Lsl Prop Regulatory News (LSL)

7 Mar 2007 07:02

LSL Property Services07 March 2007 For Immediate Release 7 March 2007 LSL Property Services plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 LSL Property Services plc (LSL), a leading provider of residential propertyservices, incorporating estate agency brands Your Move and Reeds Rains andsurveying brands e.surv and Chancellors Associates, announces preliminaryresults for the year ended 31 December 2006. Highlights • Strong maiden results • Turnover up 46% to £197.5m (2005: £134.9m) • Underlying Operating Profit(1) up 73% to £32.3m (2005: £18.7m) • Underlying Operating Profit(1) margin up from 13.9% to 16.4% • Adjusted Proforma Earnings per share(2) up 83% to 19.8p (2005: 10.8p) (Basic and diluted earnings per share up to 23.1p (2005: 16.0p)) • Strong underlying operating results from all divisions • Surveying profits up 21% to £21.0m (2005: £17.4m) • Estate Agency and Financial Services profits up from £1.7m to £12.6m (including first full year contribution from Reeds Rains) • Mortgage lending up circa 50% to £3.0bn supported by investment in Linear • Excellent cash flow generation with net cash flow from operating activities after capital expenditure £28.2m (2005: £15.2m) • Net Debt(3) reduced to £34.2m • Well positioned for further growth both organically and from acquisitions FOOTNOTES: 1. Underlying Operating Profit is before exceptional costs and amortisation. 2. Adjusted Proforma Earnings per share reflects the after tax effects ofUnderlying Operating Profit (as set out in note 3 of the notes to thepreliminary results) divided by the number of shares in issue as at 31 December2006. This assumes that the 'B' ordinary shares which are classified as debtunder IFRS and were converted to ordinary shares prior to listing in November2006 were converted to ordinary shares at 1 January 2005 3. Net Debt is defined as financial liabilities less cash and cash equivalents Roger Matthews, Chairman, commented: "LSL's trading performance in 2006 and its balance sheet provides a strongplatform to deliver future growth. This will be achieved by continuing toimprove the profitability and margin of our estate agency brands and continuingto build on the strength of our surveying business. We will also pursueselective acquisitions as we are well placed to act as a consolidator in theestate agency sector, which is a highly fragmented market." For further information please contact: Simon Embley, Group Chief Executive OfficerDean Fielding, Group Finance DirectorLSL Property Services plc 01904 715 324 Richard Darby, Nicola Cronk, Catherine BreenBuchanan Communications 020 7466 5000 Notes to editors: LSL Property Services plc is one of the leading residential property servicescompanies in the UK and provides a broad range of services to its customers whoare principally mortgage lenders, as well as buyers and sellers of residentialproperties. LSL's main operations are its surveying business, which operatesunder the e.surv and Chancellors Associates brands, its estate agency business,which operates under the Your Move and Reeds Rains brands, and its financialservices business. For further information, please visit LSL's website: www.lslps.co.uk Chairman's Statement I am delighted to report a strong set of maiden results following our flotationin November 2006. The Underlying Operating Profit (see footnote 1) of LSL is£32.3m for the year ended 31 December 2006. The results across each division reflect a significant growth in profitability.This has been supported by an improved housing market, the full year'scontribution of Reeds Rains (acquired in October 2005), the continued growth inprofit and operating margin of Your Move and the continued strength and profitsfrom the surveying division. Financial Results Group revenue has increased by 46% to £197.5m (2005: £134.9m) and the UnderlyingOperating Profit (see footnote 1) by 73% to £32.3m (2005: £18.7m) reflecting animprovement in margin from 13.9% to 16.4% The profit after tax is £13.4m (2005: £8.0m) for the year. The Adjusted ProformaEarnings (see footnote 2) per share are 19.8p (2005: 10.8p) (as set out in theFinancial Review section of this statement). The business is highly cash-generative with low capital requirements resultingin a net cash inflow from operating activities after capital expenditure of£28.2m for the year (2005: £15.2m). The Net Debt (see footnote 3) at the yearend was £34.2m. As indicated at the time of flotation in November 2006, no dividend is payablefor the short period between flotation and the year end. The first dividendpayable will be the interim dividend in August 2007. The directors intend to adopt a dividend policy which reflects thecash-generative nature of the businesses, the long term earnings potential ofthe Group and the opportunities to invest in organic growth and growth throughselective acquisitions. Market The residential property market has shown strength throughout the year despitehigher interest rates. The number of housing transactions in 2006 increasedover 2005 with the number of mortgage approvals for house purchase increasing bysome 20% to 1.43m. House prices increased on average by around 10% during 2006. The macroeconomic factors for long-term growth in the residential propertymarket remain positive. Transaction volumes have generally been driven in recent years by an increase inowner occupation levels. This increase has occurred partly as a result of anincrease in migration, a greater number of single-person households and multiplehome owners. Transaction volumes have also been driven by an increase in thenumber of people buying property for investment purposes. Nonetheless whilst LSL is dependent on the activity levels in the UK housingmarket the operating model demonstrates some resilience to the housing marketcycle. LSL's profitability is biased towards surveying, which in 2006 represented 65%of the Group's Underlying Operating Profit (see footnote 1), whose resilience isprincipally due to the flexibility of e.surv's panel management model.Additionally, the franchising model of the estate agency business may providesome resilience in the event of a market downturn. Developments LSL has continued to invest for the future and grow the business. The estate agency division has grown both its turnover and profitability duringthe year. This was achieved by continuing to develop our customer offering,increasing sales of conveyancing, utilities, lettings and other products. Theestate agency branch footprint has continued to grow through franchising. Atthe 31 December 2006 there were 92 franchise branches, compared to 68 at the endof 2005. LSL's financial services division has significantly increased its mortgagelending by circa 50% year on year to £3.0bn. This was helped by the growth ofLSL's new financial services brand, Linear, which sells financial servicesproducts via independent estate agents and Your Move franchised branches. The surveying division has continued to deliver a strong performance growingmarket share, turnover and profits. It reported an Underlying Operating Profit(see footnote 1) margin of 30% excluding Reeds Rains surveying and ChancellorsAssociates. Chancellors Associates which was acquired in July 2006,predominantly utilises self-employed surveyors and this acquisition will providenew flexible capacity as well as an additional profit stream for LSL. Since the year end, LSL has completed the acquisition of a majority interest ina small estate agency business. The business was valued at circa £3.0m, whichreflects its underlying profitability and its strong brand and management. Main Board The Board of LSL was established on 11 October 2006. The Board, in addition tomyself, comprises three executive and three non-executive directors. I welcomePeter Hales, Mark Morris and Mark Warburton to the Board who I am confident willprovide invaluable support to the executive team. People LSL is a people business and as such we are reliant on the commitment andenthusiasm of our employees on whom we depend to provide the high level ofservice that we strive to achieve for our clients and customers. The recent flotation has provided the opportunity for our employees to share inthe future success of the business via a Save As You Earn scheme which waslaunched in December 2006 and became effective in January 2007. The scheme waswell received and was taken up by a third of our employees. A number of senior management employees including the executive directorscurrently own 35% of LSL. We have also established a Long Term Incentive Planto ensure all key employees are properly incentivised and fully committed to thelonger term growth of the business. I would like to take this opportunity tothank all employees for their dedication and professionalism, which has enableda successful flotation and strong profit growth during the year. Outlook The business is dependent in part on the activity levels in the UK housingmarket. Activity will be influenced by the level of any future interest rateincreases and the introduction of Home Information Packs into the UK housingmarket planned for June this year. Activity levels in the last quarter of 2006 were strong resulting in a goodpipeline going into 2007 and have been encouraging since the start of the year. LSL's trading performance in 2006 and its balance sheet provides a strongplatform to deliver future growth. This will be achieved by continuing toimprove the profitability and margin of our estate agency brands and continuingto build on the strength of our surveying division. We will also pursueselective acquisitions as we are well placed to act as a consolidator in theestate agency sector, which is a highly fragmented market. Roger Matthews7 March 2007 Business Review Introduction LSL provides a broad range of services to its two key customer groups, who aremortgage lenders and private consumers. The Group provides various propertyservices to consumers including estate agency, lettings, valuation, surveying,advice on mortgage and non-investment insurance products and conveyancing. TheGroup also provides mortgage lenders with surveys and panel management services,conveyancing and marketing of repossessed properties and also refers mortgagebusiness from its customers to mortgage lenders. Key Strengths LSL has the following key strengths: • It is one of the leading residential property services groups in the UK, including at 31 December 2006 a network of 420 estate agency branches and one of the UK's leading surveying businesses. • The surveying division is highly profitable and is one of the leading panel managers of residential mortgage valuations in the UK with a strong service reputation. • LSL has demonstrated some resilience against the cycles of the housing market, largely due to the flexibility of e.surv's panel management model. • The Group has strong operating cash flows and capital expenditure is low (2006: £2.1m). • Since 2004 LSL has made a number of successful acquisitions, including Reeds Rains and Linear. • The current executive directors have been with the Group since 2001 and have a track record of improving profitability as a result of organic growth and a number of successful acquisitions. Strategy LSL is well positioned for future growth both organically and through selectiveacquisitions. Our surveying division continues to be successful in driving market sharelargely due to its service reputation and we are well placed to capitalise onnew revenue opportunities such as Energy Performance Certificates. LSL's provenfranchise model in our estate agency division continues to gain momentum whilstwe are seeing some encouraging signs in leveraging our relationships to increasethe volume of part exchange and repossession sales. On the acquisition front, LSL is well placed to act as a consolidator in alargely fragmented market. The acquisitions made through 2005 and 2006 haveoverall been successfully integrated into the Group and are earnings enhancing.LSL has a range of propositions to target companies that we believe areattractive and that leverage both group relationships and individual brands. Business Review - Surveying Division The surveying businesses have performed well in 2006, growing profitability andturnover. 2006 2005 % Changee.survTurnover £68.3m £56.4m 21%Underlying Operating Profit+ £20.4m £17.6m 16%Margin 29.9% 31.2%Total Number of Jobs Managed 935,256 674,730 38%Total Number of Jobs Performed 433,870 378,328 15% Other Brands* Turnover £5.7m £0.6mUnderlying Operating Profit+ £0.6m (£0.2m) Total Surveying Business Turnover £74.0m £57.0m 30%Underlying Operating Profit+ £21.0m £17.4m 21%Margin 28.4% 30.5% *'Other Brands' reflects the results of Chancellors Associates acquired in July2006 and Reeds Rains, acquired in October 2005. The Reeds Rains results wereamalgamated into e.surv's results from October 2006 following the transfer ofReeds Rains surveyors into e.surv. + see footnote 1 Surveying: Competitive Strengths • The UK's largest distributor of valuations providing greater operational flexibility than competitors - even in a market downturn • Robust customer relationships with the leading lending institutions • Proven resilience of profits to variable residential property market conditions • Proven systems that drive operational efficiencies • Strong customer ethos with quick turn-around times for valuations • Further opportunities to consolidate the market and acquire additional surveying capacity Surveying Division LSL operates its surveying division under its brands, e.surv and ChancellorsAssociates. The surveying division of Reeds Rains was incorporated into thee.surv business in October 2006. LSL's surveying division customers are primarily mortgage lenders. As one ofthe UK's leading panel managers, e.surv is the panel manager for five of the topten UK lenders. e.surv managed circa 935,000 surveys and valuations in 2006 outof total mortgage approvals in the UK of circa 3.5 m*. During 2006, circa 433,870 valuations were carried out by e.surv's employedsurveyors. Chancellors Associates also carry out residential surveys andvaluations for e.surv and other panel managers. As at 31 December 2006 the surveying division had in excess of 300 employedChartered Surveyors and had relationships with over 300 self-employedconsultants, performing valuation services for the surveying division. In 2006, the surveying business had turnover of £74.0m (2005: £57.0m) andUnderlying Operating Profit (see footnote 1) of £21.0m (2005: £17.4 m). Lender Relationships e.surv has panel management arrangements with a significant number of lenders. Anumber of these arrangements are exclusive and involve the servicing anddistribution of valuation instructions to these lenders' own teams of employedsurveyors. esurv has solid relationships with these lenders and therelationship is enhanced by the generation of referrals from LSL's financialservices operations. Service Quality Service quality is a significant factor in maintaining relationships withlenders and in seeking to win new panel management contracts. It alsodifferentiates e.surv from its competitors. One of the key factors that lendersuse in assessing service quality is turnaround time for valuation instructions.e.surv's turnaround time is better than many of its competitors, largely as aresult of the flexibility of the panel management model and its use ofsophisticated technology. Chancellors Associates In July 2006, LSL completed the acquisition of the Chancellors Associatesbusiness from Chancellors Estate Agents. At the year end Chancellors Associatesoperated a network of 119 self-employed surveyors and it receives valuationinstructions from e.surv and other surveying panel managers. This acquisitionincreases the surveying divisions' self-employed consultant surveying capacityand provides access to a wider customer base and a better geographicalfootprint. * Bank of England Data - January 2007 Hometrack Data Systems LSL owns circa 15% of Hometrack, the leading provider of 'Automated ValuationModel' (AVM) technology in the UK. This investment was made in 2003 andprovides LSL with an insight into the AVM market. Business Review - Estate Agency Division The estate agency business performed well in a very strong market. Both brands,Reeds Rains and Your Move, have grown profitability and made pleasing progressin 2006. The franchise proposition continues to grow and, as at the end of2006, there were 92 franchised branches. 2006 2005 2006 2005*Estate Agency - Your Move Estate Agency - Reeds RainsTurnover £63.8m £54.5m Turnover £34.6m £6.8mUnderlying Operating Profit+ £7.8m £2.6m Underlying Operating Profit+ £6.4m £1.8mMargin 12.2% 4.8% Margin 18.4% 26.5%Exchange Units 20,920 18,636 Exchange Units 14,335 3,200Average Commission 1.59% 1.63% Average Commission 1.31% 1.22%Average house price £146,000 £133,000 Average house price £143,000 £135,000 Estate Agency Related ** Turnover £4.1m £2.5mLoss (£0.8m) (£0.7m) Total Estate Agency Turnover £102.5m £63.8mUnderlying Operating Profit+ £13.4m £3.7mMargin 13.1% 5.8% * Figures for Reeds Rains in 2005 reflect the period post acquisition from 1October 2005 to 31 December 2005. ** Other brands included in the estate agency result are Homefast (theconveyancing business), Homeinspectors.co.uk (training organisation) and FirstComplete (call centre operation). + see footnote 1 Estate Agency - Competitive Strengths & Growth Opportunities • No.3 in the UK by number of branches 4 Estate Agency News February 2007) • Improving Financial Performance • Technology - advance proprietary browser based IT systems ("Preview" and "Quicklet"). - www.your-move.co.uk - the number 1 UK estate agency branded website ((make this is footnote 5 to appear on this page) Hitwise, February 2007) • Successful franchise model • Increasing level of sales to customers of additional financial and other property related services 4: Estate Agency News February 2007 Estate Agency Division Your Move's branch network operates throughout England and Scotland while ReedsRains predominately operates in the north of England and has a presence inWales. During 2006, the estate agency business had turnover of £102.5m (2005: £63.8m)and Underlying Operating Profit (see footnote 1) of £13.4m (2005: £3.7m). Estate Agency Revenue The main drivers of estate agency revenue are:- • Exchange fee income which is linked to housing transaction prices andcommission rates. LSL is focused on increasing commission rates despite marketconditions. Reeds Rains' commissions have increased in 2006 from 1.22% to 1.31%and Your Move's commissions have fallen marginally from 1.63% to 1.59%reflecting market conditions. • Franchising income, which is generated from initial deposits on newopenings, a monthly service fee of 8% of turnover, plus some IT costs, continuesto grow in line with the increase in the franchise footprint. • Lettings income is generated from providing a range of services tolandlords and tenants. Lettings has been expanded within Your Move and as at 31December 2006 there were 268 lettings offices across LSL. LSL is wellpositioned to grow income in this area of the business in 2007. • Additional commission income is generated through the sale of generalinsurance, conveyancing services, utilities and other products and services toclients of the branch network. Service Quality LSL's estate agency businesses place strong emphasis on the quality of servicethey provide to customers and both Your Move and Reeds Rains are members of theOmbudsman for Estate Agents Scheme. All branch based employees of the estateagency business complete a specially designed training programme and the qualityof service is monitored on a monthly basis. Competition LSL's major competitors in the estate agency market vary from national estateagency chains such as Countrywide and Halifax Estate Agencies to localindependent estate agents. It is estimated that the top five estate agencychains, including LSL, account for circa 20% of all estate agency branches inthe UK, regional chains account for a further 10%, and independents make up therest. Homefast Property Lawyers Homefast Property Lawyers provides conveyancing services to consumers introducedto it by estate agents and lenders. The business was acquired in February 2005. Home Inspectors.co.uk Home Inspectors.co.uk was established in August 2005 and is now regarded as aleading provider of training services to individuals wishing to become HomeInspectors and more latterly Energy Assessors. It may also provide othertraining services to LSL. Business Review - Financial Services Division Over the year there has been significant growth in the number of mortgagesarranged by the financial services division. Linear Financial Services andLinear Mortgage Network (together Linear) are new brands placing mortgageadvisors in the offices of Your Move franchisees and independent estate agents.The Linear brands will lose money whilst in their growth phase. Overall thebusiness performance is satisfactory. 2006 2005 % ChangeFinancial Services*Turnover £20.8m £14.0m 49%Underlying Operating Profit+ (£0.8m) (£2.0m) 60%Financial Consultant Numbers 312 250 25%Mortgages arranged value (circa) £3bn £2bn 51% \* These figures include results from Your Move, Reeds Rains, Linear MortgageNetwork, and Linear Financial Services. + see footnote 1 Financial Services - Competitive Strengths & Growth Opportunities • Strong performance - mortgage applications amounted to £3bn oflending. Growth of circa 50% • Strong relationships with a broad panel of lenders • Significant further mortgage growth opportunities in Linear as aresult of placing financial consultants in independent agencies • Linear - currently a loss making developing business, expected todeliver significant value creation over the next three years and future profits Financial Services Division As at 31 December 2006, LSL had 312 branch based financial consultants employedby Your Move, Reeds Rains and Linear. The financial services business seeks toenhance the revenue derived from the estate agency operations through the saleof mortgages and related protection products. In return LSL receives acombination of commissions on product sales and procuration fees from lenders. For 2006, the financial services business had a turnover of £20.8 m (2005:£14.0m). Financial Services Brands As at 31 December 2006, Your Move employed 172 financial consultants. Since 31December 2005, LSL has increased the number of employed financial consultants inReeds Rains branches to 88. This has resulted in increased penetration rates formortgage and other financial services sales in Reeds Rains branches. In addition, LSL has invested in Linear Mortgage Network (acquired October 2005)and Linear Financial Services (acquired July 2006) which is placing financialconsultants into Your Move franchised branches and independent estate agencybranches. As at 31 December 2006, the Linear businesses employed 52 financialconsultants. Linear is targeted to significantly grow the number of financialconsultants in 2007. After this growth phase Linear will provide a new profitstream for the Group. Mortgage Lending The volume of mortgage application referrals has increased by circa 50% to£3.0bn, making LSL one of the largest mortgages intermediaries in the UK. Growthof its financial services business is a key focus area for LSL in 2007 as itcontinues to expand the number of financial consultants employed by Linear. Regulation Your Move and First Complete are directly authorised by the FSA in relation tothe sale of mortgage, pure protection and general insurance products, whileReeds Rains and Linear are appointed representatives of Openwork. Reeds Rains isalso an appointed representative of Letsure for the sale of rent indemnityinsurance. LSL's financial services business places strong emphasis on thequality of service it provides to customers and all advisers complete aspecially designed comprehensive training programme which is supplemented byeffective supervision, regular monitoring and regular refresher trainingsessions. As a result of Reeds Rains' and Linear's appointments by Openwork,LSL through these companies has a small indirect shareholding of Openwork. Business Review - Financial Review Financial Review The key drivers of the financial performance of LSL are summarised below. Income statement Revenue Revenue increased by 46% to £197.5m in the year ended 31 December 2006 (2005:£134.9m). The increase was supported by a full year's trading from Reeds Rains,an improving housing market, and market share growth within surveying. Operating Expenses Operating expenses increased by 42% to £166.9m, reflecting a full year's tradingof Reeds Rains, increased bonus payments which are linked to turnover and profitand the cost of funding the developing businesses such as Linear. Underlying Operating Profit Underlying Operating Profit (see footnote 1 on page 1) was £32.3m up by 73% on2005. This results in an improvement in the Underlying Operating Profit (seefootnote 1) margin from 13.9% to 16.4%. Exceptional Costs & Amortisation Exceptional costs in the year ended 31 December 2006 amounted to £3.5m (2005:nil). These costs related to the flotation of LSL. In addition amortisation ofintangible assets amounted to £5.5m (2005: £4.7m). Net Financial Costs Net financial costs amounted to £4.2m (2005: £2.8m). These costs include £1.3mof dividends on B shares paid prior to the flotation and to the cancellation ofthe B shares. The B Shares which were classified as debt under IFRS (definedbelow) and were converted into ordinary shares in LSL prior to flotation. Taxation The effective rate of corporation tax for the year is 30% (2005: 29%). Adjusted Proforma Earnings Per Share The Adjusted Proforma Earnings (see footnote 2 on page 1) per share are 19.8p(2005: 10.8p). The directors consider this provides a better and moreconsistent indicator of the Group's underlying performance. Balance Sheet Capital Expenditure Total capital expenditure in the year amounted to £2.1m (2005: £1.8m). Thecapital expenditure predominantly comprised investment in IT development andbranch refurbishment. Financial Structure As at 31 December 2006 the Net Debt (see footnote 3) of LSL was £34.2m (2005:£24.8m). LSL has an £80m overdraft and credit facility in place providing someflexibility for acquisitions. This gives a Net Debt (see footnote 3)toUnderlying Operating Profit (see footnote 1) ratio of 1.06 to 1. Cash Flow The business is highly cash generative and has low capital expenditurerequirements. Net cash inflows from operating activities after capitalexpenditure amounted to £28.2m (2005: £15.2m). Net Assets The net assets as at 31 December 2006 were £26.0m (2005: £8.7m) Treasury & Risk Management LSL has an active debt management policy and has purchased two interest ratecaps: one which expires in September 2007 and restricts LIBOR to 6.5%; and onewhich expires in August 2009 and restricts LIBOR to 6% for £30.0m of debt. LSLdoes not hold or issue derivatives or other financial instruments for tradingpurposes. International Financial Reporting Standards (IFRS) The Financial Statements have been prepared under IFRS. LSL commenced reportingunder IFRS from 1 January 2005. S D EmbleyGroup Chief Executive Officer D A FieldingGroup Finance Director 7 March 2007 LSL Property Services plcGroup Income Statementfor the year ended 31 December 2006 2006 2005 Note £'000 £'000 Revenue 197,451 134,871 Operating expenses:Employee costs 99,953 74,338Establishment costs 12,274 9,596Depreciation on property, plant andequipment 2,706 2,947Other 51,928 31,065 (166,861) (117,946) Other operating income 1,763 1,783 Group operating profit beforeexceptional costs and amortisation 2 32,353 18,708 Amortisation of intangibles (5,452) (4,688)Exceptional costs (IPO costs) (3,514) - Group operating profit 2 23,387 14,020 Finance income 660 1,248Finance costs (4,824) (4,036)Net financial costs (4,164) (2,788)Profit before tax 19,223 11,232 Taxation (5,847) (3,218) Profit for the year 13,376 8,014 Attributable to: Equity holders of the parent 13,058 8,018Minority interests 318 (4) 13,376 8,014 Earnings per share expressed in pence per share: restatedBasic and diluted 3 23.1 16.0 LSL Property Services plcStatement of group recognised income and expensefor the year ended 31 December 2006 Total recognised income and expense for the year: 2006 2005 £'000 £'000 Profit for the year attributable to: Equity holders of the parent 13,058 8,018Minority interest 318 (4)Total profit for the year 13,376 8,014 LSL Property Services plcGroup Balance Sheetas at 31 December 2006 2006 2005 Note £'000 £'000 Non-current assetsGoodwill 5 65,463 22,333Other intangible assets 17,669 22,806Property, plant and equipment 4,321 5,081Financial assets 148 493Other debtors 229 120Total non-current assets 87,830 50,833 Current assetsTrade and other receivables 22,187 23,772Cash and cash equivalents 578 42,767Total current assets 22,765 66,539Total assets 110,595 117,372 Current liabilities Financial liabilities 5,402 38,468 Trade and other payables 36,915 29,267Current tax liabilities 5,575 2,651Provisions for liabilities and charges 130 59Total current liabilities 48,022 70,445 Non-current liabilitiesFinancial liabilities 29,337 29,086Deferred tax liability 3,424 6,258Provisions for liabilities and charges 3,846 2,848 36,607 38,192 Net assets 25,966 8,735 EquityShare capital 208 100Share premium account 5,629 400Share-based payment reserve 13 -Investment in treasury shares (298) -Retained earnings 20,414 7,356 25,966 7,856 Minority interests - 879 Total equity 25,966 8,735 LSL Property Services plcGroup Cash Flow Statementas at 31 December 2006 £'000 £'000 £'000 £'000 Cash generated from operating activitiesGroup operating profit before exceptional costsand amortisation of intangibles 32,353 18,708Adjustments to reconcile Group operating profitto net cash inflows from operating activitiesDepreciation 2,706 2,947Loss/(profit) on sale of property, plant andequipment 21 (7)Amounts written off available for salefinancial assets 345 46 3,072 2,986 Increase in trade and other receivables (4,381) (1,954)Increase in trade and other payables 9,657 3,017 8,348 4,049Cash generated from operations 40,701 22,757Interest paid (3,272) (3,274)Dividends paid on 'B' shares prior to listing (1,320) -Tax paid (5,852) (10,444) (2,474) (5,748) Net cash from operating activities 30,257 17,009 Cash flows from investing activitiesPurchase of subsidiary undertakings, minorityinterest and commercial business (38,449) (16,614)Reimbursement of purchase consideration related - 555to acquisitions in 2004Interest received 660 1,248Purchase of property, plant and equipment (2,073) (1,805)Proceeds from sale of property, plant andequipment 6,134 819Purchase of available for sale financial assets - (493) Net cash expended from investing activities (33,728) (16,290) Cash flows from financing activitiesRepayment of long term loans (42,075) (7,300)Proceeds from long term loans 33,414 -Purchase of treasury shares (298) -IPO costs (3,514) - Net cash used in financing activities (12,473) (7,300) Net decrease in cash and cash equivalents (15,944) (6,581)Cash and cash equivalents at the beginning ofthe year 16,522 23,103Cash and cash equivalents at the end of theyear 578 16,522 LSL Property ServicesNotes to the Preliminary resultsas at 31 December 2006 1. The financial information in this preliminary announcement does notconstitute LSL's statutory financial statements for the year ended 31 December2006 but has been extracted from the financial statements, and as such, does notcontain all information required to be disclosed in the financial statementsprepared in accordance with IFRS. Statutory financial statements for this year will be filed following the AnnualGeneral Meeting. The auditors have reported on these financial statements. Theirreport was unqualified and did not contain a statement under section 237(2) or(3) of the Companies Act 1985. Basis of preparation The financial statements have been prepared using the accounting policiespublished by LSL in its prospectus on 16 November 2006 which are available onLSL's website at www.lslps.co.uk. The applied IFRS accounting policies wereselected by management considering all applicable International FinancialReporting Standards issued by the International Accounting Standards Board(IASB) by 31 December 2006. The financial information has been prepared on thebasis of IFRS in effect for the year ended 31 December 2006. 2. Business Segments The segment results for the year ended 31 December 2006 are as follows: Estate Surveying agency and and related valuation Financial activities services services Unallocated Total £'000 £'000 £'000 £'000 £'000 Income statement information Segmental revenue 102,573 74,041 20,837 - 197,451 Segmental result:- before exceptional costs andamortisation of intangibles 13,372 21,008 (764) (1,263) 32,353- after exceptional costs andamortisation of intangibles 11,669 18,261 (1,766) (4,777) 23,387 Finance income 660Finance costs (4,824)Profit before tax 19,223Income taxes (5,847) Profit for the year 13,376 LSL Property ServicesNotes to the Preliminary resultsas at 31 December 2006 The segment results for the year ended 31 December 2005 are as follows: Estate Surveying agency and and related valuation Financial activities services services Unallocated Total £'000 £'000 £'000 £'000 £'000 Income statement information Segmental revenue 63,842 57,018 14,011 - 134,871 Segmental result:- before exceptional costs andamortisation of intangibles 3,687 17,386 (1,954) (411) 18,708- after exceptional costs andamortisation of intangibles 2,283 14,639 (2,491) (411) 14,020 Finance income 1,248Finance costs (4,036)Profit before tax 11,232 Income taxes (3,218) Profit for the year 8,014 3. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for theyear attributable to ordinary equity holders of the parent by the weightedaverage number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profitattributable to ordinary equity holders of the parent by the weighted averagenumber of ordinary shares outstanding during the year plus the weighted averagenumber of ordinary shares that would be issued on the conversion of all thedilutive potential ordinary shares into ordinary shares. Weighted 2006 Weighted 2005 average average Profit number of Per share Profit number of Per share after tax shares Amount after tax shares Amount £'000 Pence £'000 Pence Basic EPS 13,058 56,622,461 23.1 8,018 50,000,000 16.0Effect of dilutive share options - 14,303 - - - -Diluted EPS 13,058 56,636,764 23.1 8,018 50,000,000 16.0 On 25 July 2006, the number of shares in issue increased to 1,037,158 of 10peach. On 31 October 2006, the ordinary shares of 10p each were subdivided intoordinary shares of 0.2p each and a further 2,051,050 ordinary shares of 0.2peach were issued and the total number of shares increased to 104,158,950. The comparative figure for 2005 has been restated to take account of thesubdivision of the ordinary shares into 0.2p shares as required by IAS 33 "Earnings per Share". LSL Property ServicesNotes to the Preliminary resultsas at 31 December 2006 The weighted average shares disclosed above for 2005 exclude the B shares, whichwere classified as debt as per IAS32 and have been reclassified as share capitalas they were converted into ordinary shares prior to flotation. The directors consider that the adjusted earnings shown below give a better andmore consistent indication of the Group's underlying performance, and iscalculated as follows: 2006 2005 £'000 £'000 Profit after tax 13,058 8,018Adjusted after tax for:Exceptional costs 2,460 -Amortisation of intangibles 3,816 3,282 Dividend on 'B' ordinary shares 1,320 -Share-based payment 9 -Adjusted profit after tax 20,663 11,300 4. Key Reconciling Items between UK GAAP and IFRS a. IFRS 3 Business Combinations IFRS 3 has been applied to acquisitions of subsidiaries that occurred on orafter 1 July 2004. b. Reversal of goodwill amortisation Under UK GAAP goodwill is required to be amortised over its expected usefullife, and that life should not be greater than 20 years. However, under IAS36:Intangible assets, amortisation of goodwill is not permitted, instead goodwillshould be reviewed annually for any impairment. Under UK GAAP, amortisation of £1,572,000 was charged in respect of subsidiariesin the year to 31 December 2005 (2004: £685,000). Upon transition to IFRS, thesecharges have been reversed and carrying value of goodwill on 1 July 2004 hasbeen adopted as the carrying amount of goodwill in the opening IFRS balancesheet. c. Reclassification of separately identifiable intangible assets onacquisition and amortisation of intangible assets A wider range of intangible assets are recognised under IFRS, particularly inrespect of business combinations. Under both IFRS and UK GAAP, an intangibleasset is an identifiable non-monetary asset without physical substance. UnderIAS 38, Intangible assets, an asset is identifiable when it is separable (thatis, capable of being sold separately from the entity) or arises from contractualor other legal rights (regardless of whether those rights are separable), whilstunder UK GAAP (FRS 10) the assets must be capable of separate disposal withoutdisposing of the related business. Where intangibles are identified in businesscombinations this has the impact of reducing goodwill (which is not amortisedunder IFRS) and recognising other types of intangible assets, which areamortised over their estimated useful lives. LSL Property ServicesNotes to the Preliminary resultsas at 31 December 2006 5. Goodwill 2006 2005 £'000 £'000CostAt 1 January 22,333 11,148Acquisition of subsidiary undertaking 727 11,610Acquisition of surveying business 1,810 130Acquisition of minority interest in existing subsidiaries 40,593 -Reimbursement of purchase consideration related to acquisitions in 2004 - (555)At 31 December 65,463 22,333 After initial recognition, goodwill is stated at cost less any accumulatedimpairment losses, with the carrying value being reviewed for impairment, atleast annually and whenever events or changes in circumstances indicate that thecarrying value may be impaired. A previously recognised impairment loss withrespect to goodwill is not reversed in later years. For the purpose of impairment testing, goodwill is allocated to the relatedcash-generating units monitored by management, usually at business segmentlevel. Where the recoverable amount of the cash-generating unit is less than itscarrying amount, including goodwill, an impairment loss is recognised in theincome statement. The carrying amount of goodwill allocated to a cash-generating unit is takeninto account when determining the gain or loss on disposal of the unit, or of anoperation within it. Included within the acquisition of minority interests in existing subsidiariesare the following material transactions: • On 25 July 2006, LSL acquired the minority interest (8.33%) in asubsidiary company, Lending Solutions Holdings Limited for £34.7m in cash andthe issue of 10,000 shares in the parent company. • On 25 July 2006, LSL acquired a 6.4852% shareholding in a subsidiarycompany, Reeds Rains Limited for £300,000 in cash and the issue of 32,158shares in the parent company. • On 29 September 2006, LSL acquired the remaining 3.704% shareholdingin a subsidiary company, Reeds Rains Limited for £1.5m cash. 6. The Annual General Meeting will be held on 23 May 2007. This information is provided by RNS The company news service from the London Stock Exchange