Lsl Prop Regulatory News (LSL)

5 August 2020

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

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2020

LSL reports Underlying Operating Profit 3% ahead of 2019, with strong trading in June and July following resilient performance during the Covid-19 lockdown

nm: not meaningful

1 Group Underlying Operating Profit is before exceptional costs, Covid-19 related costs, contingent consideration, amortisation of intangible assets, share-based payments and includes £13.8m of amounts receivable pursuant to the Coronavirus Job Retention Scheme and utilised to pay employee salaries for those placed on furlough (as set out in Note 6 of the financial statements). Segment Underlying Operating Profit is stated on the same basis as Group Underlying Operating profit.

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

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

HIGHLIGHTS

Robust financial performance, in context of the impact of the Covid-19 outbreak on the UK economy and the housing market

· Group Underlying Operating Profit1 up by £0.3m to £12.5m over H1 2019.

· Reported Group Revenue fell 25% to £114.9m (2019: £154.1m).

· Revenue impacted by Covid-19, the closure in February 2019 of 164 estate agency branches to reshape the Your Move and Reeds Rains networks, and the tenant fee ban introduced in June 2019.

· Financial Services Underlying Operating Profit1 up 14%.

· Estate Agency Underlying Operating Profit1 up 3%.

· Surveying Underlying Operating Profit1 down 23%, with activity significantly impacted by lockdown preventing the conducting of physical valuations.

· Group Underlying Operating Profit is stated before the recognition of £2.8m of Covid-19 related net costs, the charging of net exceptional costs of £4.4m, contingent consideration, amortisation, share based payments, and includes £13.8m of amounts receivable through the Coronavirus Job Retention Scheme, which has been used to meet the salary of employees placed on furlough to secure as many long term jobs as possible.

· Net Bank Debt4 at 30 June 2020 of £12.7m, resulting in modest gearing3 at 0.25 X Adjusted EBITDA2.

Strong trading in June, which continued throughout July

· The Group generated an Underlying Operating Profit in June of £5.7m (2019: £3.4m), before £0.3m of Covid-19 related costs recognised in the period and including £2.9m of amounts receivable through the Coronavirus Job Retention Scheme.

· Underlying Operating Profits in June 2020 compared to 2019:

o Financial Services: in line with 2019 notwithstanding the contraction of the UK housing market in Q2.

o Estate Agency: +41% demonstrating a rapid recovery following the lockdown.

o Surveying: +150%, benefiting from a strong lender pipeline and back office cost savings following the closure of an administration centre during Q1 2020.

· July trading is extremely encouraging with strong front end sales metrics across all three divisions:

o Financial Services reporting mortgage applications more than 20% ahead of prior year, the highest month in 2020 and 16% ahead of June 2020.

o Estate Agency instructions c.20% ahead of July 2019 with sales exchange pipeline at 31 July up 12% on prior year. Net Sales and Instructions in July were the highest in 2020.

o Surveying valuation instruction volumes broadly in line with July 2019.

The Board's focus is to position the Group to compete strongly in 2021, whilst continuing to monitor market conditions closely

· As at 31 July, around 2,800 of the c.3,300 employees furloughed had returned to work, as the Group takes steps to secure market share during 2020 to provide a solid base on which to build in 2021.

· More staff are being returned to work in August.

· The Board will assess opportunities to recommence investment activities, including lettings books acquisitions, whilst taking full account of on-going risks to the markets in which the Group operates.

· Following a period of focus on cash conservation, a controlled increase is underway in marketing spend and other operational initiatives to build on strong market positions across all three Divisions.

· The Board remains alert to the risk of a further spike in Covid-19 cases, as well as to weakening economic conditions, and will take decisive action if necessary.

The Group remains well positioned to meet highly stressed economic conditions

· Revolving credit facility of £100m, committed to 11 May 2022.

· Resilient performance during lockdown demonstrated underlying strength of the business and its diversified revenue streams.

· Stress testing carried out on entry to lockdown, assuming significant market stress throughout 2020, indicated the Group would retain sufficient liquidity throughout the year.

· Group Net Banking Debt4 at 30 June 2020 was £12.7m, representing gearing3 of 0.31 x 12 month rolling adjusted EBITDA, against a covenant of 3.25 times.

· Cash monitored carefully, with regular stress testing, and decisive action will be put in place should market conditions deteriorate.

· The voluntary reduction of one third of salaries and fees by all Executive and Non-Executive directors was introduced on 1 April 2020 and was still in place at the end of July.

· The salaries of other senior managers who agreed a voluntary reduction were reinstated from 1 July 2020.

· No Interim dividend declared. Dividend policy remains under review.

Financial Services Division - H1 Review

· Underlying Operating Profit increased by 14% to £4.9m (30 June 2019: £4.3m), despite reduced activity during the lockdown period demonstrating the resilience of our Financial Services business.

· Total Financial Services Division Revenue decreased by 18%, reflecting the impact of the lockdown as well as the reshaping of the Your Move and Reeds Rains branch networks during Q1 2019.

· Mortgage completions were broadly in line with the prior year at £14.6bn, representing 9.2%6 of the market, highlighting the versatility of the range of product and service offerings.

· Total appointed representative firms at 30 June 2020 increased by 4% to 896 (30 June 2019: 860), with a strong pipeline of new applicants in place at 31 July 2020.

· The number of financial advisers increased by 7% over the past 12 months to 2,431.

Estate Agency Division - H1 Review

· Underlying Operating Profit increased to £4.1m (2019: £4.0m), including strong trading in Q1 2020, the impact of Covid-19 during the lockdown, followed by the easing of lockdown restrictions on 13 May 2020.

· Underlying Operating Profit benefited from the reshaping of the Your Move and Reeds Rains branch networks undertaken in 2019.

· Total like-for-like Residential Sales exchange income decreased by 25%.

· Total like-for-like Lettings income decreased by 18%.

· Total Estate Agency Revenue decreased 28% to £55.7m (2019: £77.1m), reflecting the fall in activity during the lockdown, the reduction in the size of the Your Move and Reeds Rains branch networks and the tenant fee ban introduced in June 2019.

· By 30 June 2020, the entire owned and operated branch network had reopened, with the exception of five locations under review.

· 87% of employees previously furloughed have now returned to work.

· Underlying Operating Profit is stated before the recognition of £1.7m of Covid-19 related costs, principally relating to property and other asset costs incurred whilst the lockdown was in place.

· The Group has not detected a material change in house prices caused by Covid-19.

Surveying Division - H1 Review

· Performance in Surveying impacted heavily by the restriction on physical valuations in England between 13 March and 18 May 2020.

· The lifting of the restriction took effect in Northern Ireland, Scotland and Wales in June 2020.

· During these periods all valuations undertaken remotely, with weekly volumes falling to approximately 20% of those in January and February 2020.

· Total revenue reduced from 2019 by 27% to £31.1m and Underlying Operating Profit by 23% to £4.9m

· Performance in the periods outside lockdown have been strong.

Outlook

Current trading conditions are extremely encouraging, with strong front-end metrics in all three divisions. The introduction by the Government of a Stamp Duty Holiday for properties up to £500,000 is expected to provide further support to the principal markets in which the Group operates.

However, the future course of the Covid-19 virus and its impact on the economy and markets in which the Group operates remains highly uncertain. In these conditions, it is not possible to make an accurate assessment of trading prospects, and the Board therefore is unable to provide financial guidance for the year ending 31 December 2020 and beyond. We will resume formal guidance as soon as the position becomes clearer.

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

"I am pleased to confirm that LSL has performed extremely well, during a period of unprecedented uncertainty and disruption. This is testament to the underlying strength of the Group, and its ability to respond quickly and effectively to rapidly changing market conditions.

After a strong first quarter, we reacted decisively to the emergence of the Covid-19 virus, managing our operations and cash position to secure the position of the Group, even in the event of the lockdown continuing throughout the year. This same agility served us well as restrictions eased, as we rebuilt our capability quickly to trade strongly throughout June.

As a result, I can report an Underlying Operating Profit slightly ahead of last year, and in so doing I cannot highlight strongly enough the exceptional contribution made by management and staff working in all parts of the Group. Their commitment to our customers and to the Group has been exemplary and I would again like to express my appreciation.

Although we remain alert to the risk of more disruption, and will take prompt action should it occur, I am increasingly optimistic about market conditions, and am confident in our ability to compete successfully. Our focus is increasingly turning to investing for future growth, as well as optimising current performance. We have performed extremely well in 2020, and I am confident about the future prospects of the Group."

For further information, please contact:

Notes:

1 Group Underlying Operating Profit is before exceptional costs, COVID-19 related costs, contingent consideration, amortisation of intangible assets, share-based payments and includes £13.8m of amounts receivable through the Coronavirus Job Retention Scheme (as set out in Note 6 of the financial statements). Segment Underlying Operating Profit is stated on the same basis as Group Underlying Operating profit.

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).

3 Gearing defined as Net Bank Debt divided by Group Adjusted EBITDA. Excluding the impact of IFRS 16 gearing, and as reporting for covenant purposes, is 0.31x, post IFRS 16 gearing is 0.25X.

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

5 PRIMIS is the trading name of Advance Mortgage Funding Limited, Fist Complete Limited and Personal Touch Financial Services Limited.

6 Market share excludes Product Transfers and is as at May 2020

Notes on LSL

LSL is a leading provider of residential property services in three key markets: financial services, estate agency and surveying and valuation services. Services include: residential sales, lettings, land and new homes, surveying, conveyancing support, and mortgage and non-investment insurance brokerage and intermediary network 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

I am pleased to be able to report that LSL has performed strongly, after a period of unprecedented market disruption and uncertainty. Following a strong start to the year, we responded decisively to the emergence of the Covid-19 virus, in doing so highlighting our agility and focus, whilst our performance during that period demonstrated the benefits of conservative financial gearing. We reacted equally quickly to the easing of lockdown restrictions to rapidly rebuild our activity in each of our Divisions and help secure a Group Underlying Operating Profit for the half year marginally ahead of 2019.

None of this would have been possible without the hard work and support we received from colleagues working in all parts of our business. Once again, I would like to record the Board's appreciation for their tremendous efforts.

I would also note that in common with many other organisations, LSL made use of the Coronavirus Job Retention Scheme, through which we received £13.2m in the period. Around 3,300 colleagues were placed on furlough. I am pleased to report that this number has now reduced to around 500. This total includes some colleagues whose personal circumstances mean it is difficult for them to return to work at this time, factors which the Group continues to recognise and support. We will continue to return more colleagues in the coming months.

The future path of the virus remains impossible to predict with any certainty, nor is the outlook for either the general economy or housing market clear. Naturally, we will continue to monitor market conditions carefully, remaining ready to react to any adverse developments. However, we will also seek to maximise the opportunities afforded by what are currently much improved conditions whilst focusing on the further development of our strategy for long term growth.

Financial and Operating Results

Group

Group Revenue in H1 2020 reduced by 25% to £114.9m. Much of this reduction resulted from the restrictions arising from the Covid-19 lockdown, between 23 March and 13 May 2020, which affected the last weeks of Q1 2020, and much of Q2 2020 trading.

In the three-month period to 31 March 2020, Group Revenue compared to the same period in 2019, decreased by 10% overall and by 6% on a like-for-like basis, once the effect of the steps taken in 2019 to reduce the size of the Estate Agency branch networks is excluded. Otherwise, trading was generally strong in each of the Divisions, with the remaining reduction attributed to the introduction of the tenant fee ban in June 2019, and to the fall in volumes both in the run up to and, more acutely, following the announcement of the lockdown on 23 March 2020.

Over the six-month period, Group Underlying Operating Profit increased by 3% to £12.5m. This figure excludes around £2.8m of Covid-19 related costs, the substantial part of which relates to property costs for locations closed during the period due to the lockdown and adherence to social distancing requirements.

The year started strongly as political uncertainty receded, with each of the Group's Divisions reporting improved performance over 2019, notwithstanding the impact of Covid-19 on March trading. Underlying Operating Profit in Q1 2020 increased from £2.1m in 2019 to £3.4m in 2020, and Underlying Operating Margin from 3% to 5%.

Naturally, profitability reduced significantly during the lockdown: April 2020 Group Underlying Operating Profit fell to £1.6m from £2.9m before recovering quickly as restrictions eased. June 2020 Group Underlying Operating Profit was £5.7m compared to the 2019 figure of £3.4m, as the Group benefited from new business and the clearance of pipelines and meeting pent-up customer demand. Strong trading continued in July across all three divisions:

o Financial Services reporting mortgage applications more than 20% ahead of prior year, the highest month in 2020 and 16% ahead of June 2020.

o Estate Agency instructions c.20% ahead of July 2019 with sales exchange pipeline at 31 July up 12% on prior year. Net Sales and Instructions in July were the highest in 2020.

o Surveying valuation instruction volumes broadly in line with July 2019.

In view of the significant improvement in trading, the Board has considered carefully whether to recommend payment of an interim dividend. The Board remains committed to its long term dividend policy which has resulted in payments of between 30% and 40% of Adjusted Profit After Tax, but also remains mindful of the uncertain economic backdrop, and at this stage has concluded that it is prudent not to pay an interim dividend as it has done in previous years. This position will continue to be kept under review.

Financial Services Division

1. Market share excludes Product Transfers and is as at May 2020

2. 2020 FCA capital requirement and excess capital as at Q1

The importance of Financial Services to the Group has increased consistently in recent years, reflecting the Board's strategy to develop a broader and less volatile income stream in areas in which it has significant experience. Over the 3 financial years ended 31 December 2019, Underlying Operating Profit increased by 41% to £11.6m.

In doing so, LSL has become a major player in the provision of mortgage brokerage, and in the first half of 2020 we provided services in relation to £14.6bn of mortgage completions, representing approximately 9.2%1 of the UK market, up from 8.5% in 2019.

The benefits of this strategy can be seen in the strong performance of the Division in Q1 2020 and June 2020, as well as in the significant contribution made during the lockdown.

Over the first 3 months of the year, profitability grew strongly with Underlying Operating Profit up 27% to £2.3m, notwithstanding reduced activity levels during the latter part of March 2020. Total Financial Services Revenue during this period decreased by 6%, a figure which includes a reduction from the impact of the reshaping of the Your Move and Reeds Rains branch networks undertaken in 2019. Financial Services Revenue excluding Estate Agency's contribution decreased by 3%.

During April 2020, Financial Services Revenue reduced by 18% compared to the prior year, as activity focused on re-mortgage business with demand for house purchase mortgages reducing to negligible levels. Nevertheless, the Division still reported an increase in Underlying Operating Profit to £0.9m (April 2019: £0.7m).

Activity levels recovered significantly following the end of lockdown restrictions, to give rise to an overall increase in H1 2020 Underlying Operating Profit of £0.6m (14%). £0.3m of costs relating to Covid-19 have been excluded from the H1 2020 Underlying Operating Profit. In large part, this growth was secured through the Group's continuing success in attracting new appointed representatives ("AR") firms to its PRIMIS network. Over the past year, AR firms increased by 4% to 896, and the number of advisers by 7% to 2,431.

The business mix of mortgage applications between purchase and refinance, including both re-mortgage and product transfers, has returned to normalised levels at around a 50/50 split. In April, business was heavily skewed to re-finance at around 86%.

The growth in Financial Services brings with it different areas of focus, and risk. Work was undertaken in 2019 to prepare for the introduction by the Financial Conduct Authority ("FCA") of the Senior Managers and Certification Regime ("SMCR"), and the Nominations Committee has taken steps to ensure that the Board's composition includes directors with significant experience of operating in regulated financial services businesses. In addition, during 2020 the independent member of the Financial Services Management Committee took on the role of Chair of that Committee to enhance the Division's governance arrangements.

In common with other regulated businesses, LSL's Financial Services activities require the maintenance of minimum levels of regulatory capital, calculated on the basis of revenue in related activities. At the end of Q1 2020, the most recent regulatory reporting period, the relevant businesses held total capital of £15.8m, significantly ahead of the regulatory requirement of £5.2m, indicative of the Group's prudent approach to balance sheet management. This capital surplus could support significant further growth in FCA regulated activities.

Estate Agency Division

Estate Agency Revenue was heavily impacted by significantly reduced activity levels, in particular Residential Sales, with a number of residential housing market activities banned between 23 March and 13 May 2020. These included viewings, physical valuations, removals and other essential parts of the residential sales and lettings processes.

Overall volumes were budgeted to fall from those reported in 2019 as a result of the reshaping in Q1, 2019 of the Your Move and Reeds Rains branch networks. The previous total of 308 branches was reduced to 144 keystone branches, following the closure and merger of 81 branches, the franchising of a further 39 and the closure of 44 locations.

These steps helped improve profitability at the start of the year, as well as containing costs during the lockdown. Adjusting for the reduced size of the network, first quarter like-for-like Residential Sales exchange income increased by 1%, a performance the Board regard as strong in view of the closure due to lockdown on 23 March 2020 and the slowdown in the days and weeks before.

Nevertheless, Underlying Operating Loss reduced in Q1 2020 by 34% to £0.8m, reflecting improved margins and the benefits of the branch restructuring undertaken last year.

Activity was extremely restricted in the period between 23 March and 13 May 2020. Over this period, weekly Residential Sales exchange income reduced by 63%, and new Lettings and Renewals by 24%. The Group responded quickly to the easing of restrictions, having put in place detailed contingency plans in preparation. As a result, by 31 May 2020, the Group had reopened 208 owned branches in England, with a further 18 branches in Scotland and Wales remaining closed until guidance changed on 29 June 2020. By the end of June 2020, the total branch estate had reopened with the exception of 5 branches under review and was operating with comprehensive health and safety protections in place. As at 30 June 2020, 1,334 furloughed colleagues (from the peak of 2,085) have returned back to work, with a further 473 brought back in July, as the Division implements measures to build market share in a controlled fashion.

We have yet to see the full benefit of much of this increased activity given the time taken between taking on a new listing and completion of sale. Nevertheless, Estate Agency income recovered significantly in June to £10.3m (2019: £12.4m).

Across the whole of the first-half of the year, Estate Agency Divisional Revenue was 28% below prior year at £55.7m. Adjusting for the reshaping of the Estate Agency networks, like-for-like revenue was down 25%. The benefits of the steps taken to rationalise the network and focus on the most productive branches, can be seen in improved average Sales Exchange Fees (up 15% from £3,246 to £3,730) and reduced costs (down 29% to £51.6m), which helped to drive a small increase in Underlying Operating Profit (up £0.1m to £4.1m). A total of £1.7m of 2020 costs have been separately identified as Covid-19 related costs and are excluded from these numbers.

The performance of Marsh & Parsons is affected by the particular conditions that pertain to the London markets. Q1, 2020 revenues increased 5% to £7.0m, whilst a strong recovery following the lockdown in June 2020 (revenue £2.4m compared to £2.8m in 2019), helped lift Underlying Operating Profit in June 2020 to £0.6m (2019: £0.5m), and that for the 6 months to £1.0m (2019: £0.4m).

Surveying Division

In Q1 2020, a total of 124,000 valuations were completed, 3,000 more than in 2019, but at a slightly lower average income (£166 v £171). Average income per job is affected by a number of factors, including the proportion undertaken remotely, the nature of the valuation required and the work necessary to ensure an appropriate valuation is reached.

A number of steps have been undertaken to improve margins in the Division, a process that will continue. During Q1 2020, Surveying administration functions were rationalised, resulting in annualised savings of £1.0m. Notwithstanding the slight reduction in income, and the onset of the lockdown restrictions in March 2020, Underlying Operating Profit for Q1 2020 increased marginally over 2019 (£2.9m v £2.8m).

The Group undertook no physical valuations during the period between 23 March and 18 May 2020, although it continued to perform valuations on a remote basis, at a level equating to approximately 20% of normal activity. Following recommencing physical valuations on 18 May 2020, the number of inspections increased steadily and in June 2020 42,000 jobs were completed (2019: 42,000). It is estimated that around 55% of the work undertaken in June related to the clearance of lender pipelines, although the proportion of new instructions continues to build.

The Division reported Underlying Operating Profit for Q2 2020 of £2.0m (2019: £3.5m) to bring the half year total to £4.9m (2019: £6.3m). However, performance in June 2020 was strong, with Underlying Operating Profit of £2.4m, significantly ahead of the £0.9m in June 2019. A total of £0.8m has been excluded from these numbers and identified separately as Covid-19 related costs.

The availability of qualified surveyors is a factor that has been of some concern across the industry as a whole, and increasing the Group's capacity in this regard has been an area of focus. Against this background, the small increase in operational surveyors over the past 12 months (from 486 FTE to 507 FTE) will help to position the Group to meet future demand. At the half-year end, a small number of operational surveyors remained on furlough (15 out of the 440 placed on furlough), in large part reflecting personal circumstances which make it difficult to return to work at this time.

The Division continues to focus on meeting the needs of its lender customers, paying close attention to service standards whilst also seeking to develop new and improved products and services. During 2020, new technology enhancements were released, with more under development to deliver further quality and efficiency improvements. The Group was also pleased in June 2020 to secure a contract extension to supply UK residential survey and valuation works to a major High Street bank.

Currently, just over 70% of the Division's revenue is derived from its top five customers. This is not inconsistent with the concentration in mortgage lending in the UK, where the six biggest lenders collectively account for around 65% of the market.

Accounting for the impact of Covid-19 and Exceptional items

We have excluded Covid-19 related net costs of £2.8m from Underlying Operating Profit and shown them separately in note 6 of the Interim Statements. The majority of this total relates to property and other asset costs incurred whilst the lockdown was in place. These costs are net of property grants received and separately identified to give full transparency of the impact of Covid-19 on the Group.

Property Grants of £0.5m were received whilst premises were closed during the lockdown and have been excluded from Underlying Operating Profit. Following the re-opening of branches and other premises, property costs and grants are included in Underlying Operating Profit.

We have recognised £4.4m of exceptional costs in the period in line with the Group's Accounting Policies. This includes £1.7m relating to planned Surveying transformation and Estate Agency branch/centre closure costs and £2.4m of aborted deal costs in relation to the discussions for a potential all share combination between LSL and Countrywide plc, which did not result in an offer by LSL. Further details are set out in Note 8 to the financial statements.

Group Liquidity and Banking Covenants

The Group maintains a prudent approach to financial gearing. Reported Net Bank Debt at 30 June 2020 was £12.7m (June 2019: £52.0m), resulting in modest gearing2 at 0.25 X Adjusted EBITDA1 (June 2019: 1.11 X). Undrawn bank facilities at 30 June 2020 were £68.0m.

Net Bank Debt reduced between the end of Q1 and the end of Q2 2020, with careful cash control and cash conservation as well the receipt of Coronavirus Job Retention Scheme payments. The Net Bank Debt position was further reduced by payment deferrals put in place to conserve cash, mainly in relation to tax payments due, with deferrals agreed with HMRC. Adjusting for Covid-19 related payment deferrals, the underlying Net Bank Debt position at 30 June 2020 was approximately £45.6m, with notional adjusted gearing2 at 1.12 X Adjusted EBITDA1, and representing a fall on the equivalent position in 2019.

LSL has considered a range of scenario throughout H1 2020 to help the ongoing assessment of risks and opportunities. A highly pessimistic scenario was modelled as part of the Going Concern assessment, which included the pessimistic assumption that there is a further lock down from September 2020 for the remainder of 2020, impacting LSL's businesses, followed by a 2021 outlook in which market transaction volumes reduced to a level close to the low point experienced during the Global Financial Crisis.

The modelling has confirmed that the Group's current liquidity position would enable it to operate under this scenario for a period of at least 12 months from the date of signing these financial statements 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.

Having due regard to these matters and after making appropriate enquiries, the Board have therefore continued to adopt the Going Concern basis in preparing this interim financial statement.

Strategy

The Board has previously set out a number of strategic goals and objectives. We have developed these further during the course of 2020, with key elements including:

Group

· To align LSL's operations to deliver a more seamless proposition for the provision of residential property services;

· To grow counter-cyclical and recurring revenue streams;

· To leverage technology better to deliver product enhancements and operational efficiency improvements;

· To evaluate selective inorganic growth opportunities and pursue as appropriate;

· To remain close to the markets in which it operates, managing businesses with attention to detail and rigour; and

· To position the Group to compete effectively in the digital age, in each of its principal areas of activity.

Financial Services

· To grow further the Group's Financial Services activities, including considering entry to complementary markets in which the Group has competitive advantages either from its existing activities or its expertise;

· To consolidate LSL's leading position as a distributor of mortgages, and non-investment insurance products;

· To develop further its distribution capability, identifying new channels for client acquisition; and

· To maintain a rigorous, compliant and customer focused culture, in line with regulatory expectations and the Board's values.

Estate Agency

· To deliver first class service to vendors, landlords and other customers;

· To grow market share;

· To position LSL as a provider of choice for the provision of products and services throughout the house buying and letting chains;

· To become a leading (top 3) estate agency in each of the locations in which it has a physical presence, and in doing so to grow operating profit per branch in normalised market conditions;

· To enhance further the position of Marsh & Parsons as a leading estate agency in the markets it serves, including extension of its branch network to geographically contiguous locations, in particular outside Central London; and

· To grow its provision of lettings services, including the selective acquisition of lettings books.

Surveying and Valuation

· To remain the pre-eminent provider of surveying and valuation services to UK lenders;

· To develop market leading propositions that reflect changing consumer and lender needs, including the use of technology to reduce costs for the benefit of all market participants;

· To be the acknowledged expert in its core markets; and

· To improve operational efficiency, using its capacity effectively and minimising surveyor downtime.

The resilient performance throughout H1 2020 is testament to the underlying strength of the Group, its diversified revenue streams and progress achieved in previous periods. The Financial Services Division was a major contributor to performance through the period of the lockdown, whilst the benefits of earlier investment in technology was evidenced by the ability of all of the Group's principal businesses to continue to operate effectively and to secure such income opportunities as were available. The steps taken in 2019 to reduce the size of the Estate Agency branch networks to focus on profitable locations in which the Group has the potential to maintain a strong market share also helped underpin performance.

In the second half of 2020, the Group will continue to pursue these objectives. In view of the improved trading conditions, we have taken steps to increase capital expenditure and resume investment in new products, as well as to provide additional resources to management to build the Group's competitive position in each of the principal markets in which the Group operates. The Group will also work to develop its understanding of the opportunities to develop LSL's digital propositions further. This will include direct investment as well as working to maximise the value of strategic investments.

The Board also considers it is now appropriate to once again evaluate the benefits afforded by acquisitions, and in doing so will consider carefully all attendant risks, including those resulting from further widespread Covid-19 outbreaks, or worsening economic conditions.

Management will continue to review the appropriateness of these objectives, and develop new ones as appropriate, and more detailed updates on overall progress will be given when market conditions are clearer.

July trading and outlook

Current trading conditions are extremely encouraging with strong front-end metrics in each of the three divisions. The introduction by the Government of a Stamp Duty Holiday for properties up to £500,000 is expected to provide further support to many of the markets in which the Group operates, and should help underpin financial performance.

However, the future course of the Covid-19 virus and its impact on the economy and markets in which the Group operates remains highly uncertain. In these conditions, it is not possible to provide an accurate assessment of trading prospects, and the Board therefore is unable to provide financial guidance for the year ending 31 December 2020 and beyond. We will resume formal guidance as soon as the position becomes clearer.

David Stewart

Group Chief Executive Officer

5 August 2020

1 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).

2 Gearing defined as Net bank debt divided by Group Adjusted EBITDA. Excluding the impact of IFRS 16 gearing, and as reporting for covenant purposes, is 0.31x, post IFRS 16 gearing is 0.25X.

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 2019 on pages 36 to 41. The Annual Report and Accounts 2019 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.

· Covid-19 virus

· 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 2019.

Forward Looking Statement

This announcement contains certain statements that are forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding LSL's intentions, beliefs or current expectations and those of its officers, directors and employees concerning, amongst other things, LSL's results of operations, financial condition, liquidity, prospects, growth, strategies and the business it operates. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this update and, unless otherwise required by applicable law, LSL undertakes no obligation to update or revise these forward-looking statements. Nothing in this update should be construed as a profit forecast. LSL and its Directors accept no liability to third parties in respect of this update save as would arise under English law.

Any forward-looking statements in this update speak only at the date of this document and LSL undertakes no obligation to update publicly or review any forward-looking statement to reflect new information or events, circumstances or developments.

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 2019 (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 Interim Condensed Consolidated Group 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 Interim Condensed Consolidated Group Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

David Stewart Adam Castleton

Director, Group Chief Executive Officer Director, Group Chief Financial Officer

5 August 2020 5 August 2020

Interim Group Income Statement

for the six months ended 30 June 2020

Interim Group Statement of Comprehensive Income

for the six months ended 30 June 2020

Interim Group Balance Sheet

as at 30 June 2020

Interim Group Cash Flow Statement

for the six months ended 30 June 2020

Interim Group Statement of changes in equity

Unaudited - for the six months ended 30 June 2020

During the six month period to 30 June 2020 a total of 57,649 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the

Trust. LSL received £147,000 on exercise of these options.

Interim Group Statement of changes in equity

Unaudited - for the six months ended 30 June 2019

During the six month period to 30 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.

Interim Group Statement of changes in equity

Audited - for the year ended 31 December 2019

During the year ended 31 December 2019, the Trust acquired nil LSL Shares. During the period, 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 £24,000 on exercise of these options.

Notes to the Interim Condensed Consolidated Group Financial Statements

The Interim Condensed Consolidated Group Financial Statements for the period ended 30 June 2020 were approved by the LSL Board on 4th August 2020. The interim Financial Statements are not the statutory accounts. The financial information for the year ended 31 December 2019 is extracted from the audited statutory accounts for the year ended 31 December 2019, 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 30 June 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, and should be read in conjunction with the Group's annual Financial Statements as at 31 December 2019 which are included in LSL's Annual Report and Accounts 2019.

The Interim Condensed Consolidated Group Financial Statements do not include all the information and disclosures required for a complete set of IFRS Financial Statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual Financial Statements.

Going Concern

The Corporate Governance Code requires the Board to assess and report on the prospects of the Group and whether the business is a Going Concern. In considering this requirement, the Directors have taken into account the Group's forecast cash flows, liquidity, borrowing facilities and related covenant requirements and the expected operational activities of the Group.

The Group expects to continue to meet its day to day working capital requirements through a revolving credit facility. The Group currently has a £100 million credit facility which was extended in January 2019 and will now expire in May 2022. As shown in Note 12 to these interim condensed consolidated Group Financial Statements, the Group has utilised £32 million of the facility leaving £68 million of available undrawn committed borrowing facilities in respect of which all conditions precedent had been met. In the first half of 2020 the Group has utilised the Coronavirus Job Retentions Scheme receiving £13.2m of cash with an additional £0.6m received in July 2020.

LSL has continued to run a variety of scenario models throughout H1 to help the ongoing assessment of risks and opportunities. A severe downside scenario has been modelled as part of the Going Concern assessment, which includes the pessimistic assumption that there is a further nationwide lock down from September 2020 for the remainder of 2020, impacting LSL's businesses to the same degree as the nationwide lockdown in Q2 2020, and 2021 assumptions modelled with property market transaction volumes reducing close to the low point experienced during the Global Financial Crisis. The scenario modelling includes further prudent assumptions, for example, no upside has been assumed due to the temporary increase to the Stamp Duty Land Tax thresholds announced by the Government in July 2020. We have considered further mitigations that could be applied in a severe scenario and we have not applied them in this model. Underpinned by LSL's strong balance sheet and diverse business revenue streams, the severe downside financial scenario modelling confirmed that the Group's current liquidity position would enable the Group to operate under this scenario for a period of at least 12 months from the date of signing these financial statements within the terms of its current facilities with no breach of banking covenants and therefore it is appropriate to use the Going Concern basis of preparation for this financial information.

Having due regard to these matters and after making appropriate enquiries, the Directors have a reasonable expectation that the Group and the Company have adequate resources to remain in operation until at least 12 months after the approval of these Interim Condensed Financial Statements. The Board have therefore continued to adopt the Going Concern basis in preparing the Interim Condensed consolidated Financial Statements.

2. Changes in significant accounting policies

The accounting policies adopted in the preparation of the Interim Condensed Consolidated Group Financial Statements are consistent with those followed in the preparation of the Group's annual Financial Statements for the year ended 31 December 2019.

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 the same as those as at 31 December 2019. These assumptions are discussed in detail in the Group's Annual Report and Accounts 2019. The assumptions discussed are as follows:

Judgements

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

· Deferred tax

· Exceptional items

Estimates

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

· Professional Indemnity (PI) claims

· Lapse Provision

· Valuation of financial assets

· Valuations in acquisitions

· Impairment of intangible assets

· Contingent consideration

· Income tax

After a highly unusual H1 2020 due to Covid-19, the Board determined the need for the Group to conduct an impairment review at 30 June 2020 on the goodwill and intangible assets held on the balance sheet. Cash generating units remain unchanged from those identified in the Annual Report and Accounts 2019. The recoverable amounts of the cash generating units has been determined based on a value in use calculation using cash-flow projections considered reasonably likely by management and reflecting consensus of economists' views of the shape of the economic recovery from the Covid-19 pandemic. The discount rate applied to the cash-flow projections is 9.71% (2019: 9.51%). Management have concluded from this impairment review that no impairment is required. No reasonably possible change in assumptions would result in an impairment at the interim.

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

LSL reports three segments: Financial Services; Estate Agency; and Surveying and Valuation Services:

· 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, the PRIMIS networks, Embrace Financial Services, First2Protect, Mortgages First, Insurance First Brokers, Linear Financial Services and RSC New Homes.

· The Estate Agency segment provides services related to the sale and letting of residential properties. It operates a network of high street branches. As part of this process, the Estate Agency Division also provides property marketing services and arranges conveyancing services. In addition, it provides repossession and asset management services to a range of lenders. 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 referrals from the Estate Agency Division.

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

The Management Team monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects, as explained in the table below, is measured differently from operating profit or loss in the Group Financial Statements. Head Office costs, Group financing (including finance costs and finance income) and income taxes are managed on a Group basis and are not allocated to operating segments.

Operating segments

The following tables presents revenue and profit information regarding the Group's operating segments for the six months ended 30 June 2020, for the six months ended 30 June 2019 and for the year ended 31 December 2019.

Unaudited - Six months ended 30 June 2020

Group Underlying Operating Profit is as defined in note 6 to these condensed financial statements

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

Unallocated net liabilities comprise plant and equipment £14,000, IFRS 16 plant and equipment £5,000, other assets £2,802,000, cash £19,263,000 other taxes £118,000, accruals £(2,376,000), Other payables £(492,000), IFRS 16 financial liabilities £(2,000), deferred and current tax £(3,014,000), and revolving credit facility overdraft £(32,000,000).

Unaudited - Six months ended 30 June 2019

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).

Audited - Year ended 31 December 2019