Lsl Prop Regulatory News (LSL)

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

Interim Results For the six months ended 30th june 2019

LSL Property Services plc, a leading provider of residential property services incorporating estate agency, financial services and surveying and valuation businesses, announces its interim results for the six months ended 30th June 2019.

1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 6 of the financial statements). Excluding the impact of IFRS 16 Group Underlying Operating Profit in H1 2019 was £11.8m

2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation of right of use assets, plant, property and equipment (as defined in Note 6 of the financial statements). Excluding the impact of IFRS 16, Group Adjusted EBITDA in H1 2019 was £14.3m

3 Refer to Note 7 of the financial statements for the calculation

4 Refer to Note 14 of the financial statements for the calculation

Positive first half Group financial performance

§ Positive performance with Group Underlying Operating Profit2 up 5% to £12.2m (2018: £11.6m) and Group Adjusted EBITDA2 up 37%. Excluding the impact of IFRS 16, Group Underlying Operating Profit was 2% ahead of prior year and Group Adjusted EBITDA was broadly in line with prior year

§ Group Revenue up 1% to £154.1m (2018: £152.9m) with a resilient performance in the context of subdued market conditions

§ The Estate Agency Division delivered a strong performance with Underlying Operating Profit2 increasing to £4.0m (2018: £1.4m), benefiting materially from the reshaping of the Your Move and Reeds Rains branch networks, announced on 5th February 2019

§ The Financial Services Division delivered a strong performance with Underlying Operating Profit2 up 20% to £4.3m (2018: £3.6m) reflecting growth in core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018

§ The Surveying Division delivered Underlying Operating Profit2 of £6.3m (2018: £8.6m) impacted by market conditions, business mix and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new contract in May 2018

§ Exceptional costs of £13.4m recognised in the period predominantly from the reshaping of the Your Move and Reeds Rains branch networks, announced on 5th February 2019. Continued positive progress in addressing historic Professional Indemnity (PI) claims with a £0.6m exceptional provision release as claims were settled below previous expectations

Full year outlook

§ The Board remains confident that the Group will deliver a full year Underlying Operating Profit in line with its prior expectations, as the business is expected to continue to benefit from the range of LSL's ongoing self-help measures

§ Interim dividend of 4.0 pence (2018: 4.0 pence)

Estate Agency Division Performance1

§ LSL announced the reshaping of its Your Move and Reeds Rains branch networks on 5th February 2019. We are pleased that the implementation of this programme has progressed in-line with our expectations despite the scale and complexity of the project. As a result, the revenue in the keystone branch network in H1 was slightly ahead of the LSL business plan. During Q1, the Your Move and Reeds Rains estate agency branch network was reshaped from 308 owned branches to 144 keystone branches following the closure and merging of 81 neighbouring branches into the keystone branch network, the franchising of 39 branches and the closure of 44 branches

§ The Estate Agency Division delivered a strong performance with Underlying Operating Profit2 increasing to £4.0m (2018: £1.4m), benefiting materially from the reshaping of the Your Move and Reeds Rains branch networks, announced on 5th February 2019

§ LSL expect the changes to the branch networks to continue to deliver a material improvement to Underlying Operating Profit in Your Move and Reeds Rains, assuming no material change in market conditions

§ Profit per branch (Your Move, Reeds Rains and LSLi) increased to £48.4k (2018: £24.9k) on a rolling twelve month basis as a result of the benefit from the reshaping of Your Move and Reeds Rains networks

§ The Estate Agency Revenues for H1 2019 and H1 2018 as reported and on a like for like basis, adjusting for the closure of the Your Move and Reeds Rains branches during Q1 2019 are set out below:

§ Total Estate Agency Revenue decreased by 13% to £77.1m (2018: £88.9m) impacted by the soft market conditions and the reduction in the size of the Your Move and Reeds Rains branch networks during Q1 2019. Adjusting for the closure of the Your Move and Reeds Rains branches during Q1 2019, like for like Revenue was down 5% year on year

§ Adjusting for the closure of the Your Move and Reeds Rains branches during Q1 2019, Residential Sales Exchange income was down 6% year on year, impacted by market volumes and Lettings income in-line with prior year on a like for like basis

§ The London market conditions continued to be challenging in H1 2019 as anticipated. Marsh & Parsons delivered a resilient Revenue performance despite the market conditions with total Revenue down 5.5%

§ In line with LSL's stated strategy, Marsh & Parsons opened two new branches in April 2019 in outer prime central London, in Willesden Green and Streatham Hill. These new branches are trading in line with expectations

§ Legislation banning tenant fees came into effect on 1st June 2019 and LSL implemented the required changes across its Estate Agency brands. LSL continues to implement self-help measures in lettings

§ LSL continued its accretive lettings book acquisition programme with three lettings books acquired during the period for a total consideration of £1.4m

Financial Services Division Performance1

§ The Financial Services Division delivered a strong performance with Underlying Operating Profit2 up 20% to £4.3m (2018: £3.6m) reflecting growth in core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018

§ Total Financial Services Division Revenue increased by 4% to £34.3m (2018: £33.0m)

§ Financial Services organic growth, excluding Estate Agency, in H1 2019 was 3%

§ The value of LSL's mortgage completions in the first half of 2019 increased to £14.7bn (2018: £13.2bn)

§ The number of appointed representative firms as at 30th June 2019 increased to 860 (2018: 842)

§ The number of financial advisers as at 30th June 2019 was 2,277 (2018: 2,298)

§ The roll out of Toolbox, the new Financial Services technology system is progressing in line with expectations

Surveying and Valuations Division Performance

§ The Surveying Division delivered Underlying Operating Profit2 of £6.3m (2018: £8.6m) impacted by market conditions, business mix and increased headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new contract in May 2018

§ Surveying income increased by 37% to £42.7m (2018: £31.1m) due to the new contract with Lloyds Bank plc, which was awarded in May 2018

§ In June 2019, the Surveying Division was awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank

§ Continued positive progress in addressing historic PI claims with a £0.6m exceptional provision release in H1 2019 as claims were settled below previous expectations

§ Technology enhancements continue to be implemented during 2019 with further functionality releases designed to drive quality and efficiency improvements

§ Work is ongoing to leverage the scale benefits of the Surveying Division, with the aim of improving cost efficiency

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

"The Group delivered a positive financial performance in the first half of 2019, with positive growth in Revenue and Underlying Operating Profit, despite subdued residential property market conditions.

The Board remains confident that the Group will deliver a full year Underlying Operating Profit in line with its prior expectations, as the business is expected to continue to benefit from the range of LSL's ongoing self-help measures.

Whilst we continue to remain cautious on the residential property market outlook for 2019 given the current uncertainty over the UK and global political and economic environment and the potential impact on UK consumer confidence, the Board is confident that the Group, with its market leading brands, broad portfolio of residential property services and the benefits from the proactive self-help measures, remains in a strong position to perform well given a range of potential market conditions, in order to maximise Shareholder value.

The Group has a robust balance sheet with relatively low levels of gearing and is highly cash generative at an operational level. The Board remain confident of the opportunities for further positive progress for the Group."

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 support, and mortgage, pure protection and general insurance brokerage services. Services to mortgage lenders include: valuations and panel management services, and asset management and property management services. For further information, please visit LSL's website: lslps.co.uk

Group Chief Executive's Review

Introduction

The Group delivered a resilient first half Revenue performance with Revenue up 1%. Group Underlying Operating profit2 was up 5% and Adjusted EBITDA2 was up 37%. Adjusted for the impact of IFRS 16, Group Underlying Operating profit was up 2% year on year and Adjusted EBITDA was broadly in line with prior year.

Market conditions in H1 2019 have been softer than the equivalent period in 2018. The RICS June 2019 Residential Market Survey3 reported that that the RICS new buyer enquiries tracker and the RICS newly agreed sales net balance was negative for five of the six months in H1 2019. The RICS June 2019 Residential Market Survey3 reported average stock levels on estate agents books at record lows and whilst buyer enquiries edged upwards in June 2019, RICS reported significant declines in the early part of H1 2019.

Financial results

Group Revenue was up 0.8% to £154.1m (2018: £152.9m). Group Underlying Operating Profit2 was up 4.7% to £12.2m (2018: £11.6m) and Group Underlying Operating Profit Margin2 was 7.9% (2018: 7.6%).

Group operating loss was £2.8m (2018: profit £7.4m) impacted in the period by £13.4m of exceptional charges incurred, predominantly as a result of the reshaping of the Your Move and Reeds Rains estate agency networks, which delivered a material improvement in financial performance in Your Move and Reeds Rains in H1 2019. LSL expect the changes to the branch networks to continue to deliver a material improvement to underlying operating profit in Your Move and Reeds Rains, assuming no material change in market conditions.

During the first half of 2019 net finance costs increased to £1.8m (2018: £1.0m), due to the additional finance cost resulting from the adoption of the new leasing standard, IFRS 16. The expected effective tax rate for the period is 29.7% (June 2018: 24.2%), leading to tax credit of £1.4m. The effective tax rate has increased to 29.7% primarily as a result of disallowable expenditure within the exceptional costs in the year. Group loss after tax was £3.2m (2018: profit of £4.9m). Basic Loss Per Share was 3.1p (2018: earnings per share: 4.7p) and Adjusted Earnings Per Share were 9.0p (2018: 8.6p).

Cash generated from operations increased to £9.5m (2018: £1.1m), which excluded the repayments of lease liabilities following the adoption of IFRS 16 , higher Group Underlying Operating Profit2 compared to the same period last year and an improvement in working capital compared to the prior year. Operating cash flow included PI Costs settlements of £1.5m (2018: £0.6m). Capital expenditure, including intangibles, was £2.2m (2018: £2.1m), including two new Marsh & Parsons branches opened during the period, in Streatham Hill and Willesden Green.

During the first half of 2019 the Group continued its accretive lettings book acquisition programme with three lettings books acquired during the period for a total consideration of £1.4m.

Net assets at 30th June 2019 were £129.9m (2018: £146.0m). Net Bank Debt at 30th June 2019 was £52.0m compared to £46.0m at 30th June 2018. Compared to 31st December 2018, Net Bank Debt has increased by £20m driven by the normal seasonality of the Estate Agency Division cash flows, the funding of the three strategic lettings book acquisitions, the payment of the deferred consideration in relation to previous acquisitions, the exceptional costs in relation to the reshaping of the Estate Agency network as well as the payment of dividends and taxes. LSL has a 14.7% minority shareholding in Yopa. LSL's previous carrying value of £7.8m for Yopa has been written down through reserves by £1.3m to £6.5m as at 30th June 2019 to reflect the Board's assessment of fair value.

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 (2018: 4.0 pence). The ex-dividend date for the interim dividend is 8th August 2019, with a record date of 9th August 2019 and a payment date of 16th September 2019. 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 2019.

Segment reporting

To reflect the increased importance of LSL's Financial Services businesses over the last five years, from 1st January 2019, LSL's Financial Services businesses are reported as a separate segment. The Estate Agency Division receives and reports a commercially agreed commission payment from the Financial Services segment, which reflects Financial Services income generated from the Estate Agency segment. Financial Services Revenue reported in this statement for 2018 has therefore been restated on this basis to assist comparison. The Surveying Division reporting is unchanged.

Estate Agency Division1

LSL announced the reshaping of its Your Move and Reeds Rains branch networks on 5th February 2019. We are pleased that the implementation of this programme has progressed in-line with our expectations despite the scale and complexity of the project. As a result, the revenue in the keystone branch network in H1 was slightly ahead of the LSL business plan. During Q1, the Your Move and Reeds Rains estate agency branch network was reshaped from 308 owned branches to 144 keystone branches following the closure and merging of 81 neighbouring branches into the keystone branch network, the franchising of 39 branches and the closure of 44 branches. This reshaping was in-line with LSL announcement of 5th February 2019.

Estate Agency Division total Revenue was down 13.2% at £77.1m (2018: £88.9m) reflecting the reshaping of the Your Move and Reeds Rains branch networks during the first quarter of 2019. Adjusting for the closure of the Your Move and Reeds Rains branches during the first quarter of 2019, like for like total Revenue decreased by 4.8% compared to the same period in 2018.

The Estate Agency Division delivered a strong performance with Underlying Operating Profit2 increasing to £4.0m (2018: £1.4m), benefiting materially, in line with expectations, from the reshaping of the Your Move and Reeds Rains branch networks, announced on 5th February 2019. Profit per branch (Your Move, Reeds Rains and LSLi) increased to £48.4k (2018: £24.9k) on a rolling twelve month basis as a result of the benefit from the reshaping of the networks. We expect the changes to the branch networks to continue to deliver a material improvement to Underlying Operating Profit in Your Move and Reeds Rains, assuming no material change in market conditions.

Residential Sales income decreased by 16% to £27.6m (2018: £32.9m) due to the reshaping of the Your Move and Reeds Rains branch networks and the market conditions. Adjusting for the closure of the Your Move and Reeds Rains branches during Q1 2019, Residential Sales income decreased by 6%. In a highly competitive market, the Estate Agency Division has broadly maintained residential market share and delivered an increase in average residential fees of 7% to £3,247 (2018: £3,035). The average residential fee in H1 2019 benefited from the closure of Your Move and Reeds Rains branches which generated lower average fees. Like for like, average residential fee in H1 2019 were maintained at the same level compared to the same period last year.

Total Lettings income decreased by 9.2% to £33.8m (2018: £37.3m). On a like for like basis, adjusting for the reshaping of the Your Move and Reeds Rains branch networks, Lettings income was in line with the prior year. The Group has recommenced its letting books acquisitions programme with three lettings books acquired during the period for a total consideration of £1.4m.

Marsh & Parsons total Revenues were down 5.5% to £15.0m (2018: £15.9m). Marsh & Parsons Underlying Operating Profit2 decreased to £0.4m (2018: £0.7m) with operating margins of 2.7% (2018: 4.4%). Adjusted EBITDA as reported for H1 2019 was £2.3m (2018: £1.2m). Excluding the impact of IFRS 16, Adjusted EBITDA for H1 2019 was £0.7m (2018: £1.2m).

Marsh & Parsons Residential Sales were down 10.6%, against an overall London market for sales transactions which LSL estimates was down c.15% in the first half of 2019. The Residential Sales performance was impacted by a reduced pipeline entering into 2019. The pipeline has improved over the first half of 2019 which is an encouraging metric, heading into the second half of the year. Market stock levels in lettings are subdued, resulting in Lettings income decreasing by 5.3% in the first half of 2019.

Prime Central London has been the area most impacted by the market conditions whilst branches in outer prime Central London areas have been less negatively impacted. Two new Marsh & Parsons branches opened in outer prime Central London during the period, in Streatham Hill and Willesden Green. These new branches are trading in line with expectations. Despite the opening of two new branches since 30th June 2018, with strong cost control, total expenditure fell by 4% year on year.

Legislation banning tenant fees came into effect on 1st June 2019 and LSL implemented the required changes across its Estate Agency brands. LSL continues to implement self-help measures in lettings with the aim of optimising lettings income.

In the second half of 2019, the Estate Agency Division will continue to benefit from the reshaping of the Your Move and Reeds Rains branch networks, residential sales pipelines which are currently ahead of the Board's expectations and continued cost control across the LSL businesses.

Financial Services Division1

Financial Services Division Revenue increased by 4% to £34.3m (2018: £33.0m). Financial Services organic growth, excluding Estate Agency, in H1 2019 was 3%. The growth in the value of mortgage completions represents an increase in LSL's market share4 to 8.5% in 2019 (2018: 8%). LSL is the second largest combined network nationwide, measured by combined number of appointed representative firms5. The number of financial advisers as at 30th June 2019 was 2,277 (2018: 2,298).

The Financial Services Division delivered a strong performance with Underlying Operating Profit2 up 20% to £4.3m (2018: £3.6m) reflecting growth in core businesses and the benefit of the acquisitions of PTFS and RSC in Q1 2018. The Financial Services business continues to display good organic growth across its breadth of products including mortgage products, pure protection products and general insurance products. The integration of PTFS, which was acquired in January 2018, is delivering synergy benefits in line with expectations.

The roll out of Toolbox, LSL's Financial Services technology system is progressing in line with expectations.

Surveying and Valuations Division

Revenue in the Surveying Division in the first half of 2019 increased by 37% to £42.7m (2018: £31.1m), with a total number of jobs performed of 250,695 (2018: 154,905). This increase was driven by the contract signed in 2018 for the Surveying Division to supply surveying and valuation services to Lloyds Bank Group plc from September 2018. The initial operational performance of the Lloyds Bank plc contract has been in line with expectations.

Market conditions in H1 2019 were notably softer than anticipated and in the equivalent period in 2018. Income per job in H1 2019 reduced to £170 (2018: £201) due to a change in the business mix. Total Surveying Division expenditure increased due to the additional headcount from the transfer of Lloyds Bank plc personnel to e.surv following the award of the new contract in May 2018. As a result, LSL delivered a reduced Underlying Operating Profit in H1 2019 of £6.3m (2018: £8.6m) with a profit margin of 14.8% (2018: 27.7%).

The total number of qualified surveyors6 at 30th June 2019 was 490 (2018: 314), with the increase due to the transfer of Lloyds Bank plc employed surveyors into the LSL Surveying business during H2 2018. The on-going graduate programme continues to be successful and assists in alleviating the impact of capacity constraints in the market.

At 30th June 2019, the total provision for PI Costs was £10.9m (2018: £14.6m). In 2019 the Group continued to make positive progress in addressing historic claims and there has been an exceptional release of £0.6m.

During H1 2019, the Surveying Division was pleased to be awarded an extension to its contract to supply UK residential survey and valuation services to a major high street bank.

Work is ongoing to leverage the scale benefits of the Surveying Division with the aim of improving cost efficiency.

Technology enhancements continue to be implemented during 2019 with further functionality releases designed to drive quality and efficiency improvements.

Strategy

LSL remains committed to delivering on its stated strategy:

Estate Agency

·; Ambition to achieve £80k-£100k profit per branch in the medium term based on the expectation of a normalised level of market transactions

·; 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

Financial Services

·; Enhance LSL's position as a leading distributor of mortgage and non-investment insurance products

·; Consistent delivery of appropriate outcomes for consumers with a focus on "best practice" standards of regulatory compliance

·; Enhancement of technology solutions to improve the customer experience and operational efficiency

·; Evaluate further selective Financial Services acquisitions

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

The Board remains confident that the Group will deliver a full year Underlying Operating Profit in line with its prior expectations, as the business is expected to continue to benefit from the range of LSL's ongoing self-help measures. 

Whilst we continue to remain cautious on the residential property market outlook for 2019 given the current uncertainty over the UK and global political and economic environment and the potential impact on UK consumer confidence, the Board is confident that the Group, with its market leading brands, broad portfolio of residential property services and the benefits from the proactive self-help measures, remains in a strong position to perform well given a range of potential market conditions, in order to maximise Shareholder value.

The Group has a robust balance sheet with relatively low levels of gearing and is highly cash generative at an operational level. The Board remain confident of the opportunities for further positive progress for the Group.

Ian Crabb

Group Chief Executive Officer

30th July 2019

(1) Following the change to LSL's segment reporting effective from 1st January 2019, the Estate Agency Division receives a commercially agreed commission payment from the Financial Services segment. This arrangement reflects Financial Services income generated from the Estate Agency segment. The 2018 revenue has been restated on this basis to assist comparison

(2) Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments; Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation of right of use assets, plant, property and equipment (both as defined in Note 6)

(3) Source: RICS UK Residential Market Survey, June 2019

(4) Source: UK Finance new mortgage lending by type of lender (excludes product transfers), June 2019

(5) Source: Which-Network - network performance figures for Q1 2019 showing the combined numbers for PRIMIS

(6) FTE (full time equivalent)

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 2018 on pages 30 to 34. The Annual Report and Accounts 2018 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

·; Business infrastructure (including IT)

·; Information security (including data protection)

·; Regulatory and compliance

·; Employees

A recent Group Risk Appetite Assessment exercise included an evaluation of developing areas of key risks and the effectiveness of related business response plans.

The Board has concluded that the principal risks and uncertainties of the Group remain the same as those included within the Annual Report and Accounts 2018.

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 2018 on pages 30 to 34.

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 2018 (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

30th July 2019 

Interim Group Income Statement

for the six months ended 30th June 2019

Interim Group Statement of Comprehensive Income

for the six months ended 30th June 2019

Interim Group Balance Sheet

as at 30th June 2019

Interim Group Cash Flow Statement

for the six months ended 30th June 2019

Interim Group Statement of changes in equity

Unaudited - for the six months ended 30th June 2019

During the six month period to 30th June 2019 a total of 10,672 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the

Trust. LSL received £26,000 on exercise of these options.

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

Interim Group Statement of changes in equity

Unaudited for the 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.

Interim Group Statement of changes in equity

Audited for the year ended 31st December 2018

During the year ended 31st December 2018, the Trust acquired nil LSL Shares. During the period 15,966 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.

Notes to the Interim Condensed Group Financial Statements

The Interim Condensed Group Financial Statements for the period ended 30th June 2019 were approved by the LSL Board on 30th July 2019. The interim Financial Statements are not the statutory accounts. The financial information for the year ended 31st December 2018 is extracted from the audited statutory accounts for the year ended 31st December 2018, 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 2019 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 2018 which are included in LSL's Annual Report and Accounts 2018.

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 16 (Leases) has 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 2018.

The changes in the accounting policies are also expected to be reflected in the Group's Consolidated Financial Statements for the year ending 31st December 2019.

The Group has initially adopted IFRS 16 Leases from 1st January 2019, replacing the current lease guidance including IAS 17.

Previously all of the Group's leases were accounted for as operating leases (see Note 25 of the 2018 Group Annual Report and Accounts). Both properties and vehicles fall under the scope of IFRS 16, with properties being the most significant by value.

The standard permits either a full retrospective or a modified retrospective approach for the adoption. The Group has adopted the standard using the modified retrospective approach, with the right of use asset being equal to the lease liability at the point of original recognition. Therefore, the cumulative impact of the adoption is recognised in retained earnings as of 1st January 2019 and the comparatives are not restated.

As a lessee

Under IFRS 16 Leases are accounted for on the right of use model. The Income Statement presentation and expense recognition pattern is similar to that required for finance leases by IAS 17 previously adopted by the Group.

At inception, the Group assesses whether a contract contains a lease. This assessment involved the exercise of judgement about whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset.

IFRS 16 permits lessees to elect not to apply the recognition requirements to short term leases and leases for which the underlying asset is of low value. The Group has elected not to recognise short term leases of less than one year at inception and low value leases which will continue to be reflected in the Income Statement. This will be the ongoing policy adopted by the Group. There are no right of use assets or lease liabilities recognised for these leases, and the expense is recognised in the Income Statement on a straight line basis.

In addition the Group has chosen to apply the relief option, which allows it to adjust the right of use by the amount of any provision for onerous leases recognised in the balance sheet immediately before the date of initial application. 

As a lessor

At inception, the Group assesses whether a contract contains a lease. This assessment involved the exercise of judgement about whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset.

When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub lease separately. It assesses the lease classification of a sub-lease with reference to the asset arising from the head lease, not with reference to the underlying asset. If the head lease is a short-term lease to which the Group has applied the short-term lease exemption, then the sub lease will follow that classification and be treated as an operating lease.

Where the Group is an intermediate lessor in a sublease, IFRS 16 has resulted in the recognition of a financial asset, where the sublease was previously classified as an operating lease under IAS 17.

The following reconciliation to the opening balance for IFRS 16 lease liabilities as at 1st January 2019 is based upon the operating lease obligations at 31st December 2018:

Leases are shown as follows in the balance sheet and Income statement for the period ending 30th June 2019:

Short term leases of less than twelve months at inception and low value leases are charged to the Income statement evenly over the life of the lease. In the six month period ending 30th June 2019. £2,318,000 relating to short period and low value leases were included in Operating expenses.

3. Judgements and estimates

The preparation of financial information in conformity with IFRS as adopted by the 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 2018, with the exception of the adoption of IFRS 16: Leases which the Group considers to be a key judgement given the judgement required in assessing the appropriate treatment of individual leases. These assumptions are discussed in detail in the Group's Annual Report and Accounts 2018. The assumptions discussed are as follows:

Judgements

Areas of judgement that have the most significant effect on the amounts recognised in the consolidated Financial Statements are:

·; Intangible assets

·; Valuation of financial assets

·; Deferred tax

·; Exceptional items

·; Identification of leases

Estimates

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

·; Professional Indemnity (PI) claims

·; Lapse Provision

·; 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 12 to these interim condensed consolidated Group Financial Statements, the Group has utilised £57 million of the facility leaving £43 million of available 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. Revenue

The Group's operations and main revenue streams are those described in the latest Annual Financial Statements.

Disaggregation of Revenue

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

5. Segment analysis of revenue and operating profit

To reflect the increased importance of LSL's Financial Services businesses, the LSL Board has updated the Group segmental reporting effective from 1st January 2019. For the six months ended 30th June 2019, LSL reports three segments: Estate Agency; Financial Services; and Surveying and Valuation Services:

·; 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 and asset management services to a range of lenders. Following the change to LSL's segment reporting, the Estate Agency Division receives a commercially agreed commission payment from the Financial Services Division (from Embrace Financial Services and First2Protect). This arrangement reflects Financial Services income generated by the Estate Agency Division.

·; The Financial Services Segment arranges mortgages for a number of lenders and arranges pure protection and general insurance policies for a panel of insurance companies via the Estate Agency branches, PRIMIS, Embrace Financial Services, First2Protect, Mortgages First, Insurance First Brokers and Linear Financial Services and RSC New Homes.

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

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.

The Financial Services segment incorporates all LSL's Financial Services businesses. The Estate Agency segment primarily incorporates the results from the Estate Agency branch networks (Your Move, Reeds Rains, LSLi and Marsh & Parsons) and Asset Management. The Surveying and Valuation Services segment is unchanged from the previous segment reporting.

Operating segments

The following tables presents revenue and profit information regarding the Group's operating segments for the six months ended 30th June 2019, for the six months ended 30th June 2018 and for the year ended 31st December 2018.

Six months ended 30th June 2019

Six months ended 30th June 2019 (continued)

The joint venture interests of the Group are recorded in the Estate Agency and Related Services segment, with the associate interest recorded in the Financial Services.

Unallocated net liabilities comprise plant and equipment £12,000, IFRS 16 plant and equipment £63,000, other assets £1,779,000, other taxes £49,000, accruals £(35,000), IFRS 16 financial liabilities £(63,000), deferred and current tax £(1,134,000), and revolving credit facility overdraft £(52,016,000).

Six months ended 30th June 2018

\* The prior period has been restated to reflect the current segmental reporting which adjusts the previous Estate Agency and Related Services segment to remove all of LSL's Financial Services businesses to create the current Financial Services segment.

The joint venture interests of the Group are recorded in the Estate Agency and Related Services segment, with the associate interest recorded in the Financial Services.

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).

Year ended 31st December 2018

\* The prior period has been restated to reflect the current segmental reporting which adjusts the previous Estate Agency and Related Services segment to remove all of LSL's Financial Services businesses to create the current Financial Services segment.

The joint venture interests of the Group are recorded in the Estate Agency and Related Services segment, with the associate interest recorded in the Financial Services.

Unallocated net liabilities comprise plant and equipment £15,000, other assets £3,822,000, accruals £(922,000), deferred and current tax liabilities £(4,890,000), and revolving credit facility overdraft £(34,500,000).

6. 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 intangible 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:

7. Earnings per share (EPS)

Basic EPS amounts are calculated by dividing net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the period.

Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Six months ended 30th June

Year ended 31st December 2018

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 2018

This represents adjusted profit after tax attributable to equity holders of the parent. Tax has been adjusted to exclude the prior year tax adjustments, and the tax impact of exceptional items, amortisation and share-based payments. The effective tax rate used is 19.00% (30th June 2018: 19.00% and 31st December 2018: 19.00%)

8. Exceptional items

Exceptional costs

Initial non-recurring transition and integration costs of £0.3m (June 2018: £Nil, December 2018: £3.2m) relate to the contract to supply surveying and valuation services to Lloyds Bank plc.

In the Estate Agency Division there were £13.1m (June 2018: £Nil, December 2018: £2.0m) of non-recurring and material exceptional costs relating to the planned Estate Agency branch/centre closures and restructuring costs. The most significant costs incurred are redundancy costs and leasehold property costs with the balance including non-cash fixed asset write-offs.

Exceptional Gains

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

In 2019 the Group has continued to make positive progress in settling historic PI claims resulting in a release of the provision of £0.6m (June 2018: £1.2m, December 2018: £2.2m)

9. Dividends paid and proposed

A final dividend in respect of the year ended 31st December 2018, of 6.9 pence per share (Year ended December 2017: 7.3 pence per share), amounting to £7.1 million was paid in the period ended 30th June 2019. An interim dividend has been announced amounting to 4.0 pence per share (June 2018: 4.0 pence). Interim dividends are recognised when paid.

10. Taxation

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