Lsl Prop Regulatory News (LSL)

5 Aug 2009 07:00



For immediate release 5 August 2009

LSL Property Services plc ("LSL")

Interim Results

LSL Property Services plc (LSL), a leading provider of residential property services, announces interim results for the six months ended 30 June 2009.

Highlights

Group 

Group revenue declined to £74.1m (2008: £93.1m).

Underlying Group Operating Profit up 17% to £10.9m (2008: £9.3m). Profit before tax was £4.3m (2008: loss before tax of £1.8m)

Management focus on reducing costs has resulted in operating costs down by 25% and operating margin up from 10.0% to 14.6%.

Group profit before tax, amortisation and exceptional costs up 39% to £9.4m (2008: £6.8m).

Underlying Adjusted Earnings Per Share up 27% to 6.5p (2008: 5.1p). Basic earnings per share was 2.6p per share (2008: Basic loss per share was 1.5p).

Surveying Performance 

Resilient surveying profit despite 48% fall in mortgage approvals. Underlying Operating Profit down by 17% to £12.7m (2008: £15.4m).

Extensions secured during the period for two of our important surveying contracts.

Estate Agency 

Significant improvement in estate agency trading.  Underlying Operating Losses1 reduced from £5.2m to £0.9m.

Result underpinned by growth in counter-cyclical income streams and significant cost reductions.

Cash Management

Significant focus on cash management. 

Net debt reduced by £18.6m over the last 12 months to £43.1m.

Roger Matthews, Chairman, commented:

"The Group's flexible business model has enabled us to deliver a strong first half year result in the context of a difficult market. During this period we have continued to focus on our cost base and developing counter-cyclical income streams. The Group is well placed to build on the first half's performance during the remainder of 2009 and to deliver significant growth when market conditions improve."

For further information, please contact:

Simon Embley, Group Chief Executive Officer

Dean Fielding, Group Finance Director

LSL Property Services plc 01904 715 324

Richard Darby, Nicola Cronk, Catherine Breen

Buchanan Communications 0207 466 5000

An analysts' briefing will be held today at 10.00 am at the offices of Buchanan Communications, 45 Moorfields London, EC2Y 9AE.

Notes to Editors:

LSL Property Services plc is one of the leading residential property services companies in the UK and provides a broad range of services to its clients who are principally mortgage lenders, as well as buyers and sellers of residential properties. For further information, please visit our website: www.lslps.co.uk.

CHAIRMAN'S STATEMENT

I am pleased to report an increase of 17% in Underlying Group Operating Profit to £10.9m for the six months ended 30 June 2009 (2008: £9.3m).

Whilst there has been a 35% fall in house sale exchanges, year on year, overall market activity has been stronger than anticipated during the first half of 2009, principally supported by an increased appetite from cash buyers. However, market conditions remain uncertain due to the continued shortage of widely available mortgage products, particularly for first time buyers.

Against this backdrop our estate agency business has made strong progress with Underlying Operating Losses reduced from £5.2m to £0.9m. 

The growth in counter-cyclical income streams has made a significant contribution to the improvement in the agency result. Residential lettings income has increased by 35% to £9.4m (2008: £7.0m). The Corporate Client Department, which was set up in 2008, produced income of £4.0m from its activity in corporate lettings, portfolio management and asset management (2008: £0.3m). 

The estate agency result has been further underpinned by the significant cost reduction measures implemented in the first half of 2008, with costs reduced by 27%.

Our surveying division continues to be resilient and performed well in the first half of 2009 despite a 48% contraction in mortgage approvals. Turnover fell by 20% with underlying operating profit down by 17% to £12.7m (2008: £15.4m). As with our estate agency business this result has been underpinned by substantial cost base reductions with year on year costs down by 21%. 

Across all operating businesses within the Group, there has been a significant focus on cash management. The Group has been strongly cash generative with net debt reduced from £61.7m at 30 June 2008 to £43.1m at 30 June 2009.

Financial results

Group revenue declined by 20% to £74.1m (2008: £93.1m)

Underlying Group Operating Profit increased by 17% to £10.9m (2008: £9.3m). 

Operating margin increased to 14.6% (2007: 10.0%).

The surveying division's turnover declined by 20% to £36.0m (2008: £44.9m) and the Underlying Operating Profit decreased by 17% to £12.7m (2008 £15.4m). The overall surveying margin, however, increased from 34% to 35%.

Estate agency turnover decreased by 21% to £38.1m (2008: £48.2m) with an Underlying Operating Loss of £0.9m (2008: £5.2m loss).

Net interest payable was £1.1m (2008: £1.8m).

Group profit before tax, amortisation and exceptional costs, was £9.4m (2008: £6.8m)

Profit before tax was £4.3m (2008: £1.7m loss)

Exceptional costs were minimal for the half year at £0.2m and related principally to redundancy and restructuring costs for one of our smaller subsidiaries. No further exceptional costs are anticipated during the second half of 2009.

The effective tax rate was 36.1% (2008: 11.3%)

The underlying adjusted earnings per share was 6.5p (2008: 5.1p); basic earnings per share was 2.6p (2008: loss per share of 1.5p)

Balance Sheet

Net assets at 30 June 2009 were £37.1m, an increase of £3.3m from the previous year end. Net debt as at 30 June 2009 was £43.1m, representing a reduction of £18.6m since June 2008. The Group has a borrowing facility of £75.0m in place through to mid 2011.

Cashflow and capital expenditure

The cash inflow from operations was £6.2m for the first half year (2008: cash outflow of £8.4m). This reflects strong management of cash and working capital during the first half of 2009.

Interim dividend

Although the Board recognises the strong cash generation of the business during the first half of 2009, given the continued market uncertainty it has decided not to pay an interim dividend. The Board will consider whether to recommend the payment of a full year dividend when the preliminary results are announced in March 2010. 

Development

The Group continues to focus on developing new income streams and growing existing income streams across each of its business segments. LSL has a track record of profitability and business development, both organically and through acquisition. We are well placed to benefit from the opportunities that will arise to grow the market share in each of our businesses through the current cycle.

Estate Agency

The launch of our Corporate Client Department in 2008 to provide corporate lettings, portfolio management and asset management, with a service driven proposition, has enabled us to quickly secure a number of new contracts. This will continue to de-risk our Estate Agency business by providing a strong counter-cyclical income and profit stream. The growth in activity of this operation has been impressive and we see further opportunities to increase our penetration in this section of the market. 

Surveying

In our surveying division, our policy of continued technology investment to deliver an increasingly valued service to lender clients has continued to serve the business well and earlier in the year we managed to secure extensions to two of our important contracts. In addition, our contract with Cheltenham & Gloucester (C&G) which is now in its third year, continues to make a significant contribution to the Group's profitability. Accordingly, we will continue to look for more opportunities to further strengthen our long term position in this market.

As previously indicated, in a market characterised by substantial falls in house prices, the first half of 2009 has seen an increase in valuation claims across the surveying industry causing a significant increase in related costs. As a consequence the Group has set up a captive insurance arrangement to sit alongside its other risk management controls and insurance arrangements.

Board

Mark Warburton, a Non Executive Director, resigned from the Board as at the end of June 2009 to concentrate on other business interests. We wish Mark well for the future.

I am pleased to welcome Mark Pain as a Non Executive Director as from 1 July 2009. Mark was formerly Group Finance Director of Barratt Developments PLC, prior to which he was Group Finance Director at Abbey National Group PLC. 

Mark is currently a Non Executive Director of Punch Taverns PLC and Johnston Press PLC and I am confident that, with his experience, he will make a valuable contribution to the development of the business.

Outlook

The Group has reported a strong first half year result in the context of a market which has improved from the unprecedented lows of 2008 but continues to be difficult. 

Given the macro environment and the continued shortage of funding for mortgages despite improving transaction volumes, underlying market conditions remain uncertain. Our surveying business continues to be resilient. Our agency business, supported by the growth of counter cyclical income streams has a more robust business model that will trade profitably in the second half of 2009 and through the cycle.

The Group is well placed to build on the first half's performance during the remainder of 2009 and to deliver significant growth when market conditions improve. In addition, the Group will continue to assess value enhancing acquisition opportunities.

Roger Matthews

5 August 2009

  

Principal Risks and Uncertainities

The principal risks and uncertainties the Group faces in 2009 have not changed significantly from those set out in the 2008 Annual Report and Accounts save for the well publicised issue or the risk of a flu pandemic and its impact on both staff attendance and customer behaviour, which may adversely affect the performance of the Group's business. 

For more information on the principal risks and uncertainties faced by LSL, please see page 7 of the 2008 Annual Report and Account, which is available at www.lslps.co.uk

Statement of Directors' Responsibilities

The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS34 as adopted by the European Union, and the interim management report herein includes a fair review of the information required by DTR 4.2.7R (an indication of important events during the first six months and a description of the principal risks and uncertainties for the remaining six months of the year) and by DTR 4.2.8R (a disclosure of related party transactions and charges therein) of the Disclosure and Transparency Rules.

By order of the Board

Simon Embley Dean Fielding

Chief Executive Officer Group Finance Director

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 Property Services plc ("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 at 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.

 

Interim Group Income Statement

for the six months ended 30 June 2009

			Unaudited		Audited
			Six Months Ended		Year Ended
			30 June	30 June	31 Dec
			2009	2008	2008
				restated*	restated*
		Note	£'000	£'000	£'000
Revenue		3	74,118	93,086	161,773
Operating expenses:
Employee and subcontractor costs			39,542	54,243	88,912
Establishment costs			4,955	6,673	12,485
Depreciation on property, plant and equipment			757	1,122	2,299
Other			18,269	22,249	40,638
			(63,523)	(84,287)	(144,334)
Rental income			264	466	765
Group operating profit before exceptional costs, amortisation and share-based payments			10,859	9,265	18,204
Share-based payments		1	(332)	(931)	(1,551)
Amortisation of intangible assets			(4,960)	(5,159)	(10,111)
Exceptional costs		5	(234)	(3,416)	(7,735)
Group operating profit/(loss)			5,333	(241)	(1,193)
Dividend income			-	296	334
Finance income			-	161	190
Finance costs			(1,069)	(1,962)	(4,035)
Exceptional finance costs		5	-	-	(432)
Net financial costs			(1,069)	(1,505)	(3,943)
Profit/(loss) before tax before adjustment to goodwill		3	4,264	(1,746)	(5,136)
Adjustment to goodwill in respect of subsequent recognition of deferred tax asset			-	-	(1,048)
Profit/(loss) before tax			4,264	(1,746)	(6,184)
Taxation
- related to exceptional costs			75	-	2,022
- others			(1,615)	198	(600)
		7	(1,540)	198	1,422
Profit/(loss) for the period/year			2,724	(1,548)	(4,762)
Earnings/(loss) per share expressed in pence per share:
Basic		4	2.6	(1.5)	(4.6)
Diluted		4	2.6	(1.5)	(4.6)

* the details of the restatement of the 2008 figures is given in note 1. 

Interim Statement of Group Comprehensive Income

for the six months ended 30 June 2009

	Unaudited		Audited
	Six Months Ended		Year Ended
	30 June	30 June	31 Dec
	2009	2008	2008
		restated*	restated*
	£'000	£'000	£'000
Profit/(loss) for the period	2,724	(1,548)	(4,762)
Valuation losses on available-for-sale investments	-	-	(1,600)
Net gain on cash flow hedge (note 8)	431	-	-
Income tax	(121)	-	-
	310	-	-
Other comprehensive income/(loss) for the period, net of tax	310	-	(1,600)
Total comprehensive income/(loss) for the period, net of tax ^	3,034	(1,548)	(6,362)

^ all attributable to the equity shareholders of the parent.

* the details of the restatement of the 2008 figures is given in note 1. 

Interim Group Balance Sheet

as at 30 June 2009

		Unaudited		Audited
		At 30 June		At 31 Dec
		2009	2008	2008
			restated*	restated*
		£'000	£'000	£'000
Non-current assets
Goodwill Other intangible assets Property, plant and equipment Financial assets Other receivables Deferred tax asset	8	66,316 26,569 2,277 4,479 - 389	69,851 36,403 3,725 5,650 118 -	66,422 31,413 2,841 4,052 5 -
Total non-current assets		100,030	115,747	104,733
Current assets
Trade and other receivables		19,312	26,544	13,919
Current tax assets		-	-	255
Cash and cash equivalents		840	1,164	647
Total current assets		20,152	27,708	14,821
Total assets		120,182	143,455	119,554
Current liabilities Financial liabilities  Trade and other payables	8	1,191 29,285	618 33,900	1,273 27,564
Current tax liabilities		1,199	1,480	-
Provisions for liabilities and charges		1,068	997	1,195
Total current liabilities		32,743	36,995	30,032
Non-current liabilities
Financial liabilities	8	42,737	62,222	48,611
Trade and other payables		72	-	39
Deferred tax liability		-	872	557
Provisions for liabilities and charges		7,569	5,362	6,586
Total non-current liabilities		50,378	68,456	55,793
Net assets		37,061	38,004	33,729
Equity
Share capital		208	208	208
Share premium account		5,629	5,629	5,629
Share-based payment reserve		2,242	1,416	1,944
Investment in treasury shares		(2,934)	(2,935)	(2,934)
Unrealised gain reserve		3,900	5,500	3,900
Hedging reserve		310	-	-
Retained earnings		27,706	28,186	24,982
Total equity		37,061	38,004	33,729

* the details of the restatement of the 2008 figures is given in note 1. 

Interim Group Cash Flow Statement

for the six months ended 30 June 2009

		Unaudited  Six Months Ended  30 June 30 June					Audited  Year Ended  31 Dec
		2009		2008 restated*			2008 restated*
		£'000	£'000		£'000	£'000	£'000	£'000
Cash generated from operating  activities
Profit/(loss) before tax			4,264			(1,746)		(6,184)
Adjustments to reconcile profit/(loss) before tax to net cash inflows from operating activities
Amortisation of intangible assets		4,960			5,159		10,111
Dividend income		-			(296)		(334)
Finance income		-			(161)		(190)
Finance costs		1,069			1,962		4,035
Share-based payments		332			931		1,551
Adjustment in relation to deferred tax asset		-			-		1,048
			6,361			7,595		16,221
Group operating profit before amortisation and share-based payments			10,625			5,849		10,037
Depreciation		757			1,122		2,299
Impairment of goodwill		126			-		1,036
Impairment of intangible assets		-			-		38
Loss/(profit) on sale of property, plant  and equipment		-			200		419
		883			1,322		3,792
(Increase)/decrease in trade and other receivables		(5,388)			(5,075)		7,663
Decrease/(increase) in trade and other payables and provisions		2,485	(2,020)		(4,261)	(8,014)	(9,152)	2,303
Cash generated from/(expended on) operations			8,605			(2,165)		12,340
Interest paid		(1,209)			(1,962)		(3,993)
Tax paid		(1,153)			(4,299)		(5,126)
			(2,362)			(6,261)		(9,119)
Net cash generated from/(expended on) operating activities			6,243			(8,426)		3,221
Cash flows from investing activities
Purchase of subsidiary undertakings, minority interest and commercial business		(135)			(279)		(276)
Dividends received		-			296		334
Interest received		-			161		190
Purchase of property, plant and  equipment		(193)			(684)		(1,043)
Proceeds from sale of property,  plant and equipment		-			237		84
Proceeds from sale of subsidiary undertakings, minority interest and commercial business		4			-		-
Purchase of available for sale financial assets		-			-		(2)
Net cash expended on investing activities			(324)			(269)		(713)
			5,919			(8,695)		2,508

  Interim Group Cash Flow Statement

for the six months ended 30 June 2009

		Unaudited Six Months Ended			Audited Year Ended
Net cash from operating activities less cash expended on investing activities		30 June  2009 £'000	£'000 5,919	30 June 2008 restated* £'000	£'000 (8,695)	31 Dec  2008 restated* £'000	£'000 2,508
Cash flows from financing activities
Repayment of loans	8	(5,726)		(116)		-
Proceeds from loans		-		11,891		44
Purchase of treasury shares		-		(266)		(265)
Dividends paid		-		(3,976)		(3,966)
Net cash (used)/generated in  financing activities			(5,726)		7,533		(4,187)
Net (decrease)/increase in cash  and cash equivalents			193		(1,162)		(1,679)
Cash and cash equivalents at the beginning of the period			647		2,326		2,326
Cash and cash equivalents at the  end of the period	8		840		1,164		647

* the details of the restatement of the 2008 figures is given in note 1. 

Interim Group Reconciliation of changes in equity

for the six months ended 30 June 2009

Unaudited six months ended 30 June 2009

	Share capital	Share premium account	Share- based payment reserve	Investment in treasury shares	Unrealised gains reserve	Hedging reserve	Retained earnings	Total equity	Minority interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2009	208	5,629	531	(2,934)	3,900	-	26,395	33,729	-	33,729
Change in accounting policy (note 1)	-	-	1,413	-	-	-	(1,413)	-	-	-
Restated balance	208	5,629	1,944	(2,934)	3,900	-	24,982	33,729	-	33,729
Profit for the period	-	-	-	-	-	-	2,724	2,724	-	2,724
Other comprehensive income	-	-	-	-	-	310	-	310	-	310
Total comprehensive income	208	5,629	1,944	(2,934)	3,900	310	27,706	36,763	-	36,763
Share-based payments	-	-	298	-	-	-	-	298	-	298
At 30 June 2009	208	5,629	2,242	(2,934)	3,900	310	27,706	37,061	-	37,061

Interim Group Reconciliation of changes in equity

for the six months ended 30 June 2009

Unaudited six months ended 30 June 2008

	Share capital	Share premium account	Share- based payment reserve	Investment in treasury shares	Unrealised gains reserve	Retained earnings	Total equity	Minority interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2008	208	5,629	560	(2,669)	5,500	33,710	42,938	-	42,938
Loss for the period (restated*)	-	-	-	-	-	(1,548)	(1,548)	-	(1,548)
Other comprehensive income	-	-	-	-	-	-	-	-	-
Total comprehensive income	208	5,629	560	(2,669)	5,500	32,162	41,390	-	41,390
Purchase of treasury shares	-	-	-	(266)	-	-	(266)	-	(266)
Dividends paid	-	-	-	-	-	(3,976)	(3,976)	-	(3,976)
Share-based payments (restated*)	-	-	856	-	-	-	856	-	856
At 30 June 2008	208	5,629	1,416	(2,935)	5,500	28,186	38,004	-	38,004

* the details of the restatement of the 2008 figures is given in note 1. 

  

Interim Group Reconciliation of changes in equity

for the six months ended 30 June 2009

Year ended 31 December 2008

	Share capital	Share premium account	Share- based payment reserve	Investment in treasury shares	Unrealised gains reserve	Retained earnings	Total equity	Minority interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2008	208	5,629	560	(2,669)	5,500	33,710	42,938	-	42,938
Loss for the period (restated*)	-	-	-	-	-	(4,762)	(4,762)	-	(4,762)
Other comprehensive loss	-	-	-	-	(1,600)	-	(1,600)	-	(1,600)
Total comprehensive income	208	5,629	560	(2,669)	3,900	28,948	36,576	-	36,576
Purchase of treasury shares	-	-	-	(265)	-	-	(265)	-	(265)
Dividends paid	-	-	-	-	-	(3,966)	(3,966)	-	(3,966)
Share-based payments (restated*)	-	-	1,384	-	-	-	1,384	-	1,384
At 31 December 2008	208	5,629	1,944	(2,934)	3,900	24,982	33,729	-	33,729

* the details of the restatement of the 2008 figures is given in note 1.

 

Notes to the interim condensed group financial statements

The interim condensed group financial statements for the six months ended 30 June 2009 was approved by the board of directors on 3 August 2009. The Group's published financial statements for the year ended 31 December 2008 have been reported on by the Group's auditors and filed with the Registrar of Companies. The auditor's report on those accounts, which have been filed with the Registrar of Companies, was unqualified and did not contain any statement under section 237 (2) or (3) of the Companies Act 1985. The financial information for the half year ended 30 June 2009 and the equivalent period in 2008 has not been audited.

The figures for the year ended 31 December 2008 do not constitute the Company's statutory accounts for that period but have been extracted from the statutory accounts.

1. Basis of preparation

The interim condensed group financial statements for the six months ended 30 June 2009 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed group financial statements have been prepared on a going concern basis.

The interim condensed group financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2008.

Significant accounting policies

The accounting policies adopted in the preparation of the interim condensed group financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2008, except of the adoption of new Standards and Interpretations as of 1 January 2009 which are applicable to the group, as noted below:

IFRS 2 Share-based Payment - Vesting Conditions and Cancellations

The amendment to IFRS 2 restricts the definition of vesting conditions to include only service conditions (requiring a specified period of service to be completed) and performance conditions (requiring the other party to achieve a personal goal or contribute to achieving a corporate target). All other features are not vesting conditions and, whereas a failure to achieve such a condition was previously regarded as a forfeiture (giving rise to a reversal of amounts previously charged to profit), it must be reflected in the grant date fair value of the award and treated as a cancellation, which results in either an acceleration of the expected charge, or a continuation over the remaining vesting period, depending on whether the condition is under the control of the entity or counterparty.

The group treated the employees' withdrawal from the SAYE schemes as cancellation, which resulted in acceleration of the charge because the withdrawal is under the control of the employees. The adoption of this amendment had the effect of increasing the loss by £948,000 for the period ended 30 June 2008 and by £1,413,000 for the year ended 31 December 2008, with the corresponding impact on equity. There is no impact on the financial statements as of 1 January 2008.

IFRS 8 Operating Segments

This Standard requires disclosure of information about the Group's operating segments based on information presented to the Board and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. Adoption of the Standard did not have any effect on the financial position or performance of the Group. The group determined that the operating segments were slightly different to the business segments previously identified under IAS 14 Segment Reporting. The financial services business is considered by the Group to be part of the estate agency business and as such has now been included within the "Estate agency and related activities" segment. Additional disclosures about each of these segments are shown in Note 3, including revised comparative information.

IAS 1 Revised Presentation of Financial Statements

The Standard introduces the statement of comprehensive income: it presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present two statements.

  Notes to the interim condensed group financial statements

 

1. Basis of preparation (continued)

Significant accounting policies (continued)

Improvements to IFRSs

In May 2008 the IASB issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Group. 

lAS 1 Presentation of Financial Statements: Assets and liabilities classified as held for trading in accordance with lAS 39 Financial Instruments: Recognition and Measurement are not automatically classified as current in the statement of financial position. The Group amended its accounting policy accordingly and analysed whether Management's expectation of the period of realisation of financial assets and liabilities differed from the classification of the instrument. This did not result in any re-classification of financial instruments between current and non-current in the statement of financial position.

lAS 16 Property, Plant and Equipment: Replace the term "net selling price" with "fair value less costs to sell". The Group amended its accounting policy accordingly, which did not result in any change in the financial position. 

lAS 38 Intangible Assets: Expenditure on advertising and promotional activities is recognised as an expense when the Group either has the right to access the goods or has received the service. This amendment has no impact on the Group because it does not enter into such promotional activities.  The reference to there being rarely, if ever, persuasive evidence to support an amortisation method of intangible assets other than a straight-line method has been removed. The Group reassessed the useful lives of its intangible assets and concluded that the straight-line method was still appropriate.

The amendments to the following standards below did not have any impact on the accounting policies, financial position or performance of the Group: 

IFRS 5  Non-current Assets Held for Sale and Discontinued Operations 

IFRS 7  Financial Instruments: Disclosures 

lAS 8  Accounting Policies, Change in Accounting Estimates and Error 

lAS 10 Events after the Reporting Period 

lAS 16  Property, Plant and Equipment 

lAS l8  Revenue 

lAS 19  Employee Benefits

IAS 20 Accounting for Government Grants and Disclosures of Government Assistance

IAS 23  Borrowing Costs

lAS 27  Consolidated and Separate Financial Statements

lAS 28  Investment in Associates

lAS 31  Interest in Joint ventures

lAS 34  Interim Financial Reporting

lAS 36  Impairment of Assets

lAS 39  Financial Instruments: Recognition and Measurement

Hedge accounting

As mentioned in Note 8, during the half year the group entered into interest rate swap agreements and the group has updated its accounting policy to adopt hedge accounting and treated this as a cash flow hedge.

For those derivatives designated as hedges and for which hedge accounting is desired, the hedging relationship is documented at its inception. This documentation identifies the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be measured throughout its duration. Such hedges are expected at inception to be highly effective.

For the purpose of hedge accounting, hedge is classified as cash flow hedge when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction.

   Notes to the interim condensed group financial statements

 

1. Basis of preparation (continued)

Significant accounting policies (continued)

Any gains or losses arising from changes in the fair value of derivatives that do not qualify for hedge accounting are taken to the income statement. For cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

If a forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs and are transferred to the income statement or to the initial carrying amount of a non-financial asset or liability as above. If the related transaction is not expected to occur, the amount is taken to profit or loss.

 

2. Seasonality of operations 

Due to the seasonal nature of the property sector, sales are normally highest during the period April to September mainly attributed to the desire by customers to sell their homes during the spring and summer months, with the lowest sales during January to March. However, this trend has recently been affected by the volatility and uncertainty in the UK housing market. 

3. Segment analysis of revenue and operating profit

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

The estate agency and related activities provides services related to housing transactions via a network of high street branches. It also sells mortgages for a number of lenders and sells life assurance and critical illness policies, etc for a number of insurance companies via the estate agency branch and Linear network.

The surveying and valuation segment provides a professional survey service of domestic properties to various lending corporations. 

No operating segments have been aggregated to form the above reported operating segments.

Management 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 consolidated financial statements. Head office costs, group financing (including finance costs and finance incomes) and income taxes are managed on a group basis and are not allocated to operating segments.

The geographic segment has not been reported separately as the majority of the revenue and expense arises in the United Kingdom and all assets are situated in the United Kingdom.

  Notes to the interim condensed group financial statements

 

3. Segment analysis of revenue and operating profit (continued)

Operating segments

The following table present revenue and profit/(loss) information regarding the group's operating segments for the six months ended 30 June 2009 and 2008, and financial year ended 31 December 2008 respectively.

Six months ended 30 June 2009

	Estate  agency and related  activities £'000	Surveying and valuation  services £'000	Unallocated £'000	Total £'000
Income statement information
Segmental revenue	38,095	36,023	-	74,118
Segmental result:
- before exceptional costs, amortisation
and share-based payments	(844)	12,725	(1,022)	10,859
- after exceptional costs, amortisation
and share based payments	(1,841)	8,196	(1,022)	5,333
Finance income				-
Finance costs				(1,069)
Profit before tax				4,264
Taxation				(1,540)
Profit for the period				2,724

Six months ended 30 June 2008 

	Estate  agency and related  activities restated* £'000		Surveying and valuation  services  restated*  £'000	Unallocated restated* £'000	Total restated* £'000
Income statement information
Segmental revenue	48,197		44,889	-	93,086
Segmental result:
- before exceptional costs, amortisation
and share-based payments	(5,204)		15,392	(923)	9,265
- after exceptional costs, amortisation
and share based payments	(9,509)		10,564	(1,296)	(241)
Dividend income					296
Finance income					161
Finance costs					(1,962)
Loss before tax					(1,746)
Taxation					198
Loss for the period					(1,548)

Notes to the interim condensed group financial statements

3. Segment analysis of revenue and operating profit (continued)

Operating segments (continued)

Year ended 31 December 2008

	Estate  agency and related  activities restated* £'000	Surveying and valuation  services restated* £'000	Unallocated restated* £'000	Total restated* £'000
Income statement information
Segmental revenue	81,700	80,073	-	161,773
Segmental result:
- before exceptional costs, amortisation
and share-based payments	(8,435)	28,590	(1,951)	18,204
- after exceptional costs, amortisation
and share-based payments	(15,834)	16,621	(1,980)	(1,193)
Dividend income				334
Finance income				190
Finance costs				(4,035)
Exceptional finance costs				(432)
Loss before tax before adjustment to goodwill				(5,136)
Adjustment to goodwill in respect of subsequent recognition of deferred tax asset				(1,048)#
Loss before tax				(6,184)
Taxation				1,422
Loss for the year				(4,762)
# this relates to estate agency and related activities segment.

* the details of the restatement of the 2008 figures is given in note 1. 

 

4. Earnings/(loss) per share

Basic earnings/(loss) per share amounts are calculated by dividing net profit/(loss) for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings/(loss) per share amounts are calculated by dividing the net profit/(loss) 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 30 June	Profit  after tax £'000		Weighted average number of shares	2009 Per share Amount Pence	Loss after tax £'000 restated*	Weighted average number of shares	2008 Per share Amount Pence restated*
Basic EPS	2,724		102,811,731	2.6	(1,548)	102,911,731	(1.5)
Effect of dilutive share options	-		195,615	-	-	195,615	-
Diluted EPS	2,724		103,007,346	2.6	(1,548)	103,107,346	(1.5)

Notes to the interim condensed group financial statements

 

4. Earnings/(loss) per share (continued)

Year ended 31 December 2008 (restated)

	Loss  after tax £'000 restated*		Weighted average number of shares	2008 Per share Amount Pence restated*
Basic EPS	(4,762)		102,845,156	(4.6)
Effect of dilutive share  options	-		195,615	-
Diluted EPS	(4,762)		103,040,771	(4.6)

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		Year ended
	30 June 2009 £'000	30 June 2008 restated* £'000	31 Dec 2008 restated* £'000
Profit/(loss) after tax	2,724	(1,548)	(4,762)
Adjusted after tax for:
Exceptional costs	168	2,460	6,145
Amortisation of intangible assets	3,571	3,714	7,229
Share-based payment	239	670	1,109
Adjusted profit after tax	6,702	5,296	9,721

Adjusted basic and diluted EPS

Six months ended 30 June

	Adjusted Profit after tax1 £'000		Weighted average number of shares	2009 Per share amount Pence	Adjusted Profit after tax £'000	Weighted average number of shares	2008 Per Share Amount  Pence
Adjusted Basic EPS	6,702		102,811,731	6.5	5,296	102,911,731	5.1
Effect of dilutive share options	-		195,615		-	195,615
Adjusted Diluted EPS	6,702		103,007,346	6.5	5,296	103,107,346	5.1

Year ended 31 December 2008 (restated)

	Adjusted Profit after tax1 £'000		Weighted average number of shares	Per share amount  Pence
Adjusted Basic EPS	9,721		102,845,156	9.5
Effect of dilutive share options	-		195,615	-
Adjusted Diluted EPS	9,721		103,040,771	9.4

1 This represents adjusted profit after tax attributable to equity holders of the parent.

 

Notes to the interim condensed group financial statements

 

5. Exceptional costs

	Six months Ended			Year Ended
	30 June 2009 £'000	30 June 2008 £'000	31 Dec 2008 £'000
Establishment costs
Onerous leases provision due to branch closures	-	1,382	1,709
Employee costs
Redundancy costs due to branch closures and business reorganisation	66	1,446	2,410
Other
Accelerated depreciation due to branch closures	-	270	269
Impairment of goodwill	126	-	1,036
Impairment of brand	-	-	38
Others	42	318	-
Costs of aborted acquisition of business and financing project	-	-	242
Provision for professional indemnity claims	-	-	2,031
Total operating exceptional costs	234	3,416	7,735
Finance costs
Banking fees incurred for renegotiation of facility	-	-	432
	234	3,416	8,167

6. Dividends paid and proposed

	SSix months Ended			Year Ended
30 June 2009			30 June 2008	31 Dec 2008
		£'000	£'000	£'000
Equity dividends on ordinary shares:
Final dividend for 2008: nil pence (2007: 3.86 pence)		-	3,976	3,966
Dividends on ordinary shares proposed (not recognised as a liability as at 30 June):
Interim dividend for 2009: nil pence per share (2008: nil pence)		-	-	-

 

Notes to the interim condensed group financial statements

 

7. Taxation

The major components of income tax charge/(credit) in the interim group income statements are:

	Six months Ended		Year Ended
	30 June 2009	30 June 2008	31 Dec 2008
	£'000	£'000	£'000
UK corporation tax - current year	2,417	822	755
- tax under/(over) provided in prior year	190	-	(42)
- utilisation of tax losses	-	-	(800)
	2,607	822	(87)
Deferred tax:
Origination and reversal of temporary differences	(1,067)	(1,020)	(1,271)
Adjustment in respect of prior year	-	-	(64)
Total deferred tax	(1,067)	(1,020)	(1,335)
Total tax charge/(credit) in the income statement	1,540	(198)	(1,422)

The Group's current taxation charge comprises corporation tax calculated at estimated effective tax rates for the year.

 

8. Analysis of net debt

	Six months Ended		Year Ended
	30 June 2009	30 June 2008	31 Dec 2008
	£'000	£'000	£'000
Interest bearing loans and borrowings	43,928	62,840	49,884
Less: cash and short-term deposits	(840)	(1,164)	(647)
Net debt at the end of the period	43,088	61,676	49,237

During the six months ended 30 June 2009, the Group has repaid £5.7m of the revolving credit facility. The utilisation of this revolving credit facility may vary each month as long as this does not exceed the maximum £75m facility. The banking facility expires in July 2010 and can be extended at that date until July 2011 only at the option of the company. The revolving credit facility is repayable when funds permit.

The interest rate applicable to the facility is LIBOR plus a margin rate of 1.75%. The margin rate is linked to the leverage ratio of the Group and the margin rate is reviewed at six monthly intervals.

During April and May 2009, the group entered into three fixed interest rate swap arrangements with their banker for a total principal amount of £25m to hedge against potential increase in future LIBOR payable on the revolving credit facility. This hedge has been treated as cash flow hedge and accounted for under hedge accounting.

The terms of the interest rate swap agreements are expected to match the terms of the commitments. The cash flow hedge of the expected future interest payment were assessed to be highly effective and as at 30 June 2009 an unrealised gain of £431,000, with a deferred tax charge of £121,000 relating to the hedging instrument is included in equity.

 

Independent Review Report to LSL Property Services plc

Introduction 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 which comprises interim group income statement, interim statement of group comprehensive income, interim group balance sheet, interim group cash flow statement, interim reconciliation of changes in equity and the related notes 1 to 8. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. 

Our Responsibility 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 

  

Independent Review Report to LSL Property Services plc

Conclusion 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 

Ernst & Young LLP

Leeds

5 August 2009

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