercise includes an evaluation of developing areas of key risks and the effectiveness of related business response plans. Recent notable examples include the capture of political and economic developments e.g. Brexit.

Other examples include investment activities to improve market share and economies of scale (e.g. acquisition of PTFS and the surveying and valuation services contract with Lloyds Bank plc; focus on market segments and harnessing new technology-based sales mediums; new regulatory changes (such as responses to the new General Data Protection Regulation and evolving tenant protection legislation); initiatives to address particular areas of staff attrition risk; and Board-level emphasis on the evaluation and promotion of a positive organisational culture.

The Board has concluded that such aspects are included in the principal risk and uncertainties noted above. Therefore the principal risks and uncertainties of the Group remain the same as those included within the Annual Report and Accounts 2017.

Forward-Looking Statements

This statement may contain forward looking statements with respect to certain plans and current goals and expectations relating to the future financial condition, business performance and results of LSL. By their nature, all forward looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of LSL including, amongst other things, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates, inflation, deflation, the impact of competition, changes in customer preferences, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the UK. As a result LSL's actual future condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward looking statements. Nothing in this statement should be construed as a profit forecast. Information about the management of the Principal Risks and Uncertainties facing LSL is set out within the Strategic Report in the Group's Annual Report and Accounts 2017 on pages 22 to 27.

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 2017 (a copy of which is available on LSL's website at: 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.

Responsibility statement of the Directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

· The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

· 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

Ian Crabb

Director, Group Chief Executive Officer

31st July 2018

Interim Group Income Statement

for the six months ended 30th June 2018

Interim Group Statement of Comprehensive Income

for the six months ended 30th June 2018

Interim Group Balance Sheet

as at 30th June 2018

Interim Group Cash Flow Statement

for the six months ended 30th June 2018

Interim Group Statement of changes in equity

for the six months ended 30th June 2018

Unaudited six months ended 30th June 2018

During the six month period to 30th June 2018 a total of 3,661 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the

Trust. LSL received £1,000 on exercise of these options.

\* Treasury shares have been renamed to Shares held by EBT.

Unaudited six months ended 30th June 2017

During the six month period to 30th June 2017 a total of 10,689 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the

Trust. LSL received nil on exercise of these options.

Audited year ended 31st December 2017

During the year ended 31st December 2017, the Trust acquired nil LSL Shares. During the period 14,661 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the Trust. LSL received nil on exercise of these options.

Notes to the Interim Condensed Group Financial Statements

The Interim Condensed Group Financial Statements for the period ended 30th June 2018 were approved by the LSL Board on 31st July 2018. The interim financial statements are not the statutory accounts. The financial information for the year ended 31st December 2017 is extracted from the audited statutory accounts for the year ended 31st December 2017, which have been filed with the Registrar of Companies. The auditor's report 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 30th June 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Group's annual financial statements as at 31st December 2017 which are included in LSL's Annual Report and Accounts 2017.

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.

This is the first set of the Group's financial statements where IFRS 15 (Revenue from Contracts with Customers) and IFRS 9 have been applied. Changes to significant accounting policies are disclosed in Note 2 to these Financial Statements.

2. Changes in significant accounting policies

Except as described below, 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 31st December 2017.

The changes in the accounting policies are also expected to be reflected in the Group's consolidated financial statement as at and for the year ending 31st December 2018.

The Group has initially adopted IFRS 15 Revenue from Contracts with Customers (see A) and IFRS 9 Financial Instruments (See B) from 1st January 2018.

The impact of IFRS 9 does not have a material impact to the interim condensed consolidated group financial statements.

A. IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.

The Group has adopted IFRS 15 using the cumulative catch up method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (i.e. 1st January 2018) for all contracts. Accordingly, the information presented for 2017 has not been restated - i.e. it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations.

The following table summarises the impact of transition to IFRS 15 on retained earnings and NCI at 1 January 2018.

The Management team have identified revenue relating to management services and rent collection have been affected by the timing difference on revenue recognition.

Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of transfer of control - at a point in time or over time - requires judgement.

The impact of adopting IFRS 15 on the Group's interim statement of financial position as at 30th June 2018 and its interim statement of profit or loss and Other Comprehensive Income for the six months ended for each of the line items affected is a reduction in revenue of £232,000.

B. IFRS 9 Financial Instruments

i. Classification of financial assets

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.

The Group has adopted the modified transition approach and chosen not to restate comparatives. In relation to investments in equity instruments the Group has not made an election to recognise the change in the value of financial assets relating to ZPG plc through other comprehensive income.

ii. Impairment of financial assets

IFRS 9 replaces the "incurred loss" model in IAS 39 with the "expected credit loss" model that applies to trade and receivables. The impact of this model does not have a material impact to the interim condensed consolidated group financial statements.

IFRS 16: Leases

IFRS 16, 'Leases', is effective for periods beginning on or after 1st January 2019 and replaces IAS 17, 'Leases'. The new standard requires lessees to recognise a right-of-use asset and a lease liability based on discounted future lease payments leased assets with some exemptions available for short-term or low value leases.

The impact of this standard on Group will be to replace the current straight-line operating lease expense currently recognised under IAS 17, with the right-of-use assets, lease liabilities, depreciation and interest charges.

The Group is currently assessing the impact of this standard. The standard permits either a full retrospective or a modified retrospective approach for the adoption. Group intends to adopt the standard using the modified retrospective approach which means the cumulative impact of the adoption will be recognised in retained earnings as of 1st January 2019 and the comparatives will not be restated.

3. Judgements and estimates

The preparation of financial information in conformity with IFRS as adopted by European Union 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 largely the same as those as at 31st December 2017. These assumptions are discussed in detail in the Group's Annual Report and Accounts 2017. The assumptions discussed are as follows:

Judgements

Areas of judgment that have the most significant effect on the amounts recognised in the consolidated financial statements are:

· Revenue Recognition

· Exceptional Items

· Assessment of the useful life of an intangible asset

· Valuation of financial assets

· Intangible assets

· Deferred tax

Estimates

The key assumptions affected by future uncertainty that have significant risks of causing material adjustment to the carrying value of assets and liabilities within the next financial year are:

· Professional indemnity (PI) claims

· Valuations in acquisitions

· Impairment of intangible assets

· Contingent consideration

· Income tax

Going concern

The Group meets its day to day working capital requirements through a revolving credit facility. The Group currently has a £100 million credit facility which was extended in January 2018 and will now expire in May 2022. As shown in Note 13 to these interim condensed consolidated group financial statements, the Group had available £54.0 million of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is expected to operate within the terms of its current facilities and that therefore it is appropriate to use the going concern basis of preparation for this financial information.

4. Seasonality of operations

Due to the seasonal nature of the residential housing market, turnover and operating profits are normally higher in the second half of the year. As reported in the AGM statement issued on 26th April 2018, the Board expects this to continue and anticipates that 2018 financial performance will be more weighted to H2 than in 2017.

5. Revenue

The Group's operations and main revenue streams are those described in the latest annual financial statements.

The nature and effect of initially applying IFRS 15 on the Group's interim financial statements are disclosed in Note 2 to these Financial Statements.

Disaggregation of Revenue

Set out below is the disaggregation of the Group's revenue from contracts with customers:

\* The Group has initially applied IFRS 15 as at 1st January 2018. Under the transition methods chosen, comparative information is not restated.

6. Segment analysis of revenue and operating profit

For management purposes, the Group is organised into business units based on their products and services and has two reportable operating segments as follows:

· The Estate Agency and Related Services segment provides services related to the sale and letting of residential properties. It operates a network of high street branches. As part of this process, the Estate Agency Division also provides marketing and arranges conveyancing services. In addition, it provides repossession asset management services to a range of lenders. It also arranges mortgages for a number of lenders and arranges pure protection and general insurance policies for a panel of insurance companies via the estate agency branches, PRIMIS, Embrace Mortgage Services, First2Protect, Mortgage First, Insurance Brokers First and Linear Financial Services, Personal Touch Financial Services and RSC. The Financial Services revenue included within the Estate Agency Division includes two mortgage and insurance distribution networks providing products and services for sale via financial intermediaries. A significant proportion of the results of the Financial Services are inextricably linked to the Estate Agency business. They have therefore been aggregated with those of Estate Agency and Related Service segment.

· The Surveying and Valuation Services segment provides a valuations and professional survey service of residential properties to various lenders and individual customers.

Each segment has various products and services and the revenue from these products and services are disclosed in the LSL's Annual Report and Accounts 2017 within the Business Review section of the Strategic Report.

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 incomes) and income taxes are managed on a Group basis and are not allocated to operating segments.

Operating segments

The following tables presents revenue and profit information regarding the Group's operating segments for the six months ended 30th June 2018, for the six months ended 30th June 2017 and for the year ended 31st December 2017.

Six months ended 30th June 2018

In the period ended 30th June 2018, there were no single customers that accounted for 10% or more of the Group's total revenue.

All of the joint venture interests of the Group are recorded in the Estate Agency and Related Services segment. Unallocated net liabilities comprise plant and equipment (£6,000), other assets (£1,746,000), accruals (£307,000), financial liabilities (£471,000), deferred and current tax liabilities (£4,321,000), and revolving credit facility overdraft (£46,500,000)

Six months ended 30th June 2017

In the period ended 30th June 2017, there were no single customers that accounted for 10% or more of the Group's total revenue.

All of the joint venture interests of the Group are recorded in the Estate Agency and Related Services segment. Unallocated net liabilities comprise plant and equipment (£8,000), other assets (£1,820,000), accruals (£1,350,000), financial liabilities (£2,000,000), deferred and current tax liabilities (£6,810,000), overdraft (£6,176,000) and revolving credit facility overdraft (£25,500,000).

Operating segments

Year ended 31st December 2017

Unallocated net liabilities comprise plant and equipment (£9,000), other assets (£1,191,000), accruals (£3,032,000), financial liabilities (£4,979,000), deferred and current tax liabilities (£6,360,000), RCF (£27,000,000).

7. Adjusted performance measures

In addition to the various performance measures defined under IFRS, the Group reports a number of alternative performance measures that are designed to assist with the understanding of the underlying performance of the Group. The Group seeks to present a measure of underlying performance which is not impacted by the inconsistency in profile of exceptional gains and exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments. Share based payments are excluded from the underlying performance due to the fluctuations that can impact the charge, such as lapses and the level of annual grants. The four adjusted measures reported by the Group are:

· Group Underlying Operating Profit

· Adjusted Basic EPS

· Adjusted diluted EPS

· Group Adjusted EBITDA

The amortisation of intangibles assets is not representative of the underlying costs of the business and is therefore excluded from adjusted earnings.

The Directors consider that these adjusted measures shown above give a better and more consistent indication of the Group's underlying performance. These measures form part of management's internal financial review and are contained within the monthly management information reports reviewed by the Board.

The calculations of adjusted basic and adjusted diluted EPS are given in Note 8 to these interim condensed consolidated group financial statements and a reconciliation of Group Underlying Operating Profit is shown below:

8. 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.

Six months ended 30th June

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:

Six months ended 30th June

Year ended 31st December 2017

This represents adjusted profit after tax attributable to equity holders of the parent. Tax has been adjusted to exclude the prior year tax adjustments, and the tax impact of exceptional items, amortisation and share-based payments. The effective tax rate used is 19.0 % (30th June 2017: 19.25%; 31st December 2017: 19.25%

9. Exceptional items

Provision for professional indemnity (PI) claims and insurance claim notification

The Group continue to make positive progress in addressing the historic PI claims resulting in a release of £1,189,000 (31st December 2017: release of £2,700,000 and £1,000,000 settlement).

10. Dividends paid and proposed

Dividends per share

A final dividend in respect of the year ended 31st December 2017, of 7.3 pence per share (December 2016: 6.3 pence per share), amounting to £7.5 million was paid in the period ended 30th June 2017. An interim dividend has been announced amounting to 4.0 pence per share (June 2017: 4.0 pence).

Interim dividends are recognised when paid.

11. Taxation

The major components of income tax charge in the interim Group income statements are:

Income tax charged directly to other comprehensive income is £nil. In the six months ended 30th June 2017, £365k was charged directly to other comprehensive income (31st December 2017: £631k credit) relating to the revaluation of financial assets. Income tax credited directly to the share based payment reserve is £1,000 (31st December 2017: charge of £32,000 and 30th June 2017: credit of £29,000)

The headline rate of corporation tax decreased from 20% to 19%, effective from 1st April 2017 resulting in an effective corporation tax rate of 19% for the year ended 31st December 2018. A further decrease in the corporation tax rate to 17% will be effective from 1st April 2020, and this is the rate at which deferred tax has been provided.

12. Financial assets

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 17 to these interim condensed consolidated group financial statements).

ZPG plc

Financial assets include warrants in ZPG plc. These warrants have been issued pursuant to terms agreed with ZPG plc relating to the provision of portal services to LSL's Estate Agency businesses. The Directors consider the best estimate of the fair value of LSL's warrants to be the share price and therefore valued using level 1 valuation techniques. ZPG plc's share price at 30th June 2018 was £4.90. These warrants were revalued to £2,266,191.

NBC Property Master Limited

In June 2018, LSL subscribed for a further 1,230 ordinary shares in NBC Property Master Limited for a consideration of £13,013.40.

Vibrant Energy Matter (VEM)

The carrying value of the Group's investment in Vibrant Energy Matter (VEM) at 30th June 2018 has been assessed as £722,000 (31st December 2017: £722,000).

Global Property Ventures Limited

The carrying value of the Group's investment in Global Property Ventures Limited at 30th June 2018 has been assessed as £250,000 (31st December 2017: £250,000).

E Property Services plc

The carrying value of the Group's investment in E Property Services plc at 30th June 2018 has been assessed as £2,716,000 (31st December 2017: £2,716,000).

Yopa

The carrying value of the Group's investment in Yopa at 30th June 2018 has been assessed as £20,000,000 (31st December 2017: £20,000,000).

13. Financial liabilities

Unsecured loan notes

A variation of the 2011 loan notes, was issued as part satisfaction of the consideration of Marsh & Parsons. The first instalment was paid in July 2016, and a final payment of £2.0 million was paid in March 2018.

Contingent consideration -

£449,000 (31st December 2017: £1,710,000 and 30th June 2016: £5,002,000) of contingent consideration relates to payments to third parties in relation to the acquisition of LSLi and certain of its subsidiaries between 2012 and 2016. This is typically payable between three and five years after the acquisition dates depending on the profitability of those subsidiaries in the relevant years.

£1,000 (31st December 2017: £1,000 and 30th June 2017: £1,000) of contingent consideration relates to payments to third parties in relation to the acquisition of LMS in September 2014.

£9,384,000 of contingent consideration relates to Group First (31st December 2017: £7,098,000; 30th June 2017: £6,636,000). The additional consideration will be calculated on an earnings multiple of between five and six times EBITA (plus excess cash in the business) and has been capped at a maximum of £25 million.

£4,395,000 of contingent consideration relates to RSC. The additional consideration will be calculated on an earnings multiple of between five and six times EBITA (plus excess cash in the business) and has been capped at a maximum of £7,500,000.

The table below shows the allocation of the contingent consideration balance and income charge between the various categories: