LSL Property Services plc Annual Report 2009

FY2009 Annual Report · LSL Property Services plc
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Annual Report and Accounts 2009

What we are:

LSL Property Services plc (“the Company”) is a leading provider of residential property services,
providing a broad range of services to its two key customer groups, who are mortgage lenders and
private customers. Services to consumers include: estate agency, lettings, valuation, surveying, and
advice on mortgages and non-investment insurance products. Services to mortgage lenders include:
surveys and panel management services, asset management and property management services. 

Contents

Highlights
Chairman’s Statement
Key Brands

3.
4.
7.
11. Business Review & Directors’ Report
23. Directors’ Proﬁles
25. Report of the Directors
30. Corporate Governance Report
34. Directors’ Remuneration Report
38. Corporate Social Responsibility
40. Statement of Directors’ Responsibilities in relation to the 

Group Financial Statements

Financial Statements & Notes to the Financial Statements

41. Auditors’ Report
42.
99. Deﬁnitions
100. Investor Information

This Report covers the period from 1 January 2009 to 31 December 2009. 

Forward Looking Statements

This Report may contain forward-looking statements with respect to certain plans and current goals and expectations relating to the
future ﬁnancial condition, business performance and results of LSL.  By their nature, all forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances that are beyond the control 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 Annual Report should be construed as a proﬁt forecast. Information about the management of the principal risks and uncertainties
facing LSL is set out in the Business Review & Directors’ Report at pages 11 and 12. 

Annual Report and Accounts 2009

“LSL is a people business and as such we are
reliant on the commitment and enthusiasm
of our employees on whom we depend to
provide the high level of service that we
strive to achieve for our customers.”

Annual Report and Accounts 2009

1

2

Annual Report and Accounts 2009

Highlights

Group

Group Revenue down 2.5% to £157.7m (2008: £161.8m)

Underlying Group Operating Proﬁt1 up 55% to £28.3m (2008: £18.2m)

Increase in Underlying Operating Margin5 from 11.3% to 17.9%

Operating costs reduced by 10% to £129.9m (2008: £144.3m)

Proﬁt Before Tax increased to £16.6m (2008: Loss of £6.2m*)

Adjusted Basic earnings per share2 up 93% to 18.1p (2008: 9.4p per share*)
Basic earnings per share of 11.4p (2008: Basic loss of 4.6p*)

Return to dividends: Interim dividend declared of 5.4p per share (2008: nil)

Signiﬁcant cash generation during the year

- Net cash inﬂow from operations of £24.6m (2008: £3.2m)
- Net debt reduced by £23.5m to £25.7m (2008: £49.2m)

Surveying Performance

Signiﬁcantly outperformed the market, turnover down 12%, against a 34%3
decline in total mortgage approvals.

Underlying Operating Proﬁt of £23.5m (2008: £28.6m)

Barclays contract extended and a new ﬁve year contract with Santander

Estate Agency and Financial Services Performance

Delivered a signiﬁcant turnaround in Proﬁtability
Underlying Operating Proﬁt of £6.7m (2008: Loss of £8.4m*)

All our high street Estate Agency brands have been proﬁtable in 2009, 
despite market volumes being half historic norms.

Signiﬁcantly lower operating costs and excellent growth in asset 
management business - market share of 17% in Q4, 2009.4

Acquisition of Halifax Estate Agencies Limited

Establishes LSL as second largest Estate Agency business in UK.

Acquisition completed on 15 January 2010. Integration completed 
on schedule and targeted run rate costs savings achieved.

* Please note that the Income Statement for 2008 was restated due to the adoption of the amendment to IFRS 2 Share-based payments, 

details of the restatement are given at note 2. All relevant ﬁgures in this report reﬂect the restatement.

1 Underlying Operating Proﬁt is before exceptional costs, amortisation of intangible assets and share based payments.
2 The calculation of the Adjusted Basic Earnings per Share is given in note 10. 
3 Bank of England Total Mortgage Approval for 2009.
4 Council of Mortgage Lenders data on repossession 2009.
5 Underlying Operating Margin is Group Operating Proﬁt before exceptional costs, amortisation and share based 

payments shown as a percentage of turnover.

Annual Report and Accounts 2009

3

Chairman’s Statement

“The acquisition of the Halifax
Estate Agencies Limited
establishes LSL as the second
largest Estate Agency business
in the United Kingdom.”

4

Annual Report and Accounts 2009

Introduction

We are delighted to report a strong
increase in underlying operating
proﬁts of 55% to £28.3m in the year.
Both our Surveying and Estate
Agency divisions have further
enhanced their market positions and
are well placed for longer-term
growth. Surveying has extended a
number of contracts with key clients
and Estate Agency has beneﬁted
from signiﬁcant cost reductions and
from the rapid growth of its
counter-cyclical income streams, in
particular lettings and asset
management.

The above results demonstrate the
Group’s resilience despite
transaction volumes continuing to
be at a relatively low point in the
cycle.  Transaction volumes did
improve in the second half of 2009
leading to a growth in mortgage
approvals for house purchase of 16%
to 597,000 for the full year, against
an historic norm of in excess of 1.2m
per annum. Total mortgage
approvals declined by 34% in 2009,
reﬂecting a signiﬁcant reduction in
re-mortgages.

The acquisition of Halifax Estate
Agencies Limited (“HEAL”) which
completed on 15 January 2010, adds
206 branches to the agency
network, and presents further scale
opportunities for the Group. This
acquisition establishes LSL as the
second largest Estate Agency
business in the United Kingdom.   

Financial results

Dividend

Group revenue declined by 2.5% to £157.7m
(2008: £161.8m).  However, the Underlying
Operating Proﬁt has increased by 55% from
£18.2m to £28.3m, reﬂecting an increase in the
Underlying Operating Proﬁt margin from 11.3%
to 17.9%.  Operating costs were down by 10%
from £144.3m to £129.9m. 

The Estate Agency business delivered a
signiﬁcant turnaround moving from an
Underlying Operating loss of £8.4m to a proﬁt
of £6.7m.  This is an excellent performance
against a back drop of a market which still
remains at 50% of the historic norms in
housing transaction volumes and
demonstrates the beneﬁts of a lower cost base
and signiﬁcant growth in counter-cyclical
income streams.

The Surveying business has signiﬁcantly
outperformed the market, with turnover down
by only 12% against an overall 34% decline in
mortgage approvals. However, the result has
been impacted by the materially lower levels
of remortgage activity and the lower volumes
in our Barnwoods operation, resulting in
Underlying Operating Proﬁt reducing from
£28.6m to £23.5m.  

The Group generated signiﬁcant cash from
operations in 2009 and as a result net debt
was reduced from £49.2m to £25.7m.  This
resulted in a reduction in net ﬁnance costs
from £4.0m to £2.2m. Exceptional costs were
minimal in 2009 at £0.4m (2008: £8.2m),
resulting in an overall proﬁt before tax and
amortisation of £25.2m (2008: £5.0m).  Amorti-
sation during the year was £8.6m (2008:
£10.1m), giving a proﬁt before tax of £16.6m
(2008: loss of £5.1m).  The proﬁt after tax was
£11.7m (2008: loss of £4.8m).

The adjusted earnings per share was 18.1p
(2008: 9.4p).

On the basis of the strong operating
performance during the year, the reduction in
net debt and the prospects for continued
growth longer term, the Board has decided to
resume dividend payments in line with our
previously stated dividend policy. The policy,
which stipulates dividends of between 30% to
40% of proﬁt after tax, reﬂects the cash
generative nature of the business, the long
term earnings potential of the Group and the
opportunities to invest in organic growth and
growth through selective acquisitions. 

As a consequence, the Board has declared an
interim dividend payable for 2009 of 5.4 pence
per share, effectively replacing any ﬁnal
dividend payable. The dividend will be paid on
31 March 2010 to shareholders on the register
at 10 March 2010 with a record date of
12 March 2010. 

Developments

Our Surveying division has made strong
progress during the year and strengthened its
market position. It has continued its excellent
track record of extending contracts with its
key clients. This includes extending the
contract with Barclays for a further two years
and the recently announced ﬁve year
expanded contract with Santander, which
commenced on 1 December 2009. This
contract signiﬁcantly expands the volume of
surveying services to be provided to the
Santander Group and includes the transfer of
the remaining Santander operational surveyors,
into e.surv. The contract is expected to make a
signiﬁcant contribution to proﬁtability in
2010, providing an excellent opportunity to
drive further operational efficiencies across the
Surveying division. 

Barnwoods’ exclusive panel management
contract with C&G continues to be a material
contract for the Surveying Division.  Turnover
in 2009 declined in line with the market,
however there continues to be some
uncertainty over the mortgage branding
strategy of Lloyds Banking Group, which may
impact Barnwoods’ volumes. 

Our Estate Agency division has continued to
focus on growing counter-cyclical income
streams. Lettings income from our core brands
has increased by 24% to £19.6m. Our
Corporate Client Department (“LSL CCD”),
which provides repossession asset
management and corporate lettings services
has had an excellent year, securing a number
of new contracts and has contributed signiﬁ-
cantly to proﬁts. These services were launched
at the start of 2008, and in favourable market
conditions have generated income of £9.3m in
2009 (2008: £1.8m).  

LSL CCD is an example of the Group
developing new counter-cyclical earning
streams, as evidenced by asset management
which has grown from a standing start in 2008
to a 17% market share in Q4 2009.  This will be
strengthened further in 2010 by St Trinity, our
asset management business, set up following
the acquisition of HEAL.

The Group’s acquisition of HEAL which
completed on 15 January 2010, is a transforma-
tional deal for our Estate Agency division
acquiring 206 high quality branches, an
established asset management business and a
pipeline of sales on favourable commercial
terms at a low point in the economic cycle.
The re-branding of the 206 branches to Your
Move, Reeds Rains and Intercounty brands will
strengthen LSL’s Estate Agency position in
local markets.  LSL acquired HEAL for £1, which
had proforma net assets at 31 December 2008
of £38.4m, and at completion had cash of
£25.9m to cover restructuring and rebranding
costs. The acquisition is expected to be cash
positive in 2010 and make a signiﬁcant contri-
bution when more normal market conditions
resume.

We are pleased to report that all signiﬁcant
project milestones relating to the integration
of HEAL have been achieved. This includes the
re-branding of all branches, the implemen-
tation of our systems, the back-office service
integration and restructuring of the entire
HEAL operation. A signiﬁcant level of targeted
run rate cost savings have been achieved and
the focus in 2010 is on growing market share
and maximising income opportunities such as
lettings. 

Annual Report and Accounts 2009

5

The short term outlook for the market remains
uncertain. The continued shortage of available
mortgage ﬁnance and the impact of ﬁscal
tightening on consumer spending may impact
the timing of any recovery.  However, the
business is signiﬁcantly more robust through
the cycle with a lower cost base, a larger
lettings portfolio, a growing asset
management business and a surveying business
which has extended a number of key contracts
and grown its market share.  As a result the
Group is well positioned to deliver further
increases in proﬁtability when the market
recovers further.  

Activity to the end of February is in line with
our expectations and reﬂects a continuation
of run rates in the second half of 2009.

The Group has a strong balance sheet with net
debt of £25.7m against an available facility of
£75m.  This together with the cash generative
nature of the business, means that the Group
is well placed to respond to further acquisition
opportunities which may arise as a result of
market conditions.

Roger Matthews
3 March 2010

offering employees the opportunity to share in
the future success of LSL. The 2007 SAYE
scheme matured in January 2010 at an option
price of £1.74 per share.  

A number of senior management employees,
including the Executive Directors, currently
own approximately 32% of LSL (2008: 31%).
The interests of these senior managers and
directors are closely aligned with the interests
of other shareholders. 

I would also like to thank everyone in the
business for making the year a great success in
market conditions which remain very
challenging, and in particular thank everyone
involved in the acquisition and integration of
HEAL, which has been a huge effort and a
great success to date as well as an important
transformational acquisition for the Group.

Current Trading & Outlook

The Group has made substantial progress in
2009 and ends the year in a much stronger
position in both the Surveying and Estate
Agency Divisions. The increase in underlying
operating proﬁts of 55% to £28.3m is an
excellent result given the continuing
challenging market conditions.

Despite the increase in house purchase
transaction volumes in the second half of
2009, overall volumes remained at half of
historic norms. The longer term underlying
macroeconomic conditions in the housing
market remain positive and the Group is
extremely well placed to deliver growth.

Main Board

The Board was strengthened by the
appointment of Mark Pain on 1 July 2009 as a
Non-Executive Director and as Chairman of
the Remuneration Committee. Mark has
considerable experience in the residential
property market and ﬁnancial services
industry, having held senior public company
Board positions at Barratt Development plc
and Abbey National plc. Mark is currently a
Non-Executive Director of Johnston Press plc,
Punch Taverns plc and Northern Rock plc, and
is a welcome addition to the Board. He will
add a valuable contribution to the growth and
development of the business. Mark Warburton
resigned on 1 July 2009 to concentrate on
other business interests and we wish Mark well
for the future.

Paul Latham has announced his retirement
from the Board as Executive Director,
Surveying Division with effect from 31 May
2010. However, Paul has agreed to stay on as a
Non- Executive Director so we can continue to
beneﬁt from his expertise and industry
knowledge. In addition, it is our intention to
appoint a further independent non-executive
director during the course of the year. Alison
Traversoni, will replace Paul as Executive
Director, Surveying Division and will be
appointed to the Board on 31 May 2010. In
addition, David Newnes, currently Managing
Director of Your Move, will also be appointed
to the Board on 31 May 2010 as Managing
Director of the Estate Agency Division. Alison
and David have signiﬁcant industry experience
and both have been part of the senior
management team since the MBO in 2004 and
have contributed to the success of the Group. 

People

I would like to welcome all new employees to
the Group in a period where there have been
signiﬁcant additions to the Group through
both the Santander contract and the HEAL
acquisition.

LSL is a people business and as such we are
reliant on the commitment and enthusiasm of
our employees on whom we depend to
provide the high level of service that we strive
to achieve for our customers.

LSL operates two employee share schemes, a
Save As You Earn and a Buy As You Earn,

6

Annual Report and Accounts 2009

Key Brands - Surveying Division

The Group provides a range of residential
surveying and valuation services through
three brands:

e.surv

One of the leading ﬁrms of chartered
surveyors in the UK, providing services to a
broad range of lenders.

Barnwoods

Founded in 2007 operating throughout the UK
principally to provide services on an exclusive
basis to C&G, part of the Lloyds Banking
Group.

Chancellors Associates

Chancellors Associates is a national network of
chartered surveyors undertaking a wide
variety of survey and valuation work mainly
for private clients.

“The Surveying business has
signiﬁcantly outperformed
the market - total jobs
performed fell by only 5% in
the face of a 34% decline in
mortgage approvals.”

Annual Report and Accounts 2009

7

Key Brands - Estate Agency Division

The Group provides Estate Agency services including
residential house sales, asset management, lettings and
ﬁnancial services including mortgages, remortgages and
life assurance through its main subsidiaries:

YOUR MOVE

The largest UK Estate Agency* comprising a network of
334 branches, following the acquisition of HEAL, (made up
of a combination of virtual, wholly owned and franchised
branches) operating throughout the UK. 

Reeds Rains

A predominately northern based network of 210 branches,
following the acquisition of HEAL, (made up of wholly
owned and franchised branches).

LSLi

This business was launched in early 2008 and is the holding
company to 3 estate agency businesses based largely in the
Home Counties which together have a network of 31
branches, following the acquisition of HEAL, (made up of
wholly owned and franchised branches).

Linear

Provides ﬁnancial services including mortgages, re-
mortgages and life assurance through a network of
ﬁnancial consultants based remotely and in the offices of
estate agents.

First Complete

First Complete trading as LSL Corporate Client Department
(LSL CCD) operates a repossessions asset management
business and a property management business for multi
property landlords.

St Trinity Limited

Our second asset management business created following
the acquisition of HEAL.

Homefast Property Services

Homefast provides HIPs to members of the LSL Group and
to independent estate agents.

* Your Move is the UK’s largest Estate Agency business measured on the number of offices.

8

Annual Report and Accounts 2009

Annual Report and Accounts 2009

9

10

Annual Report and Accounts 2009

Business Review & Directors’ Report 

Introduction

Strategy

Principal Risks & Uncertainties

The Group’s strategy is to grow long term
proﬁtability in the provision of residential
property services in the United Kingdom and
to continue to develop counter-cyclical
income streams that will strengthen its ability
to trade successfully through market
downturns. 

The Board continually identify, evaluate and
manage material risks and uncertainties which
could adversely affect the business, operating
results and ﬁnancial condition of LSL. These
risks are recorded and managed through a risk
register, and the principal risks and
uncertainties identiﬁed are:

Proﬁt growth will be achieved through
surveying by continuing the development of
strong relationships with lenders and
maintaining service excellence in order to
continue to drive market share.  Proﬁtable
growth will be achieved in the Estate Agency
division by continuing to provide a service
proposition that recognises the customers’
needs and maximises income across the value
chain.

In addition, LSL continues to review opportu-
nities for organic growth and will continue to
assess value creating acquisition opportunities
in residential property services throughout
2010.

The market backdrop provides signiﬁcant
opportunities for market share growth for well
capitalised and managed businesses across the
estate agency and surveying segments.
Overall, LSL continues to be well placed to
beneﬁt from a recovery in the UK housing
market.

LSL's Corporate Asset Management Business
comprising its Corporate Client Department
and St Trinity will look to continue growing
market share through innovative solutions and
strong service delivery.

The continued volatility and uncertainty of
the UK housing market. In particular,
transaction volumes (both house purchase
and remortgage), house prices and the
availability of credit which will adversely
affect the proﬁtability and cash ﬂow of all
our key brands and businesses.

Loss of any licences or permissions
necessary for the performance of the
Group business.

Liability for inaccurate professional services
advice to clients (e.g. inaccurate
valuations). This risk and the level of Profes-
sional Indemnity claims has increased signif-
icantly as a result of an increased level of
repossessions. Associated with this risk is
LSL’s ability to maintain appropriate risk
management arrangements. 

Loss of key surveying or asset management
clients or contracts at their renewal date or
signiﬁcant reduction in volumes, either as a
result of adverse market conditions, market
consolidation, competition or inadequate
service delivery.

The reputation and proﬁtability of LSL
could be adversely affected by the actions
of one or a limited number of employees or
franchisees. 

LSL provides a broad range of services to its
two key customer groups, who are mortgage
lenders and private consumers.  The Group
provides various property services to
consumers including estate agency, lettings,
valuation, surveying, and advice on mortgages
and non-investment insurance products.  The
Group also provides mortgage lenders with
surveys and panel management services, asset
management and property management
services and also refers mortgage business
from its private 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.

LSL has demonstrated some resilience
against the cycles of the housing market,
largely due to the performance of its
surveying division and the level of counter-
cyclical business in estate agency.

Since the 15 January 2010 the estate
agency division has a network of 575
branches, making it the second largest
estate agency business in the UK1.  

The Group is strongly cash generative with
low capital expenditure £0.7m (2008:
£1.0m) and in spite of the unprecedented
market conditions has generated net cash
inﬂow from operating activities of £24.6m
(2008: £3.2m).

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 since 2004.

1 Estate Agency News Jan10

Annual Report and Accounts 2009

11

Failure or interruptions of information
technology services on which the Group is
reliant for operational performance and
ﬁnancial information.

The development of alternative products
and services in competition with traditional
estate agency and surveying services, such
as supermarket property websites and
Automated Valuation Models.

Changes in legislation or regulation (for
example HIPs) may impact on business
results or the UK housing market in general.

The signiﬁcant increase in the size of the
estate agency branch network changes the
operational gearing of the Group.

Our ability to renew banking facilities as
they fall due as a result of constraints in the
banking market.

Further information relating to the management
of these risks and uncertainties is set out in the
Corporate Governance Review (Internal
Controls) of the Annual Report.

Relationships

Environmental Matters

All Group companies are committed to
assessing and managing the environmental
impact of their operations by taking part in
energy efficient practices so that it can be an
active participant in the sustainable society,
for example electronic communications and
record keeping is encouraged in place of less
environmentally friendly methods.

For further information on other environ-
mental issues and to read LSL’s CSR statement
please see pages 38 & 39 of the Annual Report
and Accounts.

The Corporate Social Responsibility (CSR)
statement details the arrangements for all
Group companies in relation to: environmental
matters and Group employees can be found at
pages 38 & 39 of this Report.

Other than our shareholders, the Group’s
performance and value are inﬂuenced by other
stakeholders, principally our customers,
suppliers, employees, government and our
strategic partners.  

The Group’s approach with all these parties is
founded on the principles of open and honest
dialogue based on a mutual understanding of
needs and objectives. For example:

Lenders’ relationships are managed via
dedicated account managers. 

Employees are managed and consulted both
on an individual basis and via representative
groups.

Group companies participate in relevant
trade associations and industry groups, such
as RICS, the Association of Mortgage
Intermediaries, the National Association of
Estate Agents, the Association of Residential
Lettings Agents and The Property
Ombudsman, because these give us genuine
access to customer views and decision
makers in government and other regulatory
bodies.

Further, the Group aims to build
partnerships with the communities in which
it operates and to offer support in addition
to providing employment and training, using
local services and suppliers where possible
and paying taxes.

“Both our Surveying and Estate Agency divisions
have further enhanced their market positions
and are well placed for longer-term growth.”

12

Annual Report and Accounts 2009

Annual Report and Accounts 2009

13

14

Annual Report and Accounts 2009

Business Review & Directors’ Report -
Surveying Division

Financial

Turnover

Expenditure

Underlying Operating Proﬁt

KPIs

Proﬁt margin %

Jobs performed 000s

Income per job £

Professional Indemnity insurance provision £m

2009
£m

70.0

-46.5

23.5

34%

439

159

7.5

2008
£m

80.0

-51.4

28.6

36%

461

174

5.6

%
change

-13%

-10%

-18%

-2%

-5%

-9%

Surveying Division
Performance

The Surveying Division has signiﬁcantly outper-
formed the market delivering proﬁts of £23.5m
(2008: £28.6m) and a proﬁt margin of 34% in
2009 (2008: 36%).

Reﬂecting the strength of its market position
total job numbers of all types fell by only 5%
to 439,000 (2008: 461,000) in the face of a 34%
decline in mortgage approvals to 1.34m (2008:
1.98m).

As a result of signiﬁcant focus on productivity
and cost saving initiatives commenced in 2008
but continued throughout 2009 the cost base
has been reduced by 10% from £51.4m to
£46.5m. These cost savings were achieved
despite an overall increase in Professional
Indemnity insurance provisioning of £1.9m
reﬂecting the rise in the number of
repossessions. 

effective from 1 December 2009 consolidates
the current outsourced service supply
arrangement already partly administered by
e.surv for the provision of surveying services
to Santander. The contract is expected to
enhance earnings signiﬁcantly as it provides an
excellent opportunity to further leverage the
surveying assets across the Group. 

The C&G contract in Barnwoods’ remains a
material contract for the division.  Turnover
has reduced from £21.7m in 2008 to £15.5m in
2009 due to lower remortgage activity
generally and also due to the new mortgage
strategy implemented since Lloyds Banking
Group’s acquisition of HBOS.

In line with market conditions and the level of
repossessions Professional Indemnity Insurance
remains a key risk for the Surveying division.
As a result the Group has increased its Profes-
sional Indemnity Provision from £5.6m to
£7.5m.

Surveying Developments

During the year, the residential surveying
division extended its contract to supply
exclusive UK panel residential survey
management services to Abbey National plc
and Alliance & Leicester plc, who are both
members of the Santander group of companies
("Santander") through an arrangement which
saw the transfer of the remaining operational
surveying staff into e.surv. This 5 year contract

Lender Relationships & Service
Quality

LSL’s surveying division has panel management
arrangements with a signiﬁcant number of
lenders. A number of these arrangements are
exclusive and they will involve the servicing
and distribution of valuation instructions to
these lenders’ own teams of employed
surveyors and/or other valuation providers.
LSL has strong relationships with these lenders. 

Service and quality is a signiﬁcant factor in
maintaining relationships with these lenders
and in seeking to win new panel management
contracts. An example of this was e.surv
winning the Mortgage Strategy Awards 2010
Best Surveyor/Valuer category. It also differen-
tiates LSL’s surveying division from its
competitors. One of the key factors that
lenders use in assessing service is turnaround
time for valuation instructions. LSL’s
turnaround time is consistently better than
many of its competitors, largely as a result of
the ﬂexibility of the panel management model
and its use of sophisticated technology. 

Competition

LSL’s major competitors in the surveying
market are principally other national estate
agency chains which provide panel
management services, such as Countrywide
and Connells. While Automated Valuation
Models (AVMs) are a competitor to traditional
valuation methods, their use in the current
market is under careful review by lenders. 

Annual Report and Accounts 2009

15

16

Annual Report and Accounts 2009

Business Review & Directors’ Report - 
Estate Agency Divison

The Estate Agency business delivered a signiﬁcant turnaround moving from an Underlying
Operating loss of £8.4m to a proﬁt of £6.7m.

Total income

Expenditure

Underlying Operating Proﬁt

KPIs

Exchange units

Exchange fees*

Financial Services Income*

Lettings income*

Asset Management income

Other income

2009
£m

87.7

-81.0

6.7

2008
£m

81.7

-90.1

-8.4

%
change

7%

-10%

180%

14815

13682

+8%

2009
£m

28.1

11.0

19.6

9.3

19.7

2008
£m

%
change

28.6

14.7

15.8

1.8

20.8

-2%

-25%

24%

417%

-5%

Estate Agency - Competitive
Strengths & Growth Opportunities

Strong established high street brands and, with 575
branches, LSL is ranked second largest in the UK by
Estate Agency News (January 2010).

Strong and growing counter-cyclical income streams,
such as the generation of lettings and asset
management income.

Growing repossessions asset management business
with a strong service ethos.

Highly proﬁtable business in normal market
conditions.

Technically advanced proprietary browser based IT
systems (including Preview and Quicklet) with one IT
solution across all brands providing a customer
relationship management ability to sell income
streams on an automated basis.

Successful franchise model.

www.your-move.co.uk - the number 1 UK estate
agency branded website by Hitwise (February 2010). 

* These ﬁgures reﬂect Your Move and Reeds Rains only. 

(cid:6)(cid:2)(cid:2)(cid:2)(cid:2)

(cid:5)(cid:3)(cid:2)(cid:2)(cid:2)

(cid:5)(cid:2)(cid:2)(cid:2)(cid:2)

(cid:4)(cid:3)(cid:2)(cid:2)(cid:2)

(cid:4)(cid:2)(cid:2)(cid:2)(cid:2)

(cid:3)(cid:2)(cid:2)(cid:2)

(cid:2)

(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:3)(cid:5)(cid:11)(cid:6)(cid:12)(cid:13)(cid:14)(cid:15)(cid:13)(cid:4)(cid:14)(cid:16)(cid:17)(cid:9)(cid:13)(cid:7)(cid:18)(cid:3)

(cid:10)(cid:11)(cid:12)(cid:12)(cid:13)(cid:14)(cid:15)(cid:16)

(cid:17)(cid:16)(cid:16)(cid:11)(cid:12)(cid:18)(cid:19)(cid:20)(cid:14)(cid:20)(cid:15)(cid:11)(cid:21)(cid:11)(cid:14)(cid:12)

(cid:5)(cid:2)(cid:2)(cid:7)

(cid:5)(cid:2)(cid:2)(cid:8)
(cid:2)(cid:3)(cid:4)(cid:5)

(cid:5)(cid:2)(cid:2)(cid:9)

Annual Report and Accounts 2009

17

Estate Agency Performance 

LSLi

Awards

This business was launched in early 2007 and is
the primary vehicle through which LSL has
pursued its strategy to acquire small to
medium independent Estate Agency
businesses. At 31 December 2009 it operated a
network of 18 branches (2008: 15 branches)
based in the Home Counties under the
following strong local brands:

ICIEA Limited, trading as “Intercounty” 
(11 branches) (2008: 8 branches)

David Frost Estate Agents Limited, trading
as “Frosts” (3 branches) (2008: 3 branches)

JNP (Estate Agents) Limited, trading as 
“The JNP Partnership” (4 branches) 
(2008: 4 branches)

During the year both Your Move and Reeds
Rains won several major industry service
awards. Your Move won the Gold Award for
the Best Large Estate Agency of the Year, the
Gold Award for the Best Large Lettings Agency
of the Year, a Silver Award for the Best
Financial Services and the Gold Award for the
Best Technology and Web, in the Sunday
Times, Estate Agency of the Year Awards 2009.

Reeds Rains won the Gold Award for
Innovation and a Bronze Award for Best
Financial Services in the Sunday Times, Estate
Agency of the Year Awards 2009, a particularly
impressive achievement as it was the ﬁrst time
they had entered the awards. Reeds Rains also
won the Openwork network award for Best
Large Practice General Insurance.

Service Quality

LSL’s Estate Agency businesses place strong
emphasis on the quality of service they
provide to customers and are founder
members of The Property Ombudsman
Scheme.  As such our businesses undertake to
follow the Code of Practice for Residential
Estate Agents, which has been approved by
the Office of Fair Trading and exceeds the legal
requirements of the Consumers, Estate Agents
and Redress Act 2007 (CEARA). All branch
based employees of the Estate Agency
business complete a specially designed training
programme and the quality of service is
monitored on a monthly basis.

Regulation

Your Move and First Complete are directly
authorised by the FSA in relation to the sale of
mortgage, pure protection and general
insurance products, while all of the other
estate agency businesses and Linear are
appointed representatives of Openwork. Reeds
Rains is also an appointed representative of
Letsure for the sale of rent indemnity
insurance. LSL’s ﬁnancial services business
places strong emphasis on the quality of
service it provides to customers and all
advisers complete a specially designed compre-
hensive training programme which is supple-
mented by effective supervision, regular
monitoring and regular refresher training
sessions. As a result of Reeds Rains’ and Linear’s
appointments by Openwork, LSL through
those companies has a small indirect
shareholding of Openwork. 

The Estate Agency business delivered a
signiﬁcant turnaround in 2009. This was
supported by a stronger than anticipated level
of housing transactions in the second half of
2009,  but still reﬂected housing transactions
at a relative low (597,000 mortgage approvals
as opposed to a normal annualise level of 1.2m
approvals). The cost actions taken in 2008
resulted in a 10% reduction in expenditure
from £90.1m to £81.0m.  Estate Agency
exchange income was maintained at its 2008
levels, but counter-cyclical income from
lettings and asset management continued to
grow signiﬁcantly.  The decline in Financial
Services income reﬂected the overall decline in
mortgage approvals and the company’s focus
on reducing the cost base.  The numbers of
mortgage advisers and the quantum of
ﬁnancial services income are expected to
increase in 2010. Overall we are delighted with
the turnaround achieved by the Estate Agency
segment.

Estate Agency Revenue

The main drivers of estate agency revenue are:

Exchange fee income, which is linked to
housing transaction volumes, house prices
and commission rates.

Franchising income, which is generated
from initial deposits on new openings, a
monthly service fee of 8% of turnover, plus
charges for the provision of IT services.

Lettings income, which is generated from
providing a range of services to landlords
and tenants. 

Additional commission income generated
through the sale of general insurance,
conveyancing services, HIPS, Home Reports,
utilities and other products and services to
clients of the branch network.

Financial services income.

Repossession Asset Management income.

18

Annual Report and Accounts 2009

After

Branch Network

The maps illustrate the LSL estate agency
branch network before and after the
acquisition of Halifax Estate Agencies Limited
(HEAL).

Pre HEAL

YM  227

RR

124

LSLi

18

Post HEAL

YM 334

RR

210

LSLi

31

TOTAL = 369

TOTAL = 575

•Branches acquired from HEAL

Before 

Annual Report and Accounts 2009

19

“The Estate Agency business
delivered an excellent
performance against a back
drop of a market which still
remains at 50% of the historic
norms in housing transaction
volumes and demonstrates the
beneﬁts of a lower cost base
and signiﬁcant growth in
counter-cyclical income
streams.”

Competition

LSL’s major competitors in the estate agency
market vary from national estate agency
chains such as Countrywide and Connells to
local independent estate agents. It is
estimated that the top ﬁve estate agency
chains, including LSL, account for circa 20% of
all estate agency branches in the UK, regional
chains account for a further 10%, and
independents make up the rest. 

First Complete

As previously reported, we set up LSL
Corporate Client Department (a trading name
of First Complete), our repossessions asset
manager at the start of 2008. The Corporate
Client Department, which provides
repossessions asset management and
corporate lettings services has had an
excellent year securing a number of new
contracts and has contributed signiﬁcantly to
proﬁts. 

In addition LSL CCD has invested in a
corporate residential property management
team focused on major landlords and aspiring
multiple property landlords across the UK, and
which has successfully secured a number of
key contracts during the year. As a result, it is
expected to support the continued growth of
lettings income across the estate agency
brands in 2010. This is another example of the
Group investing and growing its counter-
cyclical income streams.

St Trinity

The repossession asset management business
established as part of the acquisition of HEAL
will provide the Group with additional
counter-cyclical income streams.

20

Annual Report and Accounts 2009

Annual Report and Accounts 2009

21

Business Review & Directors’ Report - 
Financial Review

The key drivers of the ﬁnancial performance
of LSL are summarised below.

Income statement

Revenue

Adjusted Basic Earnings Per
Share

The Adjusted Basic Earnings Per Share (as
calculated in note 10) is 18.1p (2008: 9.4p).
The Directors consider this provides a better
and more consistent indicator of the Group’s
underlying performance.

Revenue fell by 2.5% in the year ended 31
December 2009 from £161.8m to £157.7m
reﬂecting the ongoing market conditions.

Balance Sheet

Capital Expenditure 

Total capital expenditure in the year
amounted to £0.7m (2008: £1.0m). The capital
expenditure predominantly comprised ﬁxtures,
ﬁttings and computer equipment.

Financial Structure

As at 31 December 2009 net debt was £25.7m
(2008: £49.2m).  LSL has a £75.0m revolving
credit facility in place (2008: £75.0m). 

Cash Flow

The business is cash generative and has low
capital expenditure requirements. 

The Group generated net cash from operations
of £24.6m (2008: £3.2m). The improved cash
generation is due principally to an increase in
proﬁtability, the lower level of exceptional
costs incurred and a positive movement in
working capital of £1.1m. 

Operating Expenses excluding
exceptional costs, amorti-
sation and share based
payment

Operating Expenses were reduced by £14.4m,
or approximately 10%, from £144.3m to
£129.9m.  The principle saving, which
amounted to £8.8m, were emoluments.

Underlying Operating Proﬁt

Underlying Operating Proﬁt was £28.3m (2008:
£18.2m) with the Underlying Operating Proﬁt
margin up 11.3% to 17.9%.

Exceptional Costs 

Exceptional costs in the year ended 31
December 2009 amounted to £0.4m (2008:
£8.2m).

Net Financial Costs

Net ﬁnancial costs amounted to £2.2m (2008:
£4.0m).

Taxation

The effective rate of corporation tax after
excluding the effect of the deferred tax
adjustment to goodwill for the year is 29.3%
(2008: 11.7%).

Net Assets

The net assets as at 31 December 2009 were
£45.9m (2008: £33.7m).

Treasury & Risk Management 

LSL has an active debt management policy and
had purchased an interest rate cap, which
expired in August 2009 and restricted LIBOR
to 6% on £30.0m of debt. In addition, LSL
entered into three interest rate swap
agreements in April and May 2009 to protect
itself against an increase in interest rates in
the future for £25m of the Group’s bank
borrowings based on the forecast utilisation of
the borrowing facilities over the period of the
hedge.  The interest rate swap agreements
restrict the LIBOR to 2.93% until April and May
2014. LSL does not hold or issue derivatives or
other ﬁnancial instruments for trading
purposes.

International Financial
Reporting Standards (IFRS)

The Financial Statements have been prepared
under IFRS as adopted by the European Union.
LSL commenced reporting under IFRS from 1
January 2005.

Simon Embley
Group Chief Executive Officer

Dean Fielding
Group Finance Director

22

Annual Report and Accounts 2009

Directors’ Proﬁles

Paul Latham

Dean Fielding

Mark Morris

Deputy Group Chief Executive Officer of LSL
and responsible for the Group’s surveying
division, aged 54. Paul was appointed as
Managing Director of e.surv in 2000. At the
time of the management buy-out in 2004, Paul
became the Deputy Chief Executive Officer of
LSL. Paul has overall responsibility for the
performance of the Group’s surveying division.
Since 2000 he has overseen the development
of the surveying divisions into the UK’s largest
distributor of residential valuations. Paul holds
an honours degree from the University of
Reading and is a qualiﬁed Chartered Surveyor
and is currently the Chair of the Residential
Faculty of The Royal Institution of Chartered
Surveyors.  He is also recognised by customers
as a leading exponent of technology solutions
to provide real estate valuation advice to
ﬁnancial institutions.

Group Finance Director aged 44. Dean has
been with LSL since 1995 when he joined GA
Property Services, the previous name under
which Your Move operated, as a management
accountant in residential sales.  In March 2002
Dean became the Finance Director of Your
Move and e.surv, two of LSL’s subsidiaries.
Dean became Group Finance Director at the
time of the management buy-out in 2004.
Dean is responsible for the ﬁnancial strategy
and ensuring that LSL maintains strong
systems and internal controls. Dean is a
Chartered Accountant.

Senior Independent Non Executive Director,
aged 49. Mark was appointed as a Non
Executive Director of the Board and Audit
Committee Chairman in October 2006 and as
the Board's Senior Independent Director in
October 2007. Mark is a Chartered Accountant
and a Non Executive Director and Audit
Committee Chairman of Homeserve plc. Mark
previously worked at Sytner Group as Finance
Director and Managing Director from 1995 to
2005 including the period during which Sytner
was listed on the London Stock Exchange, and
was responsible for their extensive acquisition
programme. Prior to this Mark spent 12 years
with PricewaterhouseCoopers in audit and
corporate ﬁnance.

Simon Embley

Roger Matthews  

Mark Pain 

Group Chief Executive Officer, aged 49. Simon
became the Chief Executive Officer of the
Board at the time of the management buy-out
of e.surv and Your Move from Norwich Union
in 2004. Simon is responsible for the strategic
direction of LSL.  From 2001 until the
management buy-out, Simon was Managing
Director of Your Move, where he oversaw its
turnaround from a heavily loss-making business
to the successful business it is today.  His
previous experience includes establishing
Norwich Union’s pensions business in Poland
for eighteen months and in 2000 he was a
Director of Norwich Union Wealth
Management.

Non Executive Chairman, aged 55. Roger was
appointed to the Board on 11 October 2006.
Roger is also Chairman of MITIE Group plc, a
Non executive Director of Zetar plc and is a
Trustee of Cancer Research UK. Previously Non
Executive Chairman of Land of Leather
Holdings plc and Sainsbury's Bank, Group
Finance Director of J.Sainsbury plc, Managing
Director and Finance Director of Compass
Group plc and worked for Grand Metropolitan
plc, Cadbury Schweppes plc and Pricewater-
houseCoopers. He is a Chartered Accountant.

Mark Pain, 48, was appointed as an
Independent Non-executive Director and chair
of the Remuneration Committee on 1 July
2009. Mark served as Chief Financial Officer of
Barratt Developments plc from 2006 to 2009.
He was previously at Abbey National Group
plc, where he held a number of senior
management roles from 1989 to 2005,
including Group Finance Director from 1998 to
2001 and Customer Sales Director from 2002
to 2005. Mark is a Non-executive Director of
Johnston Press plc, where he chairs the Audit
Committee, Punch Taverns plc and of
Northern Rock plc. Mark is also a trustee of
Somerset House. Mark is a Fellow of the
Institute of Chartered Accountants (FCA).

Annual Report and Accounts 2009

23

Press coverage

Choose the
biggest
name in
estate
agency

• Multi award winning agent*
• Most visited estate agency website**
• Over 330 branches
Talk to the agent you can trust.

Call: 0845 0717117†
Click: www.your-move.co.uk/getmoving
Come in to your local branch

*Best UK
Large Agency,
Gold Award.

*Best Large
Letting Agent,
Gold Award.

*Best Technology
& Web,
Gold Award.

Nothing makes Reeds Rains’ sales teams happier than
successfully selling a property. Putting up that ‘Sold’
sign shows our clients and everybody else just how
good we are at what we do.

We have been selling homes since 1869
and now have over 200 branches in England,
Wales and Northern Ireland.  

**Source: Hitwise Jan 2010.
† Calls may be recorded and/or monitored for training and/or data protection purposes.

YOUR MOVE is a trading name of: your-move.co.uk Limited which is authorised and regulated by the Financial Services Authority
(FRN:310467) for mortgage and non-investment insurance advice. Registered Office address: Newcastle House, Albany Court,
Newcastle Business Park, Newcastle upon Tyne, NE4 7YB. Registered Number: 01864469.
 VAT number GB842795983. We are members of The Property Ombudsman (TPO), there
to protect your interests and we abide by the TPO code of conduct.

We just need more properties to sell!
Call your nearest branch or visit reedsrains.co.uk
and arrange your free valuation. 

0
1
0
2
/
1
0
6
6
1
8
R
A
E

www.your-move.co.uk

www.reedsrains.co.uk

“The Group has made substantial
progress in 2009 and ends the year in a
much stronger position in both the
surveying and estate agency divisions.” 

24

Annual Report and Accounts 2009

 
Report of the Directors

Principal Activities

LSL Property Services plc is the holding company for a number of residential property services related businesses. The Group’s principal activities are
estate agency, asset management, property management, surveying and financial services.

Business Review & Development

The Chairman’s Statement and the Business Review set out a review of the business including details of LSL’s performance and development.

Annual General Meeting

The AGM will be held at the offices of Buchanan Communications, 45 Moorfields, London, EC2Y 9AE on 21 April 2010 starting at 2.30pm.

The notice convening the AGM is in a separate circular to be sent to shareholders with this Report. The document also includes a commentary on
the business of the AGM and notes to help shareholders to attend, speak and/or vote at the AGM.

Results & Dividends

The Business Review and Financial Statements set out the results of LSL.

On the basis of the strong operating performance during the year, the reduction in net debt, and the prospects for growth longer term, the Board
has decided to resume dividend payments in line with our previously stated dividend policy. The Board has declared an interim dividend payable of
5.4 pence per share, effectively replacing any final dividend payable. The dividend will be paid on 31 March 2010 to shareholders on the register at
10 March 2010. 

The Board in declaring an interim dividend remains committed to its previously stated dividend policy, which reflects the cash-generative nature of
the businesses, the long term earnings potential of the Group and the opportunities to invest in organic growth and growth through selective
acquisitions, once market conditions improve. The policy adopted at flotation states that the dividend will be between 30% to 40% of profit after
tax.

Employees

The Group’s practice is to keep all of our employees informed on matters affecting them, through consultation and information on the general
financial and economic factors affecting the Group’s performance.

The Group has an equal opportunities policy so that all job applicants are treated fairly and without favour or prejudice throughout selection,
recruitment, training, development and promotion.

The Group’s policy on disabled employees is detailed in the Corporate Social Responsibility Statement. 

Financial Instruments

The Business Review sets out LSL’s strategies and objectives relating to treasury and risk management. Details of the financial instruments are set
out in note 28 of the Accounts.

Directors

The current Directors are listed with their biographies in Directors’ Profiles. Following the resignation of Mark Warburton on 1 July 2009, LSL
appointed Mark Pain to the Board as a Non Executive Director and Chair of the Remuneration Committee on 1 July 2009. Full details of Director
appointments and resignations are also detailed at page 36 in the Directors’ Remuneration Report.

Re-election and election 

In accordance with the Articles of Association Simon Embley and Mark Morris will retire at the AGM and, being eligible, intend to stand for re-
election. The biographical details for all Directors including Simon Embley and Mark Morris are set out on page 23 of this Report. During the 2009
Board effectiveness review, the performance of all those Directors standing for re-election or election was specifically evaluated and the Board
confirmed that it values the experience and commitment to the business demonstrated by each of these individuals. 

The Board may appoint an individual to act as a director, but anyone so appointed will retire from office at the next AGM and seek election,
accordingly Mark Pain having been appointed to the Board since the last Annual General Meeting and pursuant to the Company’s Articles of
Association, will stand for election. LSL may by ordinary resolution elect or re-elect an individual as a director.

Annual Report and Accounts 2009

25

Report of the Directors (continued)

Directors’ Interests

The interests of the current Directors in the ordinary shares at the beginning of the financial period, or their date of appointment if later, and at
the end of the financial period are set out below:

NAME

Simon Embley

Dean Fielding

Paul Latham

Roger Matthews

Mark Morris

Mark Pain

Mark Warburton**

shares at
01/01/2009

9,307,074

6,111,876

% of
Issued
share
capital

8.94%

5.87%

shares at
31/12/2009

9,930,500

6,100,000

6,909,167*

6.63%*

6,909,167*

86,882

27,283

–

7,438

0.08%

0.03%

–

0.01%

86,882

53,,972

–

7,438

% of
Issued
share
capital

9.53%

5.86%

6.63%*

0.08%

0.05%

–

0.01%

Paul Latham’s holding includes shares acquired by his children.

*
** Mark Warburton’s shareholding as at 1 July 2009.

In addition to the above, Simon Embley and Paul Latham acquired an option in April 2008 to acquire 8,311 ordinary shares each in 2011 at a price of
£1.15 per share as part of LSL’s 2008 Save As You Earn scheme (SAYE). 

Details of the Executive Directors’ service agreements and the Non Executive Directors’ letters of appointment are set out in the Remuneration
Report.

In the period between 31 December 2009 and the date of this Report, the only change in Directors’ interests was a transfer by Roger Matthews to
Mrs H Matthews of his shareholding in the Group.

The Board has during the year put in place arrangements for the management and recording of conflicts in line with its policy. Further, during the
year, no Director was materially interested in any contract that is or was significant to the business of the Group or any subsidiary undertaking.

Auditors

Ernst & Young LLP the external auditors of the Group have advised of its willingness to continue in office and a resolution to re-appoint them to
this role and the authority for their remuneration to be determined by the Directors will be proposed at the AGM. 

Details of LSL’s policy designed to safeguard the independence and objectivity of the external auditors are included in the Corporate Governance
section of this Report.

Share Capital

LSL 0.2 pence ordinary shares are listed on the London Stock Exchange and are the only class of shares in issue. 

Rights and obligations attached to shares

Each issued share has the same rights attached to it as every other issued share; the rights of each shareholder include the right to vote at general
meetings, to appoint a proxy or proxies, to receive dividends and to receive circulars from LSL.

Details of share capital are set out in note 23 of the Accounts. There have been no changes to the share capital during 2009. A renewal of the
authority for the Directors to allot unissued ordinary shares and a renewal of their power to dis-apply statutory pre-emption rights will be proposed
at the AGM. Full details of the deadline for exercising voting rights in respect of the resolutions to be considered at the Annual General Meeting are
set out in the Notice of Meeting.

26

Annual Report and Accounts 2009

Substantial Shareholding

As at 2 March 2010, the shareholders set out below have notified LSL of their interest in 3% or more of the issued ordinary shares:

Institutions

State Street Nominees Limited

JP Morgan Clearing Corp

Chase Nominees Limited

HSBC Global Custody Nominee (UK)

Vidacos Nominees Limited

BPE General Partner Limited

Barclays Industrial Investments

Individuals (excluding Executive Directors)

David Newnes

Nature of holding

Registered Holder

Registered Holder

Registered Holder

Registered Holder

Registered Holder

Beneﬁcial Owner

Beneﬁcial Owner

Registered Holder

& Beneﬁcial Owner

Number of
0.2 pence
ordinary
shares

10,051,801

8,848,785

7,602,108

6,481,085

5,455,372

7,290,398

4,039,784

% of
issued
shares

9.65%

8.50%

7.30%

6.22%

5.24%

7.00%

3.88%

5,569,250

5.35%

Employee Share Schemes

LSL has appointed Capita Trustees Limited (Trustees) to operate the LSL Property Services plc Employee Share Scheme (Trust) which was
established prior to LSL’s flotation in 2006. 

The Trustees operate both the LSL Property Services plc Employee Share Incentive Plan (Buy As You Earn) and Save As You Earn Plans. 

The Trust is able to acquire and to hold shares to satisfy options or awards granted under any discretionary share option scheme or long term
incentive arrangement operated by LSL. Details of the shares acquired by the Trust are set out in note 24 of the Accounts. 

The Trustees of the Scheme have waived the right to any dividend payment in respect of each share held by the Scheme.

Charitable & Political Donations

LSL Group companies in total made a number of charitable donations throughout the year totalling £730 (2008: £17,841) during the financial
period.

Creditors & Supplier Payment Policy

LSL’s normal terms are to make payment in accordance with suppliers’ terms of trade or within 45 days (2008: 45 days) from the receipt of services
or invoices subject to satisfactory performance by the supplier. At 31 December 2009, LSL Property Services plc had no trade creditors outstanding.
The payment terms of individual operating subsidiaries are disclosed in their accounts. For further details on LSL’s policy statement regarding the
management of suppliers, please see the CSR statement on pages 38 and 39 of this Report.

Going Concern

The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the
Business Review on pages 11 to 22. The financial position of the Group, its cash flows, liquidity position and the Group’s policy for treasury and risk
management are described in the Financial Review on page 22. Details of the Group’s borrowing facilities are set out in note 20 to the financial
statements. Note 28 to the financial statements describes the Group’s objectives, policies and processes for managing its capital; its financial risk
management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. A description of
the Group’s principal risks and uncertainties and arrangements to manage these risks are detailed at pages 11 to 12 of this Report. 

As explained in note 20 to the financial statements, the Group meets its day to day working capital requirements through a revolving credit facility,
which is due for renewal in July 2010 but can be extended until July 2011 only at the option of the Group. As stated in note 18 as at 

Annual Report and Accounts 2009

27

Report of the Directors (continued)

31 December 2009 the Group had available £50.8m of undrawn committed borrowing facilities in respect of which all conditions precedent had
been met. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group
should be able to operate within the terms of its current facility. 

The Directors have reviewed the Group’s forecasts and budgets, which have been stress tested with various changes to the assumptions underlying
the forecasts and budgets. The Directors also examined the Group’s financial adaptability as part of that review and concluded that, should it be
necessary, the Group would be able to respond to a reasonably foreseeable deterioration in market conditions by making further reductions to the
cost base, as it was able to achieve in 2009.

The trading performance of the Group has improved significantly in 2009. Underlying operating profits have improved by 55%, net debt has
reduced from £49.2m to £25.7m, and counter cyclical income streams such as asset management and lettings have continued to grow and
represent a greater proportion of the Group’s profitability. After making enquiries, the Directors consider that LSL and the Group have adequate
resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing
the annual report and accounts.

Disclosure of Information to Auditors

Having made enquiries of fellow Directors and of the external auditors, each of the current Directors confirms that:

● to the best of his knowledge and belief, there is no information (as defined in the Companies Act 2006) relevant to the preparation of this

Report of which the external auditors are unaware, and

● he has taken all the steps a director might reasonably be expected to have taken to be aware of relevant audit information and to establish that

the external auditors are aware of that information.

Directors’ Qualifying Third Party Indemnity Provisions

The Company had qualifying third party indemnity provisions for the benefit of the Directors in force from the start of the financial period to the
date of this Report, subject to the conditions set out in the Companies Act 2006. LSL has put in place ‘Directors & Officers Liability’ insurance to
cover for this liability.

Additional information for shareholders

The following provides the additional information required for shareholders as a result of the implementation of the Takeovers Directive into UK
Law.

Share Capital

At 31 December 2009, LSL’s issued share capital comprised 104,158,950 0.2p Ordinary Shares. The authorised share capital is 500,000,000 Ordinary
Shares of 0.2p each. 

Other than the lock in agreements entered into with two members of the senior management team which will expire in May 2010, LSL is not aware
of any agreements between shareholders that may result in restrictions on the transfer of securities or on voting rights. 

Ordinary shares

On a show of hands at a general meeting of the Company every holder of ordinary shares present in person and entitled to vote shall have one
vote and on a poll, every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. The notice
of the AGM which accompanies this Report specifies deadlines for appointing a proxy in relation to resolutions to be passed at a general meeting.
Where the Chairman of the AGM is appointed as proxy, such proxy votes are counted and the numbers for, against or withheld in relation to each
resolution are announced at the AGM and published on LSL’s website after the meeting (www.lslps.co.uk).

There are no restrictions on the transfer of ordinary shares in the Company other than:

● certain restrictions which may from time to time apply under applicable laws and regulations (for example, insider trading laws and market

requirements relating to close periods) and;

● pursuant to the Listing Rules of the Financial Services Authority whereby certain employees of the Company require the approval of the

Company to deal in the Company’s securities.

LSL’s Articles of Association may only be amended by way of a special resolution at a general meeting of the shareholders. 

28

Annual Report and Accounts 2009

Company share schemes

The LSL Property Services plc Employee Benefit Trust holds 1.1% (2008: 1.24%) of the issued share capital of LSL in trust for the benefit of
employees of the Group and their dependents. The voting rights in relation to these shares are exercised by the Trustees.

Substantial Shareholdings

These details are set out at page 27 of this Report.

Signiﬁcant Agreements - Change of control

Subsidiaries of LSL are party to agreements which take effect, alter or terminate upon a change of control of the company following a takeover bid.

The Group is party to a number of banking agreements which upon a change of control of the Group are terminable by the bank and all
outstanding amounts become immediately due and payable.

Compensation for loss of office – Change of control

There are no agreements between LSL and its Directors or employees providing for compensation for loss of office or employment (whether
through resignation, purported redundancy or otherwise) that occurs because of a takeover bid.

Directors’ responsibility statement

Each of the Directors listed on page 23 confirms that to the best of their knowledge:

● the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair review of the assets,

liabilities, financial position and results of the Company and its subsidiaries included in the consolidation taken as a whole, and

● the Directors’ Report and the Business Review include a fair review of the development and performance of the business and the position of the
Company and its subsidiaries included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties
that they face.

Approved by and signed on behalf of the Board of Directors

Sapna B FitzGerald

Company Secretary
3 March 2010

Annual Report and Accounts 2009

29

Corporate Governance Report

Combined Code

The Directors recognise the value and importance of meeting the principles of good corporate governance as set out in the Combined Code. This
part of the Report describes the Corporate Governance arrangements that are in place.

During 2009, LSL complied with the provisions of the Combined Code in all respects. 

The Board

The Board has six members and it comprises the Chairman, three Executive Directors and two independent Non-Executive Directors. The Directors
are listed with their biographies in Directors’ Profiles. There is a clear division of responsibilities between the Chairman whose key responsibility is
the effective running of the Board, and the Chief Executive, whose key responsibility is the running of the business. 

The Chief Executive’s delegated powers have been set by the Board and the Directors are satisfied that the balance of Executive and Non-Executive
Directors is appropriate and that no individual or group may dominate the Board’s decisions. The Non-Executive Directors are independent of
management and have a range of experience covering corporate governance, customer and employee issues, strategy, business operations and
finance. 

When Roger Matthews was appointed Chairman he was deemed to be independent under the provisions of the Combined Code. Since then he has
also become a Non-Executive Chairman of MITIE Group plc and a Non-Executive Director of Zetar plc.

During the year the Directors undertook an evaluation of the performance of the Board. This included an evaluation of the Board, the Board
committees and of individual Directors to ensure that the Directors remain individually and collectively effective. The evaluation process involved
discussions between each Director and the Chairman and meetings of the Board and the Non-Executive Directors (including discussions without
the Chairman present to appraise his performance). The Non-Executive Directors evaluate the Chairman’s performance, after taking into account
the views of the Executive Directors. No significant issues requiring action arose from these evaluations.

Copies of the Executive Directors’ service agreements and of the Non Executive Directors’ letters of appointment are available for inspection at the
Registered Office during normal business hours and at each AGM.

All Directors may receive independent professional advice at the Company’s expense, if necessary, for the performance of their duties. This is in
addition to the access every Director has to the Company Secretary and her team. The Company Secretary is responsible for advising the Board on
all matters of corporate governance, ensuring that all Board procedures are followed and facilitating training.

Each newly appointed Director received an induction on the responsibilities of a listed public company Director and on LSL’s business. Thereafter,
LSL provides the necessary resources for developing this understanding and knowledge.

During 2009 the Board held 11 scheduled meetings and the attendance of each of the Directors at these meetings as a Director or a committee
member is set out below. During 2010 the Board is scheduled to meet 10 times and additional meetings will be held as required.

During 2009 the Non-Executive Directors and the Chairman collectively met twice without the Executive Directors being present and it is the
intention that this will be repeated in 2010. 

Audit Remuneration Nominations
Committee

Committee

Committee

4

–

–

–

4

2

2

5

–

–

–

5

2

2

2

–

–

–

2

1

1

Board

11

11

11

11

11

6

5

Director

Roger Matthews

Simon Embley

Paul Latham

Dean Fielding

Mark Morris

Mark Warburton*

Mark Pain**

*Mark Warburton resigned on 1 July 2009.
**Mark Pain joined the Board on 1 July 2009.

30

Annual Report and Accounts 2009

In accordance with the Articles of Association, Simon Embley and Mark Morris will retire at the AGM, and, being eligible, are intending to stand for
re-election at the meeting. At each subsequent AGM, all Directors appointed since the previous AGM and circa one-third of the remaining Directors,
including any Director who has not been elected or re-elected at either of the two preceding AGMs, will retire by rotation and may seek re-
election. The Board can appoint a Director outside of a general meeting but anyone so appointed must be elected by an ordinary resolution at the
next general meeting. 

The Board is primarily responsible for decisions on Group strategy, including approval of strategic plans, annual budgets, interim and full year
financial statements and reports, dividend and accounting policies and all material capital projects, investments and disposals, and the monitoring
of financial performance against budget and forecast. There is a schedule of Matters reserved for the Board, a copy of this is available on LSL’s
website (www.lslps.co.uk). 

There is a programme of regular reviews of performance and developing best practice in matters such as Health and Safety, security and corporate
social responsibility. The Board takes account of the significance of environmental, social and governance matters when making decisions.

The Board has adopted principles of good boardroom practice which set out procedures on how Directors are given accurate, timely and clear
information and how they can seek and obtain information or advice necessary for them to discharge their duties.

Board Committees

The Board has delegated specific responsibilities to three standing Committees of the Board: Audit, Nominations and Remuneration. The
membership of these Committees and a summary of their main duties under their terms of reference are set out below. The full terms of reference
may be viewed on LSL’s website (www.lslps.co.uk). It is the intention that the Chairman of each of the Committees will attend the AGM to answer
any questions.

Audit Committee

The Audit Committee is chaired by Mark Morris and its other members are Roger Matthews and Mark Pain. Mark Pain was appointed on 1 July 2009
following Mark Warburton’s resignation as a Director. The Board is satisfied that Mark Morris has recent and relevant financial experience as is
required by the Combined Code.

The Committee met on four occasions in 2009. LSL’s internal and external auditors, the Chief Executive and the Group Finance Director are invited,
but are not entitled, to attend and speak at meetings. The Audit Committee met with the auditors without the Executive Directors being present
twice during 2009.

The duties of the Audit Committee are governed by its terms of reference, which were reviewed during the year, and include monitoring the
integrity of LSL’s financial statements, reviewing the effectiveness of the internal control and risk management systems, reviewing procedures for
handling any internal allegations, overseeing and assessing the effectiveness of the internal audit function, overseeing the relationship with the
external auditor, and reviewing the scope, effectiveness and results of audits.

The Committee has an established programme of work to ensure that each of its responsibilities is covered adequately during the year. Two of its
meetings are focused primarily on external reporting and external audit, and two on risk, internal control and internal audit. Areas of particular
focus during the year have been reviewing valuation controls within the surveying division, re-evaluating the internal audit approach for estate
agency branches, and a continued focus on potential fraud areas.

To guard against the objectivity and independence of the external auditors being compromised, the Audit Committee has adopted a policy under
which any non audit related services provided by the external auditors must be approved by the Committee or be within a pre-approved category
and a pre-approved fee limit.

The policy stipulates restrictions and procedures in relation to the potential allocation of non audit work to the auditor. These include categories of
work which cannot be allocated to the auditor, and categories of work which may be undertaken by the auditor, subject to certain provisions as to
materiality, nature of and competency to perform work, or the approval of the Audit Committee. The Audit Committee is kept informed of the fees
paid to the auditor in all capacities. 

The split between audit and non audit fees for 2009 appears at note 9 to the Accounts. The non audit fees related to a potential interest saving,
low cost financing project and reporting on banking covenants. The Committee considered that Ernst & Young were best placed to carry out this
exercise.

The amount and nature of non audit fees are considered by the Committee not to affect the independence or objectivity of the external auditor.

Annual Report and Accounts 2009

31

Corporate Governance Report (continued)

Nominations Committee

Roger Matthews is the Chairman of the Nominations Committee and the other members of the Committee are Mark Morris and Mark Pain. Mark
Warburton was a member of the committee until his resignation on 1 July 2009. The Committee met on two occasions in 2009.

The duties of the Nominations Committee include reviewing the structure, size and composition of the Board, reviewing succession plans for the
Directors, and making recommendations to the Board on membership of the Board and of its Committees.

The Nominations Committee makes recommendations to the Board regarding the appointment of Non Executive and Executive Directors. The
Committee ensures any appointment or re-appointment is made on merit and against an objective criteria. The Company carefully considers the
structure of the Board and Non Executives are selected for their mix of experience in strategic, financial and operational matters. 

During the year, the committee nominated Mark Pain for appointment as a Non-Executive Director. He was selected by the committee for his
relevant experience in the sector based on discussions with advisers.

Remuneration Committee

During 2009 the Remuneration Committee was chaired by Mark Morris until Mark Pain’s appointment on 1 July 2009 and its other members were
Mark Warburton, until his resignation and Roger Matthews. During 2009 it met four times. The CEO and Group HR Director are invited but are not
entitled, to attend and speak at meetings and the CEO was not present when his remuneration was discussed. In addition, the Group HR Director
assisted the Committee in its deliberations during this period and has attended most of the Committee meetings in 2009. 

The Remuneration Committee has responsibility for determining, within agreed terms of reference, LSL’s policy on the remuneration of senior
executives and specific remuneration packages for Executive Directors, including pension rights and compensation payments. It is also responsible
for making recommendations for grants of shares under the employee share schemes. The Remuneration Report provides details of how the
Committee has discharged these duties.

The Remuneration Committee receives a number of bench marking reports on an annual basis, which benchmark executive directors and senior
management remuneration packages. In addition, during the year the Remuneration Committee has received advice from Deloitte and Touche LLP
regarding developments in executive bonus schemes and long term incentive plans.

The Remuneration Committee may, in exercising its discretion in relation to the remuneration of Executive Directors, take into account LSL’s
performance on governance and CSR related issues. Further, it ensures that the incentive schemes put in place for members of the senior
management team do not raise any environmental, social or governance issues by inadvertently motivating irresponsible behaviour.

In addition, the Remuneration Committee provides a framework for the Board’s discussions on succession planning for all senior managers. The
remuneration of Non Executive Directors is a matter for the Board. No Director or manager may be involved in any decisions as to their own
remuneration.

Shareholder Relations

LSL places a great deal of importance on communication with its stakeholders and is committed to establishing constructive relationships with
investors in order to assist it in developing an understanding of the views of its shareholders. LSL maintains a dialogue with institutional
shareholders through regular meetings with institutional shareholders to discuss its strategy and performance and to obtain investor feedback. The
views of the shareholders expressed during these meetings are reported to the Board, general presentations are held after the interim and
preliminary results. 

The Board considers that the main forum for communication with non-institutional shareholder is at the Annual General Meeting and it is the
intention of each of the Directors to attend the AGM. 

All Company announcements are published on the LSL website, together with presentation material and copies of the Group’s financial reports.

The Chairman Roger Matthews, the Senior Independent Director Mark Morris and Mark Pain are available to meet with shareholders to discuss any
issues or concerns. They can be contacted through the Company Secretary’s office.

Model Code

LSL complies with a code on securities dealings in relation to its ordinary shares which is consistent with the Model Code published in the Listing
Rules. This code applies to the Directors and relevant employees of LSL.

32

Annual Report and Accounts 2009

Internal Controls

The Board has overall responsibility for LSL’s system of internal controls and for reviewing its effectiveness. In order to discharge that responsibility,
the Board has established the procedures necessary to apply the Combined Code, including clear operating procedures, lines of responsibility and
delegated authority. These procedures have been in place since the Group was listed and are regularly reviewed by the Board.

The Group has in place internal control and risk management systems in relation to the Group’s financial reporting process and the Group’s process
for preparation of consolidated accounts. These systems include policies and procedures to facilitate the maintenance of records that accurately
and fairly reflect transactions, provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial
statements in accordance with International Financial reporting Standards (“IFRS”) or UK Generally Accepted Accounting Principles, as appropriate,
and that require reported data to be reviewed and reconciled.

The system of internal control is an ongoing process designed in accordance with the guidance of the Turnbull Committee on ‘Internal Control’ to
identify, evaluate and manage significant risks faced by LSL. Its aim is to manage, rather than eliminate, the risk of failure to achieve business
objectives and can provide only reasonable, and not absolute, assurance against material mis-statement or loss. The internal controls are also in
place to safeguard shareholder investment and LSL’s assets.

During 2009 the Executive Directors have continually identified, evaluated and managed material risks and uncertainties faced by LSL which could
have adversely affected LSL’s business, operating results and financial condition. The effectiveness of the internal control system and risk
management process is kept under review by the Audit Committee and has been reviewed by the Board. The principal risks and uncertainties facing
LSL are set out in the Report of the Directors.

LSL operates a management structure with delegated authority levels and functional reporting lines and accountability. It also operates a budgeting
and financial reporting system which compares actual performance to budget and to the previous year on a monthly basis. In addition, the
Executive Directors receive daily information on sales activity and weekly information on key result areas. All capital expenditure and other
purchases are subject to appropriate authorisation procedures.

The Group has an internal audit team which regularly submits reports to the Audit Committee and this, together with the internal controls system
and risk management process in place within LSL, allows the Board to monitor financial and operational performance and compliance with controls
on a continuing basis and to identify and respond to business risks as they arise.

Takeover Directive

The Group has addressed the matters required to be addressed by the Takeover Directive which was implemented in the UK in accordance with
statutory provisions in Part 28 of the Companies Act 2006 in the Directors’ report. Please refer to page 29 of the Directors’ report.

Approved by and signed on behalf of the Board of Directors

Sapna B FitzGerald

Company Secretary
3 March 2010

Annual Report and Accounts 2009

33

Directors Remuneration Report

Details of the Remuneration Committee composition and responsibilities are set out in the Corporate Governance Report.

The Remuneration Committee has considered in the financial period matters relating to the remuneration of the Chairman and the Directors. 

Remuneration Policy 

LSL strategy has been designed to create shareholder value and the aim of LSL’s remuneration policy is to attract, retain and motivate Directors
with the experience and skills necessary to deliver that strategy and to run LSL successfully. The Remuneration Committee reviews the policy
annually in light of market conditions, performance and developments in good corporate governance.

The Executive Directors salaries have not been increased since January 2007. In addition, no long term incentive awards have been made to
Executive Directors during this period. As a result the Executive Directors remuneration packages are well below the market norms. The Committee
has conducted a benchmarking review and received advice from Deloitte and Touche LLP, and as a result has decided to increase Executive Director
salaries in 2010 and also introduce a Joint Ownership share plan. This new share plan will require shareholder approval at the AGM in April 2010 and
the Committee intends to consult with major shareholders on these changes and to disclose these changes in the 2010 Directors Remuneration
Report. 

Directors who held shares at the time of flotation have retained significant interests in LSL’s shares and will derive a proportion of their regular
income from dividends and long-term income through the increase in the price of these shares. For these reasons the interests of these Directors
are closely aligned with the interests of the other shareholders.

The Remuneration Committee has reviewed its share ownership guidelines. These guidelines encourage executives to hold a substantial element of
their personal wealth in the Group’s shares. It is the Remuneration Committee’s policy that executive directors should over time, acquire a
shareholding with a value equal to at least one years’ gross salary. We expect this guideline will be achieved within three years of the date of such
review or, where later, within three years of appointment. This is to be achieved by retaining any vested share awards or through open market
purchase.

The payment of basic salaries, other cash benefits and pensions are not related to performance. The payment of bonuses and the exercise of long-
term incentives are related to performance, as set out below.

The remuneration of the Chairman and Non-Executive Directors is a matter for the Board. No Director may be involved in any decisions as to their
own remuneration.

Fees

The Non-Executive Directors’ fees were fixed at the time of flotation and are reviewed periodically by the Board. No increases were awarded during
2009. 

Save for Simon Embley’s appointment to a small estate management company, none of the Executive Directors hold non-executive directorships of
any other companies other than to represent the minority interests of the Group. No remuneration is received by the individual or Group in
relation to this.

Executive Directors’ Salaries

The basic salaries for 2009 of the Executive Directors are:

Simon Embley
Paul Latham
Dean Fielding

£ 180,000 
£ 145,000
£ 125,000 

Details of the Directors’ emoluments for 2009 are summarised in the table on page 36 (see Directors’ Emoluments Table). Salaries are reviewed
annually but there is no obligation to make any increase. The basic salaries were not increased in 2009. 

Performance Bonuses

Where bonuses are granted, the Remuneration Committee will set out the maximum amount that may be earned and the performance conditions
that must be achieved before payment is made. The Executive Directors were awarded bonus payments equivalent to 100% of salary for 2009,
having fully achieved the performance criteria set by the Committee.

A bonus arrangement has been put in place for the Executive Directors for 2010. Under the arrangement the maximum bonus payable to each of
the Executive Directors will be equal to 100% of basic salary over the period. The performance target is based on LSL’s budgeted Underlying

34

Annual Report and Accounts 2009

Operating Profit after payment of bonus. In considering payment of the bonus the Board will consider performance against other KPI’s including
earning per share, market share, cash generation, investor relations and board performance, providing a balanced and measured basis for bonus
award. The payment of any bonus is discretionary and will be awarded by the Remuneration Committee.

Long-term Incentives

A number of senior management employees including the Executive Directors currently own approximately 32% of LSL. 

LSL has also established a long term incentive plan to ensure that key employees are properly incentivised and fully committed to the long term
growth of the business. Where options are granted the Remuneration Committee will approve the individual grants and criteria that must be
achieved before options vest on a case to case basis. These criteria will be stretching and challenging. 

During 2009 no options were granted because of the prevailing market conditions. This will be reviewed during 2010. To date no long term
incentive or executive share options have been granted to any of the Executive Directors. While a Deferred Bonus Plan was adopted by the Board
in November 2006, no awards have been granted under this plan to date.

Save-As-You-Earn scheme

Simon Embley and Paul Latham participated in LSL’s 2008 Save-As-You-Earn (SAYE) scheme, which entitles them to acquire 8,311 ordinary shares
each in 2011 at a price of £1.15 per share. There were no options exercised during the year or exercisable at the end of the year. The options are
only exercisable effective 1 May 2011 if the Directors remain in service for the full duration of the option scheme (three years). The options will
expire on 1 October 2011. The market price of the Company’s shares on 31 December 2009 was £2.58 per share. The highest and lowest market
prices during the year for each share under option that is unexpired at the end of the year were £3.14 per share and 49p per share respectively.

Further details on the terms of 2008 and 2007 SAYE schemes can be found in note 12 of the financial statements.

Executive Directors’ Pensions

The Executive Directors’ pension scheme is a money purchase scheme and the aggregate amount set aside by LSL to provide pension, retirement or
similar benefits in relation to the Executive Directors in the financial year ended 31 December 2009 was £11,063 (2008: £23,753). This was made up
as follows: Simon Embley £2,250 (2008: £9,000), Dean Fielding £1,563 (2008: £6,250), and Paul Latham £ 7,250 (2008: £7,503).

Executive Director Service Arrangements

The Executive Directors have entered into service agreements with LSL, under which they are to remain employed on an ongoing basis, summaries
of which are set out in the table below.

Continuous
Employment

Notice
Period
Since (both parties)

Car and
other
Allowances

Pension

Holiday

Simon Embley (Group CEO)

31.08.1993

9 months

£2,250

Allowance

30 days

Dean Fielding (Group FD)

01.05.1995

6 months

£1,563

Allowance

30 days

(£10,375 p/a)

(£8,500 p/a)

Paul Latham (Group Deputy CEO)

21.11.1987

9 months

£7,250

Company Car

30 days

(£10,107 p/a)

Each of the service agreements allows LSL to place the Director on ‘garden leave’ for a maximum period of six months in the event the Director has
given, or is given, notice to terminate their employment. Each of the agreements also provides for the relevant Executive Director to receive
medical insurance, life assurance and permanent health insurance as well as a discretionary bonus (see Performance Bonuses above for details
relating to bonus awards). None of the Executive Directors is entitled to any benefit on termination of his service agreement other than
contractual benefits to be provided during any notice period.

Annual Report and Accounts 2009

35

Directors Remuneration Report (continued)

Non-Executive Director Appointment Arrangements

Non-Executive Director

Date of Appointment

Roger Matthews
Mark Morris
Mark Pain
Mark Warburton

11 October 2006
11 October 2006
1 July 2009
11 October 2006 (resigned 1 July 2009)

Roger Matthews, Mark Morris and Mark Pain each have letters of appointment, which were issued by LSL on appointment and which became
effective on admission. The fees due for such appointments are detailed in the Directors’ Emoluments table overleaf. Under the terms of each letter
of appointment the appointment is for an actual term of three years unless otherwise terminated earlier by, and at the discretion of either party on
three months’ notice. In addition, the appointments may be terminated by LSL for cause. The Non-Executive Directors are not entitled to
participate in LSL’s executive remuneration programmes or pension arrangements. During the year the Company extended Roger Matthews and
Mark Morris’ appointments as Non- Executive Directors for a further three year term.

Directors’ Emoluments table

Details of each Director’s remuneration for the year ended 31 December 2009 are as follows:

Simon Embley (Group CEO)

Dean Fielding (Group Finance Director)

Paul Latham (Deputy CEO)

Roger Matthews (Chairman)

Mark Morris (Non-Executive Director)

Mark Warburton (Non-Executive Director)

Mark Pain (Non-Executive Director)

Allowances
& Beneﬁts
(excluding

pension)*

£11,504

£10,536

£12,143

nil

nil

nil

–

Related
Bonuses

£180,000

£125,000

£137,750

nil

nil

nil

nil

2009
Total

£371,504

£260,536

£294,893

£83,343

£40,000

£17,500

£17,500

2008
Total

£190,864

£135,090

£160,567

£100,000

£40,000

£35,000

–

Salary

£180,000

£125,000

£145,000

£83,343

£40,000

£17,500

£17,500

Only the above table forms part of the Financial Statements on which the auditors have expressed their opinion in their report
* Excludes costs associated for the SAYE 08 scheme referred to at page 35

36

Annual Report and Accounts 2009

Total shareholder return – Value (£)

)
p
(

160

140

120

100

80

60

40

20

0

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

/

/

/

/

/

/

/

/

/

/

/

/

/

/

/

/

/

/

/

1

0

0

0

0

0

1

0

0

0

0

0

1

0

0

0

0

0

1

1

1

3

5

7

9

1

1

3

5

7

9

1

1

3

5

7

9

1

/

/

/

/

/

/

/

/

/

/

/

/

/

/

/

/

/

/

/

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

6

7

7

7

7

7

7

8

8

8

8

8

8

9

9

9

9

9

9

LSL Property Services PLC

FTSE All Share Index (scaled)

Shareholder Return —21 November 2006 to 31 December 2009
Total shareholder return – Value (£)

This graph shows the value, by the end of December 2009, of £100 invested in LSL Property Services plc on 21 November 2006 compared with the
value of £100 invested in the FTSE All Share Index. The FTSE All Share Index has been selected as a sufficiently broad market index which is most
comparable to LSL.

The mid market price of LSL shares in the financial period ranged from 49p to £3.14.

Approved by and signed on behalf of the Board of Directors

Sapna B FitzGerald

Company Secretary
3 March 2010

Annual Report and Accounts 2009

37

Corporate Social Responsibility 

The Board has overall responsibility for establishing the Group’s Corporate Social Responsibility policy. LSL believes that its focus on CSR not only
delivers benefit to our key stakeholders but will also help to make the Group more competitive going forward. As part of its regular risk assessment
procedures, the Board takes account of the significance of environmental, social and governance (ESG) matters to the business of LSL. The Board
has identified the significant ESG risks to LSL’s short and long term value, as well as the opportunities to enhance value that may arise from an
appropriate response. The Board has ensured that LSL has in place effective systems for managing and mitigating significant risks, which, where
relevant, incorporate performance management systems and appropriate remuneration incentives.

1. Employee Welfare

Approach

LSL’s aim is to be recognised by existing and potential future employees as a responsible employer that values its people and the contribution they
make both in the business and in the wider community. LSL believes that as a market leader in both surveying and estate agency our employees are
our key differentiator and it is this principle that guides our decision making on how we approach the management of our people. 

Despite the current economic challenges, the Group has continued to bring in and invest, where necessary, in new skills across the Group. Our
approach is to prioritise learning and development to strengthen the business further and to ensure its continued success.

Communication

LSL ensures that employees are kept informed of Group affairs via information distributed by post, e-mail, handbooks or the various intranet sites.
Group employees are encouraged to discuss strategic, operational and business issues within their teams and with their management. The Group
promotes transparency through business reviews and the production of Annual Reports. Communication through employees is encouraged as
appropriate.

Equal Opportunities

LSL is committed to a policy of equal opportunity in employment which is seen as a vital part in the success and growth of LSL. Every effort is
made to select, recruit, train and promote the best candidates based on suitability for the job, to treat all employees and applicants fairly regardless
of race, sex, marital status, nationality, ethnic origin, age, disability, religious belief or sexual orientation, and to ensure that no employee suffers
harassment or intimidation. LSL is a signatory to the Law Society’s Diversity and Inclusion Charter. It is an instantly recognisable public statement of
commitment by its signatories and a framework for positive action across all strands of diversity.

LSL’s policy is to provide employment and to make reasonable adjustment to accommodate disabled persons wherever the requirements of the
organisation will allow and if applications for employment are received from suitable individuals. If existing employees become disabled every
reasonable effort will be made to ensure that their employment with LSL can continue on a worthwhile basis with career opportunities available to
them.

Employee Key Performance Indicators

The Group uses a number of key performance indicators to measure its progress during the year.

Breakdown by age group

2009

2008

2007

Aged 16-25 

Aged 26-45

Aged 46+ 

Total Employees at (31/12/09)

Employee turnover percentage (%)

2. Health, Safety & Welfare 

537

1633

1115

3285

21.1

360

1497

949

2866

41.3

647

1973

1141

3761

39.7

LSL places great importance on the health, safety and welfare of its employees. Policies, group standards and procedures are in place, which aim to
identify and remove any hazardous areas, reduce material risks of fire and accidents or injuries to employees and visitors and, in conjunction with
its HR policies, manage workplace stress levels.

To this end, LSL makes every effort to provide safe and healthy working conditions in all offices and branches. Similarly, it is the duty of all
employees to exercise responsibility and to do everything to prevent injury to themselves and to others.

38

Annual Report and Accounts 2009

3. Environmental issues

LSL takes its responsibility for social, ethical and environmental issues very seriously and recognises the importance of developing and maintaining
high standards.

LSL commits itself to all available processes and practices that have the least impact on the environment and seeks to use all of its resources
carefully. Employees are encouraged to conserve all types of energy and to recycle or minimise waste products wherever possible.

Group companies continue to assess and manage the environmental impact of their operations by taking part in various recycling and energy
efficient practices so that it can be an active participant in the sustainable society. Work in the year includes the development of a new programme
within e.surv in corporation with The Carbon Trust to help create a sustainable future by reducing the businesses impact on the environment in
three main areas:

1) Our energy consumption
2) The waste we produce 
3) The carbon emissions that we generate

Across the Group a number of paper and plastic recycling schemes are in place at the main operating centres. Much of the Group’s communication
is now in electronic rather than paper form and we promote the reading by employees on screen rather than printing of emails. These initiatives are
part of our ongoing aim to continuously reduce our carbon footprint and further initiatives are planned in 2010 as a result of the monitoring of
these three areas that has been going on since August last year.

4. Social and Community interests (including Social and Ethical Issues)

While LSL is accountable to shareholders, it takes into account the interest of all stakeholders including employees, customers and suppliers as well
as the local community and the environment in which its divisions operate. LSL’s Ethics Policy confirms our commitment to a culture of openness,
trust and integrity and its aim is to ensure that:

4.1 For its Employees

Each Group Company will provide standard terms and conditions of employment, and a fair and transparent remuneration policy. It aims to provide
healthy and safe working conditions for all business areas.

It strives for equal opportunities for all present and potential employees and encourages employees to develop skills and progress in their careers.

It will not tolerate any sexual, physical or mental harassment of employees and will not discriminate on the grounds of colour, ethnic origin, gender,
age, religion, disability, and sexual orientation, political or other opinion.

4.2 For its Customers

Each Group Company seeks to be honest and fair in its relationships with its customers providing the standards of product and service that have
been agreed. It takes all reasonable steps to ensure the safety and quality of products or services that it produces.

4.3 For its Suppliers

Each Group Company seeks to be honest and fair in its relationships with suppliers and subcontractors and will pay its suppliers and subcontractors
in accordance with agreed terms.

It has a policy not to offer, pay or accept bribes or substantial favours and encourages suppliers and subcontractors to abide by the principles of
this policy.

The Group wide Whistleblowers Policy enables employees and other individuals to report, in confidence, any suspected inappropriate behaviour by
the Company or employees. There have been no breaches of the Ethics Policy or Whistleblower Policy during the last year.

5. Social Community and environment

Each Group Company aims to be sensitive to the local community’s cultural, social and economic needs and endeavours to protect and preserve
the environment where it operates. From time to time where practicable, make donations and support local and national charities.

Annual Report and Accounts 2009

39

Statement of Directors’ Responsibilities in relation to the
Group Financial Statements

The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with applicable United Kingdom
law and those International Financial Reporting Standards as adopted by the European Union.

Company law requires the Directors to prepare financial statements for each financial year, under that law the Directors have elected to prepare
the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Under company law the Directors must not approve the Group financial statements unless they are satisfied that they present fairly the financial
position of the Group and the financial performance and cash flows of the Group for that period. In preparing those financial statements, the
Directors are required to:

● select suitable accounting policies in accordance with IAS 8 ‘Accounting Policies, Change in Accounting Estimates and Errors’ and then apply

them consistently;

● present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

● provide additional disclosures when compliance with the specific requirements in International Financial Reporting Standards (IFRSs) is

insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position
and financial performance;

● state that the Group has complied with IFRSs, subject to any material departures disclosed and explained in the financial statements; and

● make judgements and accounting estimates that are reasonable and prudent.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose
with reasonable accuracy at any time the financial position of the Group, enabling them to ensure that the financial statements comply with the
Companies Act 2006 and Article 4 of the IAS Regulations. They are also responsible for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.

LSL’s financial statements are published on LSL’s website in accordance with legislation in the United Kingdom governing the preparation and
dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of LSL’s website is the
responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.

40

Annual Report and Accounts 2009

Independent Auditor’s Report to the Members of 
LSL Property Services plc

We have audited the group financial statements of LSL Property Services plc for the year ended 31 December 2009 which comprise the Group
Income Statement, the Group Statement of Comprehensive Income, the Group Balance Sheet, the Group Statement of Cash Flows, the Group
Reconciliation of Changes in Equity and the related notes I to 33. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (lFRSs) as adopted by the European Union. 

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and
the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. 

Respective responsibilities of directors and auditors 

As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the group financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the group financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices
Board’s (APB’s) Ethical Standards for Auditors. 

Scope of the audit of the ﬁnancial statements 

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall presentation of the financial statements 

Opinion on ﬁnancial statements 

In our opinion the group financial statements: 

● give a true and fair view of the state of the group’s affairs as at 31 December 2009 and of its profit for the year then ended; 

● have been properly prepared in accordance with IFRSs as adopted by the European Union; and

● have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. 

Opinion on other matter prescribed by the Companies Act 2006 

In our opinion: 

● the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the group

financial statements; and 

● the information given in the Corporate Governance Statement with respect to internal control and risk management systems in relation to

financial reporting processes and about share capital structures is consistent with the financial statements. 

Matters on which we are required to report by exception 

We have nothing to report in respect of the following: 

Under the Companies Act 2006 we are required to report to you if, in our opinion:

● certain disclosures of directors’ remuneration specified by law are not made; or

● we have not received all the information and explanations we require for our audit; or

● a Corporate Governance Statement has not been prepared by the Company. 

Under the Listing Rules we are required to review:

● the directors’ statement, in relation to going concern; and

● the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008 Combined

Code specified for our review. 

Other matter 

We have reported separately on the parent company financial statements of LSL Property Services pIc for the year ended 31 December 2009 and
on the information in the Directors’ Remuneration Report that is described as having been audited. 

Stuart Watson (Senior statutory auditor) 
for and on behalf of Ernst & Young LLP
Statutory Auditor 
Leeds 
3 March 2010 

Annual Report and Accounts 2009

41

Group income statement
for the year ended 31 December 2009

Revenue 
Operating expenses:

Employee and subcontractor costs
Establishment costs
Depreciation on property, plant and equipment 
Other

Rental income

Group operating proﬁt before exceptional costs, amortisation 
and share-based payments
Share-based payments
Amortisation of intangible assets
Exceptional costs 

Group operating proﬁt/(loss)

Dividend income
Finance income 
Finance costs
Exceptional ﬁnance costs

Net ﬁnancial costs

Proﬁt/(loss) before tax before adjustment to goodwill

Adjustment to goodwill in respect of subsequent recognition of deferred tax asset

Proﬁt/(loss) before tax
Taxation
– related to exceptional costs
– others

Proﬁt/(loss) for the year 

Earnings/(loss) per share expressed in pence per share:
Basic 

Diluted

2009

£’000

2008
restated*
£’000

157,703

161,773

80,100
10,991
1,407
37,374

88,912
12,485
2,299
40,638

(129,872)

(144,334)

488

765

28,319
(532)
(8,635)
(400)

18,752

24
54
(2,221)
–

(2,143)

16,609

–

16,609

112
(4,974)

(4,862)

18,204
(1,551)
(10,111)
(7,735)

(1,193)

334
190
(4,035)
(432)

(3,943)

(5,136)

(1,048)

(6,184)

2,022
(600)

1,422

11,747

(4,762)

11.4

11.4

(4.6)

(4.6)

Note

3

12

15

12
14
7

4

5
6
7

14

8
13

10

10

* Restatement of 2008 ﬁgures is due to the adoption of IFRS 2 (Amendment) which increased the share-based payment charge and the loss for the year by £1,413,000.

See note 2 for details.

42

Annual Report and Accounts 2009

Group statement of comprehensive income
for the year ended 31 December 2009

Proﬁt/(loss) for the year

Valuation losses on available-for-sale investment
Net loss on cash ﬂow hedge
Income tax effect

Other comprehensive loss for the year, net of tax

Total comprehensive income/(loss) for the year, net of tax^

^ all attributable to equity shareholders of the parent.

* the details of the restatement of the 2008 ﬁgures are given in note 2.

Note

16
20
13

2009

£’000

11,747

–
(87)
24

(63)

(63)

11,684

2008
restated*
£’000

(4,762)

(1,600)
–
–

–

(1,600)

(6,362)

Annual Report and Accounts 2009

43

Group balance sheet
As 31 December 2009

Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Financial assets
Deferred tax asset

Total non-current assets

Current assets
Trade and other receivables
Current tax assets
Cash and cash equivalents

Total current assets

Total assets

Current liabilities
Financial liabilities
Trade and other payables
Current tax liabilities
Provisions for liabilities and charges

Total current liabilities

Non-current liabilities
Financial liabilities
Trade and other payables
Deferred tax liability
Provisions for liabilities and charges

Total non-current liabilities

Net assets

Equity
Share capital
Share premium account
Share-based payment reserve
Treasury shares
Unrealised gain reserve
Hedging loss
Retained earnings

Total equity

Note

14
14
15
16
13

17

18

20
19

21

20
19
13
21

23
24
24
24
24
24

2009

£’000

66,472
22,895
2,077
4,052
621

2008
restated*
£’000

66,422
31,413
2,841
4,052
–

96,117

104,728

20,052
–
858

20,910

13,924
255
647

14,826

117,027

119,554

993
33,209
2,183
748

37,133

25,573
27
–
8,437

34,037

45,857

208
5,629
2,259
(2,805)
3,900
(63)
36,729

1,273
27,564
–
1,195

30,032

48,611
39
557
6,586

55,793

33,729

208
5,629
1,944
(2,934)
3,900
–
24,982

45,857

33,729

* Restatement of 2008 ﬁgures is due to the adoption of IFRS 2 (Amendment) which reduced the retained earnings by £1,413,000. See note 2 for details.

The ﬁnancial statements were approved by the Board on 3 March 2010 and were signed on its behalf by:

D A Fielding Director 

S D Embley Director

44

Annual Report and Accounts 2009

Group cash ﬂow statement
for the year ended 31 December 2009

Cash generated from operating activities
Proﬁt/(loss) before tax
Adjustments to reconcile proﬁt/(loss) before tax to net
cash inﬂows from operating activities
Amortisation of intangible assets
Dividend income
Finance income
Finance costs
Share-based payments
Adjustment in relation to deferred tax asset

Group operating proﬁt before amortisation and
share-based payments
Depreciation 
Impairment of goodwill
Impairment of intangible assets
Gain on sale of property, plant and equipment

(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables and provisions

Cash generated from operations
Interest paid
Tax paid

Net cash generated from operating activities

Cash ﬂows from investing activities
Purchase of subsidiary undertakings, minority interest and
commercial business 
Interest received
Dividends received
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment 
Purchase of available for sale ﬁnancial assets

Net cash expended on investing activities

31 Dec 2009

31 Dec 2008
restated *

Note

£’000

£’000

£’000

£’000

16,609

(6,184)

8,635
(24)
(54)
2,221
574
–

1,407
126
–
6

1,539
(6,128)
7,233

(2,397)
(3,578)

(150)
54
24
(662)
13
–

15
7
7

26

15

11,352

27,961

2,644

30,605

(5,975)

24,630

10,111
(334)
(190)
4,035
1,551
1,048

2,299
1,036
38
419

3,792
7,663
(9,152)

(3,993)
(5,126)

(276)
190
334
(1,043)
84
(2)

16,221

10,037

2,303

12,340

(9,119)

3,221

(721)

23,909

(713)

2,508

Annual Report and Accounts 2009

45

Group cash ﬂow statement (continued)
for the year ended 31 December 2009

Net cash from operating activities less cash expended
on investing activities

23,909

2,508

31 Dec 2009

31 Dec 2008
restated *

Note

£’000

£’000

£’000

£’000

Cash ﬂows from ﬁnancing activities
Repayment of loans
Proceeds from loans
Purchase of treasury shares 
Dividends paid

Net cash used in ﬁnancing activities

Net increase/(decrease) in cash and cash equivalents 
Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

18

* the details of the restatement of the 2008 ﬁgures are given in note 2.

(23,698)
–
–
–

–
44
(265)
(3,966)

(23,698)

211
647

858

(4,187)

(1,679)
2,326

647

46

Annual Report and Accounts 2009

Group statement of changes in equity
for the year ended 31 December 2009

For the year ended 31 December 2009

Share-
based
Share
Share premium payment
reserve
£’000

account
£’000

capital
£’000

Unrealised

Treasury
shares
£’000

gains Hedging Retained
earnings
loss
£’000
£’000

reserve
£’000

Total Minority
interest
£’000

equity
£’000

At 1 January 2009
Change in accounting policy 
(note 2)

Restated balance
Proﬁt for the year
Other comprehensive loss

Total comprehensive income
Reissuance of treasury shares
Share-based payments

At 31 December 2009

–

208
–
–

208
–
–

208

208

5,629

531

(2,934)

3,900

–

1,413

–

–

5,629
–
–

5,629
–
–

1,944
–
–

1,944
(109)
424

(2,934)
–
–

(2,934)
129
–

3,900
–
–

3,900
–
–

 –

–

–
–
(63)

(63)
–
–

26,395

33,729

(1,413)

24,982
11,747
–

36,729
–
–

–

33,729
11,747
(63)

45,413
20
424

5,629

2,259

(2,805)

3,900

(63)

36,729

45,857

Total
£’000

33,729

–

33,729
11,747
(63)

45,413
20
424

45,857

–

–

–
–
–

–
–
–

–

Annual Report and Accounts 2009

47

Group statement of changes in equity (continued)
for the year ended 31 December 2009

For the year ended 31 December 2008 (restated)

Share

Share
based
premium payment
reserve
account
£’000
£’000

Share
capital
£’000

Treasury
shares
£’000

Unrealised
gains
reserve
£’000

Retained
earnings
£’000

Total Minority
interest
£’000

equity
£’000

At 1 January 2008
Loss for the period (restated*)
Other comprehensive loss

Total comprehensive income
Purchase of treasury shares
Dividends paid
Share-based payments (restated*)

At 31 December 2008 (restated*)

208
–
–

208
–
–
–

208

5,629
–
–

5,629
–
–
–

560
–
–

560
–
–
1,384

(2,669)
–
–

(2,669)
(265)
–
–

5,500
–
(1,600)

3,900
–
–
–

33,710
(4,762)
–

28,948
–
(3,966)
–

42,938
(4,762)
(1,600)

36,576
(265)
(3,966)
1,384

5,629

1,944

(2,934)

3,900

24,982

33,729

–
–
–

–
–
–
–

–

* the details of the restatement of the 2008 ﬁgures is given in note 2.

Total
£’000

42,938
(4,762)
(1,600)

36,576
(265)
(3,966)
1,384

33,729

48

Annual Report and Accounts 2009

Notes to the group ﬁnancial statements
for the year ended 31 December 2009

1.  Authorisation of ﬁnancial statements and statement of compliance with IFRSs

The Group ﬁnancial statements of LSL Property Services plc and its subsidiaries for the year ended 31 December 2009 were authorised for issue by
the board of the directors on 3 March 2010 and the balance sheet was signed on the board’s behalf by S D Embley and D A Fielding. LSL Property
Services plc is a listed company incorporated and domiciled in England & Wales and the Group operates a network of estate agencies, surveying
businesses and other related businesses.

The Group’s ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union and as applied in accordance with the provisions of the Companies Act 2006. 

2. Accounting policies

Basis of preparation of ﬁnancial information

The consolidated ﬁnancial statements have been prepared on a historical cost basis, except for, derivative ﬁnancial instruments and available-for-
sale investments that have been measured at fair value. 

The accounting policies which follow set out those signiﬁcant policies which apply in preparing the ﬁnancial statements for the year ended 
31 December 2009. The Group’s ﬁnancial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£’000)
except when otherwise indicated.

Changes in accounting policy and disclosures

The accounting policies adopted are consistent with those of the previous ﬁnancial year except for 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 £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 4, 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.

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. 

Annual Report and Accounts 2009

49

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

2. Accounting policies (continued)

Changes in accounting policy and disclosures (continued)

Improvements to IFRSs (continued)
■ 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 
■ IFRS 7
■ lAS 8 
■ lAS 10
■ lAS 16
■ lAS 18
■ lAS 19
■ IAS 20
■ IAS 23
■ lAS 27 
■ lAS 28 
■ lAS 31
■ lAS 34
■ lAS 36
■ lAS 39

Non-current Assets Held for Sale and Discontinued Operations
Financial Instruments: Disclosures 
Accounting Policies, Change in Accounting Estimates and Error 
Events after the Reporting Period
Property, Plant and Equipment 
Revenue
Employee Beneﬁts
Accounting for Government Grants and Disclosures of Government Assistance
Borrowing Costs
Consolidated and Separate Financial Statements
Investment in Associates
Interest in Joint ventures
Interim Financial Reporting
Impairment of Assets
Financial Instruments: Recognition and Measurement

Judgements and estimates

The preparation of ﬁnancial information in conformity with IFRS as adopted by European Union requires management to make judgements,
estimates and assumptions that affect the application of policies and reporting amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing 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 ﬁnancial year are discussed below.

Impairment of intangible assets 

The measurement of intangible assets other than goodwill on a business combination involves estimation of future cash ﬂows and the selection of a
suitable discount rate. The Group determines whether indeﬁnite life intangible assets (including goodwill) are impaired on an annual basis and this
requires an estimation of the value in use of the cash generating units to which the intangible assets are allocated. This involves estimation of
future cash ﬂows and choosing a suitable discount rate (see note 14).

Fair value of unquoted equity instruments

Certain unquoted equity instruments have been valued based on the expected dividend cash ﬂows discounted at current rates applicable for items
with similar terms and risk characteristics. This valuation requires the Group to make estimates about expected future dividend cash ﬂows and
discount rates, and hence they are subject to uncertainty. The fair value of such unquoted equity instruments at 31 December 2009 is given in
note 16.

Other areas

Other areas of signiﬁcant judgement include contingent consideration, provisioning for professional indemnity claims and onerous leases. Details of
key assumptions in these areas are disclosed in Notes 20 and 21 to these Financial Statements.

50

Annual Report and Accounts 2009

2. Accounting policies (continued)

Basis of consolidation

The Group ﬁnancial statements incorporate the ﬁnancial statements of LSL Property Services plc and the entities controlled by the Group (its
subsidiaries) for the year ended 31 December 2009 and 31 December 2008. Control is achieved where the Group has the power to govern the
ﬁnancial and operating policies of an investee entity so as to obtain beneﬁts from its activities. The ﬁnancial statements of the subsidiaries are
prepared for the same reporting year as the parent company, using consistent accounting policies.

The acquisition of minority interest is not a business combination and there is no speciﬁc accounting prescribed in IFRS for such a transaction. The
Group has elected to adopt the ‘Parent entity extension method’ and the entire difference between the cost of acquisition and the minority
interest acquired is reﬂected as goodwill.

The cost of business combination includes amounts contingent on future events if the payment is considered probable and can be measured
reliably. These amounts are discounted at a rate appropriate to the liability. Any subsequent adjustments in respect of such contingent
consideration (other than due to unwinding of the discount) are adjusted against the carrying amount of goodwill.

The results of the subsidiaries acquired and disposed of during the year are included in the consolidated income statement from the date control
commences until the date that control ceases.

The purchase method of accounting is used for all acquisitions of subsidiaries. All intra-group transactions, balances, income and expenses are
eliminated on consolidation.

Intangible assets

Business combinations on or after 1 July 2004 are accounted for under IFRS 3 using the purchase method. Any excess of the cost of the business
combination over the Group’s interest in the net fair value of the identiﬁable assets, liabilities and contingent liabilities is recognised in the balance
sheet as goodwill and is not amortised. To the extent that the net fair value of the acquired entity’s identiﬁable assets, liabilities and contingent
liabilities is greater than the cost of the investment, a gain is recognised immediately in the income statement. Goodwill recognised as an asset as
at 1 July 2004 is recorded at its carrying amount under UK GAAP and is not amortised.

After initial recognition, goodwill is stated at cost less any accumulated impairment losses, with the carrying value being reviewed for impairment,
at least annually and whenever events or changes in circumstances indicate that the carrying value may be impaired. A previously recognised
impairment loss with respect to goodwill is not reversed in later years.

For the purpose of impairment testing, goodwill is allocated to the related cash-generating units monitored by management, usually at business
segment level or statutory company level as the case may be. Where the recoverable amount of the cash-generating unit is less than its carrying
amount, including goodwill, an impairment loss is recognised in the income statement. 

The carrying amount of goodwill allocated to a cash-generating unit is taken into account when determining the gain or loss on disposal of the
unit, or of an operation within it. 

Other intangible assets 

Intangible assets other than goodwill that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses.

Amortisation

Amortisation is charged to the income statement on a straight line basis over the estimated useful lives of intangible assets unless such lives are
indeﬁnite as follows:

Customer contracts:

Estate agency customer contracts 
Surveying customer contracts 

– ten years
– between three and ﬁve years

General insurance renewal 
Commission contracts

– between six and seven and a half years

Lettings contracts 

– ﬁfteen months 

Order book:

Estate agency pipeline 
Surveying pipeline 
Estate agency register 

Others:

Franchise agreements 
In-house software 

– six months
– one week 
– twelve months

– ten years
– three years

Annual Report and Accounts 2009

51

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

2. Accounting policies (continued)

Other intangible assets (continued) 

The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not
be recoverable.

The amortisation period and the amortisation method for an intangible asset with a ﬁnite useful life is reviewed at least at each ﬁnancial year-end.
Changes in the expected useful life or the expected pattern of consumption of future economic beneﬁts embodied in the asset is accounted for by
changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. 

Brand names are not amortised as the directors are of the opinion that they have an indeﬁnite useful life. This is based on the expectation of the
directors that there is no foreseeable limit to the period over which the asset is expected to generate net cash inﬂows to the businesses and the
directors are conﬁdent that trademark registration renewals will be ﬁled at the appropriate time and sufficient investment will be made in terms of
marketing and communication to maintain the value inherent in the brand.

The carrying value of intangible assets with indeﬁnite useful life is reviewed for impairment, at least annually and whenever events or changes in
circumstances indicate that the carrying value may be impaired.

Impairment

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when
annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is
the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the
asset does not generate cash inﬂows that are largely independent of those from other assets or Groups of assets. Where the carrying amount of an
asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the
estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time
value of money and the risks speciﬁc to the asset. Impairment losses of continuing operations are recognised in the income statement in those
expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised
impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the assets’ or cash generating unit’s
recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the
asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its
recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years. Such reversal is recognised in proﬁt or loss. After such a reversal the depreciation
charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining
useful life.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is provided to write off cost
less the estimated residual value of property, plant and equipment by equal annual instalments over their estimated useful economic lives as
follows: 

Office equipment, ﬁxtures and ﬁttings  – over three to seven years
Computer equipment
Motor vehicles 
Leasehold improvements

– over three to four years
– over three to four years
– over the shorter of the lease term or ten years

An item of property, plant and equipment is derecognised upon disposal or when no future economic beneﬁts are expected from its use or
disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the income statement when the asset is derecognised. 

These assets’ residual values, useful lives and methods of depreciation are reviewed at each ﬁnancial year end, and adjusted prospectively, if
appropriate.

Dividends

Equity dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by
the directors and paid. In the case of ﬁnal dividends, this is when approved by the shareholders at the annual general meeting.

Income taxes

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates
and laws that are enacted or substantively enacted by the balance sheet date. Management periodically evaluates positions taken in the tax returns
with respect to the situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

52

Annual Report and Accounts 2009

2. Accounting policies (continued)

Income taxes (continued) 

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in
the ﬁnancial statements, with the following exceptions:

■ where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business

combination that at the time of the transaction affects neither accounting nor taxable proﬁt or loss; and

■ in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary

differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and

■ deferred income tax assets are recognised only to the extent that it is probable that taxable proﬁt will be available against which the

deductible temporary differences, carried forward tax credits or tax losses can be utilised.

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset
is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date. 

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable proﬁt will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are
reassessed at each reporting period and are recognised to the extent that it has become probable that future taxable proﬁts will allow the deferred
tax asset to be recovered.

Deferred income tax assets and liabilities are offset, only if a legally enforceable right exists to set off current tax assets against current tax
liabilities, the deferred income taxes relate to the same taxation authority and that authority permits the group to make a single net payment. 

Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income tax is recognised
in the income statement.

Share–based payment transactions

Equity-settled transactions

The equity share option programmes allow group employees to acquire shares of the Company. The fair value of the options granted is recognised
as an employee expense with a corresponding increase in equity in case of equity-settled schemes. The fair value is measured at grant date and
spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is
measured using the Black Scholes model, taking into account the terms and conditions upon which the options were granted. Non-market vesting
conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately,
the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. No expense is recognised for
awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition,
which are treated as vesting irrespective of whether or not the market or non-market vested condition is satisﬁed, provided that all other
performance and/or service conditions are satisﬁed.

The dilutive effect of outstanding options is reﬂected as additional share dilution in the computation of diluted earnings per share (further details
given in note 10).

Cash-settled transactions

The Group has issued shares in a subsidiary company to the management of that company with restrictions on transferability. The Group has a call
option on these shares and these shares are considered as a cash-settled share scheme. The liability under the call option is measured at its fair
value. Fair value is established initially at the grant date and at each balance sheet date thereafter until the awards are settled. During the vesting
period a liability is recognised representing the product of the fair value of the award and the portion of the vesting period expired as at the
balance sheet date. From the end of the vesting period until settlement, the liability represents the full fair value of the award as at the balance
sheet date. Changes in the carrying amount of the liability are recognised in proﬁt or loss for the year.

Treasury shares

The Group has an employee share trust (ESOT) and an employee beneﬁt trust (EBT) for the granting of group shares to executives and senior
employees. Shares in the Group held by the trusts are treated as treasury shares and presented in the balance sheet as a deduction from equity. No
gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. The ﬁnance
costs and administration costs relating to the trusts are charged to the income statement. Dividends earned on shares held in the trusts have been
waived. The shares are ignored for the purposes of calculating the Group’s earnings per share.

Annual Report and Accounts 2009

53

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

2. Accounting policies (continued)

Leases

Group as a lessee

Leases where the lessor retains substantially all the risks and beneﬁts of ownership of the asset are classiﬁed as operating leases and rentals payable
are charged in the income statement on a straight line basis over the lease term. 

Group as a lessor

Assets leased out under operating leases are included in property, plant and equipment and depreciated over their estimated useful lives. Rental
income, including the effect of lease incentives, is recognised on a straight line basis over the lease term.

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether
the fulﬁlment of the arrangement is dependent on the use of a speciﬁc asset or assets or the arrangement conveys a right to use the asset. A
reassessment is made after inception of the lease only if one of the following applies: 

(a) There is a change in contractual terms, other than a renewal or extension of the arrangement; 

(b) A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term;

(c) There is a change in the determination of whether fulﬁlment is dependant on a speciﬁed asset; or 

(d) There is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the
reassessment for scenarios a), c) or d) and at the date of renewal or extension period for scenario b).

Pensions 

The Group operates a deﬁned contribution pension scheme for employees in certain Group companies, although contributions to this scheme by
the Group were suspended during the year. The assets of the scheme are invested and managed independently of the ﬁnances of the Group. The
pension cost charge represents contributions payable in the year.

Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is
probable that an outﬂow of economic beneﬁts will be required to settle the obligation. If the effect is material, provisions are determined by
discounting the expected future cash ﬂows at a pre-tax rate that reﬂects current market assessments of the time value of money and, when
appropriate, the risks speciﬁc to the liability.

Financial instruments

Financial assets and ﬁnancial liabilities are recognised in the Group’s Balance Sheet when the Group becomes a party to the contractual provisions
of the instrument. When ﬁnancial assets are recognised initially, they are measured at fair value, being the transaction price plus, in the case of
ﬁnancial assets not at fair value through proﬁt or loss, directly attributable transaction costs. Financial assets are de-recognised when the Group no
longer has the rights to cash ﬂows, the risks and rewards of ownership or control of the asset. Financial liabilities are de-recognised when the
obligation under the liability is discharged, cancelled or expires. All regular way purchases and sales of ﬁnancial assets are recognised on the trade
date, being the date that the Group commits to purchase or sell the asset. Regular way transactions require delivery of assets within the timeframe
generally established by regulation or convention in the market place. The subsequent measurement of ﬁnancial assets depends on their
classiﬁcation.

The Group’s accounting policy for each category of ﬁnancial instruments is as follows:

Available-for-sale ﬁnancial assets

Available-for-sale ﬁnancial assets are those non-derivative ﬁnancial assets that are designated as such or are not classiﬁed as held to maturity, loan
and receivables or fair value through proﬁt or loss. After initial recognition available-for-sale ﬁnancial assets are measured at fair value with gains or
losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be
impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement. Where a reliable indicator of
fair value cannot be obtained the assets are valued at cost.

Cash and short term deposits

Cash and short term deposits in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity period of
three months or less.

For the purposes of the consolidated cash ﬂow statement, cash and short term deposits consist of cash and short term deposits net of outstanding
bank overdrafts. 

54

Annual Report and Accounts 2009

2. Accounting policies (continued)

Financial instruments (continued)

Trade receivables

Trade receivables do not carry any interest and are stated at their original invoiced value as reduced by appropriate allowances for estimated
irrecoverable amounts.

Trade receivables generally have four to seven day payment terms in the estate agency business and thirty days in the surveying business. Provision
is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability
of recovery is assessed as being remote.

In July 2008, the Group entered into a third party ﬁnance arrangement for the payment of Home Information Packs (‘HIPs’). Any trade receivables
arising from HIPs were paid upfront by the third party ﬁnance company with no recourse. Fees charged by the third party ﬁnance company have
been included as part of the ﬁnance costs within the Income Statement.

Trade payables

Trade payables do not carry any interest and are stated at their original invoice value.

Interest bearing loans and borrowings

All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest-bearing
loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses arising on repurchase,
settlement or otherwise cancellation of liabilities are recognised respectively in ﬁnance income and ﬁnance costs.

Finance costs comprise interest payable on borrowings calculated at the effective interest rate method and recognised on an accruals basis.

Borrowing costs are recognised as an expense when incurred.

Derivative ﬁnancial instruments

The Group uses derivative ﬁnancial instruments such as interest rate caps and interest rate swaps to hedge its risks associated with interest rate
ﬂuctuations. Such derivative ﬁnancial instruments are stated at fair value on the date on which a derivative contract is entered into and are
subsequently remeasured at fair value. Derivatives are carried as ﬁnancial assets when the fair value is positive and as ﬁnancial liabilities when the
fair value is negative. Any gains or losses arising from changes in fair value on derivatives are taken directly to the income statement, except for the
effective portion of any cash ﬂow hedges, which are recognised in other comprehensive income.

The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. 

Impairment of ﬁnancial assets

Available-for-sale ﬁnancial assets

If an available-for-sale ﬁnancial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and
amortisation) and its fair value is transferred from equity to the income statement. Reversals of impairment losses in respect of equity instruments
classiﬁed as available-for-sale are not recognised in the income statement. 

Assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value
cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of
estimated future cash ﬂows discounted at the current market rate of return for a similar ﬁnancial asset.

Assets carried at amortised cost

In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or
signiﬁcant ﬁnancial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the
invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are
assessed as uncollectable.

Hedge accounting

During the year the Group entered into interest rate swap agreements and the group applied hedge accounting (using cash ﬂow hedge) on these
hedging instruments. 

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.

Annual Report and Accounts 2009

55

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

2. Accounting policies (continued)

Hedge accounting (continued)

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.

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 proﬁt and loss account when the hedged transaction affects
proﬁt or loss.

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 proﬁt and loss account. If the
related transaction is not expected to occur, the amount is taken to proﬁt or loss.

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic beneﬁts will ﬂow to the Group and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duty. The following
criteria must also be met before revenue is recognised:

Rendering of services

Revenue from the exchange fees in the estate agency business is recognised by reference to the legal exchange date of the housing transaction.
Revenue from the supply of surveying services is recognised upon the completion of the professional survey by the surveyor. 

Home Information Packs

Revenue from providing Home Information Packs (HIPs) is recognised when they are completed and provided to the customers.

Financial services income

Revenue from mortgage procuration fees is recognised by reference to the completion date of the mortgage on the housing transaction. Revenue
from policy sales is recognised by reference to the date that the policy is accepted by the insurer.

Interest income

Revenue is recognised as interest accrues (using the effective interest method – that is the rate that exactly discounts estimated future cash
receipts through the expected life of the ﬁnancial instrument to the net carrying amount of the ﬁnancial asset). 

Rental income

Rental income including the effect of lease incentives from sub-let properties is recognised on a straight line basis over the lease term.

Dividends

Revenue is recognised when the Group’s right to receive the payment is established.

Exceptional items

The Group presents as exceptional items on the face of the income statement, those material items of income and expense which, because of the
nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the
elements of ﬁnancial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in ﬁnancial performance.

56

Annual Report and Accounts 2009

2. Accounting policies (continued)

New standards and interpretations not applied 

The IASB and IFRIC have issued the following standards and interpretations which are not effective at the balance sheet date or have an effective
date after the date of these ﬁnancial statements:

International Accounting Standards (IAS / IFRSs)
IFRS 2
IFRS 3
IFRS 9
IAS 24
IAS 27
IAS 32
IAS 39

Amendment to IFRS 2 – Group Cash-Settled Share-Based Payment Transaction
Business Combinations (Revised January 2008)
Financial Instruments
Related Party Disclosures (Revised)
Consolidated & Separate Financial Statements
Amendments to IAS 32 Classiﬁcation of Rights Issue
Financial Instruments: Recognition and Measurement – Eligible hedged items (Amendment)
Annual Improvements to IFRS

International Financial Reporting Interpretations Committee (IFRIC) 
New interpretations

IFRIC 9
IFRIC 14
IFRIC 17
IFRIC 18
IFRIC 19

Amendments to IFRIC 9 and IAS 39 Embedded Derivatives
Amendments to IFRIC 14 – Prepayments of a minimum funding requirement
Distribution of Non-cash Assets to Owners
Transfer of asset from Customers
Extinguishing Financial Liabilities with Equity Instruments

Effective date*
1 January 2010
1 July 2009
1 January 2013
1 January 2011
1 July 2009
1 February 2010
1 July 2009
1 July 2009

Effective date*

1 July 2009
1 January 2011
1 July 2009
1 July 2009
1 July 2010

* The effective dates stated here are those given in the original IASB/IFRIC standards and interpretations. As the Group has elected to prepare their ﬁnancial statements
in accordance with IFRS as adopted by the European Union, the application of new standards and interpretations will be subject to their having been endorsed for use
in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or
interpretation but the need for endorsement restricts the Group’s discretion to adopt standards early.

The Group did not early adopt the revised IFRS 3 and so will apply it prospectively to all business combinations on or after 1 January 2010. Whilst it
is not possible to estimate the outcome of the adoption, the key features of the revised IFRS 3 included a requirement for acquisition-related costs
to be expensed and not included in the purchase price; and for contingent consideration to be recognised at fair value on the acquisition date
(with subsequent changes recognised in the income statement and not as a change to goodwill). The standard also changes the treatment of non-
controlling interest (formerly minority interests) with an option to recognise these at full fair value as at the acquisition date and a requirement for
previously held non-controlling interests to be fair valued as at the date control is obtained, with gains and losses recognised in the income
statement.

IAS 27 revised is effective for annual periods beginning on or after 1 July 2009, with earlier application only permitted when the revised IFRS 3 is
applied. The revised standard applies retrospectively with some exceptions. IAS 27 revised no longer restricts the allocation to minority interest of
losses incurred by a subsidiary to the amount of the non-controlling equity investment in the subsidiary. A partial disposal of equity interest in a
subsidiary that does not result in a loss of control will be accounted for as an equity transaction and will have no impact on goodwill nor will it give
rise to any gain or loss. Where there is loss of control of a subsidiary, any related interest will have to be remeasured to fair value which will impact
the gain or loss recognised on disposal. The Group is currently assessing the impact on its ﬁnancial statements from adopting IAS 27 revised.

The Directors do not anticipate that the adoption of the remaining standards and interpretations will have a material impact on the Group’s
ﬁnancial statements, other than additional disclosures, in the period of initial application.

Annual Report and Accounts 2009

57

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

3. Revenue

Revenue represents the amounts derived from the provision of services which fall within the Group’s ordinary activities, stated net of value added
tax. The revenue and pre-tax income is attributable to the continuing activity of estate agency and related activities and the provision of surveying
and valuation services on residential property. All the revenue arises in the United Kingdom.

Revenue disclosed in the income statement is analysed as follows:

Revenue from services

Revenue
Rental income
Dividend income
Finance income

Total revenue

2009
£’000

2008
£’000

157,703

161,773

157,703
488
24
54

161,773
765
334
190

158,269

163,062

4.

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 the sale and letting of housing via a network of high street branches. In

addition, it provides repossession asset management services to a range of lenders. 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 income) 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 all the revenue and expense arises in the United Kingdom and all assets are situated in
the United Kingdom.

58

Annual Report and Accounts 2009

4.

Segment analysis of revenue and operating proﬁt (continued)

Operating segments

The following table presents revenue and proﬁt/(loss) information regarding the group’s operating segments for the ﬁnancial year ended 31
December 2009 and ﬁnancial year ended 31 December 2008 respectively.

Year ended 31 December 2009

Income statement information
Segmental revenue

Segmental result:
– before exceptional costs, 

amortisation and share-based 
payments

– after exceptional costs,

amortisation and share-based 
payments

Dividend income
Finance income
Finance costs

Proﬁt before tax
Taxation

Proﬁt for the year 

Estate 
agency and
related 
activities
£’000

Surveying
and
valuation

services Unallocated
£’000

£’000

Total
£’000

87,655

70,048

–

157,703

6,705

23,554

(1,940)

28,319

4,910

15,782

(1,940)

18,752

24
54
(2,221)

16,609
(4,862)

11,747

In 2008, the revenue from one customer that accounts to 10% or more of the Group’s total revenue amounted to £20,017,000. The revenue from
this customer was included within both the above mentioned segments. In 2009, there is no revenue from one customer that accounts to 10% or
more of the Group’s total revenue.

Annual Report and Accounts 2009

59

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

4.

Segment analysis of revenue and operating proﬁt (continued)

Year ended 31 December 2009

Balance sheet information
Segment assets

Segment liabilities

Net assets/(liabilities)

Other segment items
Capital expenditure 
Depreciation 
Amortisation of intangible assets
Professional indemnity claim provision
Onerous leases provision
Share based payment
Impairment of trade receivables
Impairment of goodwill

Estate 
agency and
related 
activities
£’000

Surveying
and
valuation

services Unallocated
£’000

£’000

Total
£’000

76,246

33,698

7,083

117,027

(25,466)

(17,410)

(28,294)

(71,170)

50,780

16,288

(21,211)

45,857

555
(1,093)
(1,225)
–
(685)
(172)
(304)
(126)

107
(314)
(7,410)
(3,567)
(7)
(402)
15
–

–
–
–
–
–
–
–
–

662
(1,407)
(8,635)
(3,567)
(692)
(574)
(289)
(126)

Unallocated net liabilities comprise certain property, plant and equipment (£56,000), ﬁnancial assets (£3,900,000), deferred tax assets (£621,000),
trade and other receivables (£1,648,000), cash and bank balances (£858,000), ﬁnancial liabilities (£25,171,000), trade and other payables (£940,000)
and taxation (£2,183,000).

60

Annual Report and Accounts 2009

4.

Segment analysis of revenue and operating proﬁt (continued)

Year ended 31 December 2008 (restated)

Income statement information
Segmental revenue

Segmental result:
– before exceptional costs,

amortisation and share-based
payments

– after exceptional costs,

amortisation and share-based 
payments

Dividend income
Finance income
Finance costs
Exceptional ﬁnance costs

Loss before tax before adjustment to goodwill
Adjustment to goodwill in respect of subsequent recognition of 
deferred tax asset

Loss before tax
Taxation

Loss for the year

# this relates to the estate agency and related activities segment.

* the details of the restatement of the 2008 ﬁgures are given in note 2.

Estate 
agency and
related 
activities
restated*
£’000

Surveying
and
valuation

services Unallocated
restated*
£’000

restated*
£’000

Total
restated*
£’000

81,700

80,073

–

161,773

(8,435)

28,590

(1,951)

18,204

(15,834)

16,621

(1,980)

(1,193)

334
190
(4,035)
(432)

(5,136)

(1,048)

(6,184)
1,422

(4,762)

Annual Report and Accounts 2009

61

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

4.

Segment analysis of revenue and operating proﬁt (continued)

Year ended 31 December 2008 (restated)

Balance sheet information
Segment assets 

Segment liabilities 

Net assets/(liabilities)

Other segment items
Capital expenditure 
Depreciation 
Amortisation of intangible assets
Professional indemnity claim provision
Onerous leases provision
Share based payment
Impairment of trade receivables
Impairment of goodwill 
Impairment of intangible assets

Estate 
agency and
related 
activities
restated*
£’000

Surveying
and
valuation

services Unallocated
restated*
£’000

restated*
£’000

Total
restated*
£’000

75,284

39,273

4,997

119,554

(20,217)

(16,060)

(49,548)

(85,825)

55,067

23,213

(44,551)

33,729

818
(1,745)
(1,415)
–
(1,793)
(898)
(976)
(1,036)
(38)

225
(554)
(8,696)
(2,158)
(25)
(653)
187
–
–

–
–
–
–
–
–
–
–
–

1,043
(2,299)
(10,111)
(2,158)
(1,818)
(1,551)
(789)
(1,036)
(38)

Unallocated net liabilities comprise certain property, plant and equipment (£24,000), ﬁnancial assets (£3,900,000), trade and other receivables
(£171,000), current tax assets (£255,000), cash and bank balances (£647,000), ﬁnancial liabilities (£47,772,000), trade and other payables (£1,219,000)
and deferred tax liability (£557,000).

5.

Finance income

Interest receivable on funds invested
Other interest income

6.

Finance costs

Bank interest:
Other loans
Unwinding of discount on contingent consideration
HIPS ﬁnancing fees

62

Annual Report and Accounts 2009

2009
£’000

53
1

54

2009
£’000

1,636
38
547

2,221

2008
£’000

104
86

190

2008
£’000

3,775
42
218

4,035

7.

Exceptional costs

Establishment costs
Onerous leases provision due to branch closures
Employee costs
Redundancy costs due to branch closures and business reorganisation
Accelerated share-based payments
Other
Impairment of brand
Impairment of goodwill 
Costs of aborted acquisition of business and ﬁnancing project
Accelerated depreciation due to branch closures
Provision for professional indemnity claims

Total Operating Exceptional Costs
Finance Costs
Banking fees incurred for renegotiation of facility

2009
£’000

2008
£’000

–

232
42

–
126
–
–
–

400

–

400

1,709

2,410
–

38
1,036
242
269
2,031

7,735

432

8,167

During the year, property-careers.com Limited ceased trading and an impairment review was conducted in accordance with the accounting policy.
As a result of this impairment review, the entire value of goodwill in intangible assets of £126,000 was impaired. In addition, some employee costs
were incurred due to the cessation of trading of this operation.

In 2008, exceptional costs were incurred as shown above, reﬂecting the unprecedented market conditions and the need to restructure the business
in line with lower activity levels.

In 2008, given the deterioration in the UK housing market, the business considered that it was appropriate to make a one off increase in its
professional indemnity claims provision of £2,031,000 to take account of the increase in numbers of recovery claims made and likely to be made for
inaccurate valuations.

In 2008, Linear Financial Services Limited and Linear Mortgage Network Limited continued to incur operating losses and an impairment review was
conducted in accordance with the accounting policy. As a result of this impairment review the entire value of brand in intangible assets of £38,000
and carrying value of goodwill relating to both companies of £1,036,000 were impaired. 

8.

Proﬁt/(loss) before tax

Proﬁt/(loss) before tax is stated after charging/(crediting):

Auditors’ remuneration (note 9)
Operating lease rentals:
Land and buildings
Plant and machinery

2009
£’000

187

5,657
2,533

2008
£’000

216

8,442
2,394

Gain on sale of property, plant and equipment

(6)

(419)

Annual Report and Accounts 2009

63

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

9. Auditors’ remuneration

The remuneration of the auditors is further analysed as follows:

Audit of the ﬁnancial statements †
Other fees to auditors:

– local statutory audits for subsidiaries
– other services supplied pursuant to legislation
– other services ^

2009
£’000

2008
£’000

49

136
–
2

187

49

104
4
59

216

†  £35,000 (2008: £35,000) of this relates to the Company and £nil (2008: £1,000) relates to an over accrual of prior year audit fees.

^  Other fees to auditors above do not include fees payable for other services of £271,000, in relation to the acquisition of Halifax Estate Agencies Limited, which

completed on 15 January 2010.

10. Earnings/(loss) per share 

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

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 year 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. 

Basic EPS 
Effect of dilutive share options

Diluted EPS 

2009

Weighted
average
number of
shares

Proﬁt
after tax
£’000

11,747
–

102,818,875
360,830

11,747

103,179,705

Per share
amount
Pence

11.4
–

11.4

Loss
after tax
restated*
£’000

2008
Weighted
average
number of
shares

Per share
amount
restated*
Pence

(4,762)
-

102,845,156
195,615

(4,762)

103,040,771

(4.6)
–

(4.6)

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of
completion of these ﬁnancial statements.

64

Annual Report and Accounts 2009

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

The Directors consider that the adjusted earnings shown below give a better and more consistent indication of the Group’s underlying
performance:

Proﬁt/(loss) after tax 
Adjusted after tax for:
Exceptional costs
Amortisation of intangible assets
Share-based payment 

Adjusted proﬁt after tax

Adjusted basic and diluted EPS

Adjusted Basic EPS 
Effect of dilutive share options

Adjusted Diluted EPS 

2009

Adjusted
proﬁt
after tax1
£’000

Weighted
average
number of
shares

18,635
–

102,818,875
360,830

18,635

103,179,705

Per share
amount
Pence

18.1
–

18.1

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

* the details of the restatement of the 2008 ﬁgures are given in note 2.

11. Dividends paid and proposed 

Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2007: 3.86 pence

Dividends on ordinary shares proposed (not recognised as a liability as at 31 December):
Equity dividends on ordinary shares:
Dividend: 5.40 pence per share (2008: nil pence) 

2008
restated*
£’000

(4,762)

6,145
7,229
1,109

9,721

2009
£’000

11,747

288
6,217
383

18,635

2008

Adjusted
proﬁt
after tax1
restated*
£’000

Weighted
average
number of
shares

Per share
amount
restated*
Pence

9,721
–

102,845,156
195,615

9,721

103,040,771

9.5
–

9.4

2009
£’000

2008
£’000

–

3,966

5,555

–

Annual Report and Accounts 2009

65

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

12. Directors and employees 

Remuneration of directors

Directors’ emoluments (Short-term beneﬁts) *
Contributions to money purchase pensions schemes (Post employment beneﬁts)
Share-based payments

2009
£’000

1,085
11
(1)

1,095

2008
£’000

691
24
–

715

* included within this amount is the accrued bonuses of £443,000 (2008: nil).

Expenses of £3,271 (2008: £2,415) were also paid by the Group during the year. The number of directors who were members of Group money
purchase pension schemes during the year totalled 3 (2008: 3).

The remuneration of the highest paid director amounted to £371,504 (2008: £190,864) excluding pension costs. Group contributions to money
purchase pension schemes for that director amounted to £2,250 (2008: £9,000) in the year.

Directors’ contributions to pension schemes were matched by the Group up to a maximum of 10% of pensionable earnings until the end of July
2007. From August 2007 the Group’s contributions reverted to 5% of pensionable salaries where members contribute, and the cost of the death-in-
service beneﬁts. However, the Group suspended contributions to the pension schemes in 2009.

None of the directors has any share options in the Company apart from two directors who participate in the SAYE scheme, in which the option is
not exercisable at the end of the year.

Employee numbers and costs

The Group employs staff in its branches and head offices. Aggregate payroll costs of these employees were:

Wages and salaries
Social security costs
Pension costs

Total employee costs
Subcontractor costs

Total employee and subcontractor costs^

Share-based payment expense (see below) ≠

* the details of the restatement of the 2008 ﬁgures are given in note 2.

2009
£’000

68,654
6,832
1,232

76,718
3,382

80,100

532

2008
restated*
£’000

73,993
7,881
2,054

83,928
4,984

88,912

1,551

^ the total employee and subcontractor costs exclude employees redundancy costs of £232,000 (2008: £2,410,000), which have been shown under Exceptional costs

(Note 7).

≠ the share-based payment expense excludes the charge of £42,000 which have been shown under Exceptional costs (Note 7).

66

Annual Report and Accounts 2009

12. Directors and employees (continued)

Employee numbers and costs (continued)

The monthly staff numbers (including directors) during the year averaged 2,534 (2008: 3,061). 

Estate agency and related activities
Surveying and valuation services

Share-based payments

Long Term Incentive Plan

2009

1,766
768

2,534

2008

2,104
957

3,061

The Group operates a Long Term Incentive Scheme (an equity-settled share-based remuneration scheme) for certain employees. Under the Long
Term Incentive Scheme, the options vest if the individual remains an employee of the Group after a three year period, unless the individual has left
under certain ‘good leaver’ terms in which case the options may vest earlier and providing the performance conditions are met.

Outstanding at 1 January
Vested during the year

Outstanding at 31 December

2009

2008

Weighted
average
exercise
price
£

–
–

–

Weighted
average
exercise
price
£

–
–

–

Number

195,615
(172,514)

23,101

Number

195,615
–

195,615

There were 113,255 options exercisable at the end of the year (2008: none). 

The weighted average fair value of options granted during the year was £nil (2008: £nil). The weighted average remaining contractual life is 0.63
years (2008: 1.19 years).

Save-As-You-Earn scheme

In December 2006, the Group announced an employee ‘Save-As-You-Earn’ scheme effective from January 2007, and in March 2008 the Group
announced a new Save-As-You-Earn scheme effective April 2008. Both these schemes are open to all qualifying employees and provide for an
exercise price equal to the daily average market price on the date of grant less 20%. The options will vest if the employee remains in service for the
full duration of the option scheme (three years). There are no cash settlement alternatives.

2007 Scheme

Outstanding at 1 January
Lapsed during the year due to employees withdrawal

Outstanding at 31 December

2009

2008

Weighted
average
exercise
price
£

1.74
1.74

1.74

Weighted
average
exercise
price
£

–
1.74

1.74

Number

401,421
(132,621)

268,800

Number

2,131,034
(1,729,613)

401,421

Annual Report and Accounts 2009

67

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

12. Directors and employees (continued)

Share-based payments (continued)

The weighted average of the fair value of the options was £0.63 and the weighted average remaining contractual life was 0.01 years (2008: 1.01
years).

There were no options exercisable at the end of the year (2008: none).

2008 Scheme

Outstanding at 1 January
Granted during the year
Lapsed during the year due to employees withdrawal

Outstanding at 31 December

2009

2008

Weighted
average
exercise
price
£

1.155
–
1.155

1.155

Weighted
average
exercise
price
£

–
1.155
1.155

Number

1,120,177
–
(319,325)

Number

–
1,798,068
(677,891)

800,852

1.155

1,120,177

The weighted average of the fair value of the options was £0.47 and the weighted average remaining contractual life was 1.23 years (2008: 2.23
years). There were no options exercisable at the end of the year (2008: none).

Equity-settled 

Option pricing model used

Weighted average share price at grant date (£)
Exercise price (£)
Expected life of options (years)
Expected volatility
Expected dividend growth rate
Risk free interest rate

SAYE
2008

Black
Scholes
1.34
1.155
3 years
42%
2.15%
5.25%

2009

SAYE
2007

Black
Scholes
2.35
1.74
3 years
11%
3.68%
5.5%

LTIPs

Black
Scholes
2.38
nil
3 years
11%
3.68%
5.5%

SAYE
2008

Black
Scholes
1.34
1.155
3 years
42%
2.15%
5.25%

2008

SAYE
2007

Black
Scholes
2.35
1.74
3 years
11%
3.68%
5.5%

LTIPs

Black
Scholes
2.38
nil
3 years
11%
3.68%
5.5%

The total cost recognised for equity settled transactions is as follows:

Share-based payment charged during the year

* the details of the restatement of the 2008 ﬁgures are given in note 2.

Of this, a credit balance of £1,000 (2008: £2,000 charge) relates to employees of the Company.

2009
£’000

382

2008

restated*
£’000

1,401

The volatility assumption, measured at the standard deviation of expected share price returns, is based on statistical analysis of competitor ratios.
The dividend yield assumption is based on the fact that the shares awarded are not eligible to receive dividends until the end of the vesting period.

68

Annual Report and Accounts 2009

12. Directors and employees (continued)

Share-based payments (continued)

Cash-settled

In 2007, the Group issued shares in a subsidiary undertaking to certain employees of that subsidiary. The shares transferred are subject to
restrictions on transferability if the concerned employees are not in continuous employment in the Group. The Group also has a ‘call option’ on
these shares and the exercise price for the call option is based on future proﬁtability of the subsidiary. The Group has accounted for this share
transfer as a cash-settled share-based payment due to the nature of the transaction and recognised a share-based payment charge of £150,000
(2008: £150,000) using a discount factor rate of 7 per cent. None of this cost relates to the Company. 

13. Taxation

(a)

Tax on proﬁt/(loss)

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

UK corporation tax – current year

– tax underprovided/(overprovided) in prior year
– utilisation of tax losses

Deferred tax:
Origination and reversal of temporary differences
Adjustment in respect of prior year

Total deferred tax

Total tax charge/(credit) in the income statement

2009
£’000

5,615
401
–

6,016

(603)
(551)

(1,154)

4,862

2008
£’000

755
(42)
(800)

(87)

(1,271)
(64)

(1,335)

(1,422)

Income tax credited directly to equity is £24,000 (2008: nil) which relates to deferred tax on the net loss on the cash ﬂow hedge.

(b)

Factors affecting tax charge/(credit) for the year

The tax assessed in the proﬁt and loss account is higher (2008: higher) than the standard UK corporation tax rate, because of the following factors:

Proﬁt/(loss) on ordinary activities before tax 

Proﬁt/(loss) on ordinary activities multiplied by rate of corporation tax rate in the UK of 28% (2008: 28%)
Non taxable income
Disallowable expenses
Change in current tax rate in period
Other

Utilisation of tax losses on which deferred tax asset was not recognised previously
Prior period adjustments – current tax
Prior period adjustment – deferred tax

Total taxation charge/(credit)

2009
£’000

16,609

4,651
(26)
387
–
–

5,012
–
401
(551)

4,862

2008
restated
£’000

(6,184)

(1,732)
(164)
1,350
17
13

(516)
(800)
(42)
(64)

(1,422)

Annual Report and Accounts 2009

69

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

13. Taxation (continued)

(c)

Factors that may affect future tax charges (unrecognised)

Property, plant and equipment temporary differences
Other temporary differences
Losses

2009
£’000

11
85
–

96

2008
£’000

11
85
134

230

The deferred tax assets in respect of property, plant and equipment temporary differences, other temporary differences and losses may be
recoverable in the future and this is dependent on one of the subsidiary companies generating taxable proﬁts sufficient to allow the utilisation of
these amounts. These deferred tax assets can not be offset against proﬁts elsewhere in the Group as they relate to losses brought forward which
can only be offset in the same company. There is no time limit for utilisation of the above tax losses and other temporary differences.

(d) Deferred tax 

An analysis of the movements in deferred tax is as follows:

Net deferred tax liability at 1 January 
Deferred tax credit recognised in equity
Deferred tax credit in income statement for the year (note 13a)

Net deferred tax (asset)/liability at 31 December 

Analysed as:

Depreciation in excess of capital allowances
Deferred tax liability on separately identiﬁable intangible
assets on business combinations
Deferred tax on share options
Other short-term temporary differences
Deferred tax recognised on losses

Deferred tax credit in income statement relates to the following:

Amortisation of intangible assets recognised on business combinations
Depreciation in excess of capital allowance
Deferred tax on share options
Other temporary differences

2009
£’000

557
(24)
(1,154)

(621)

2009
£’000

(1,060)

2,223
(371)
(527)
(886)

(621)

2009
£’000

736
(67)
158
327

1,154

2008
£’000

1,892
–
(1,335)

557

2008
£’000

(1,127)

2,959
(213)
(1,062)
–

557

2008
£’000

1,111
287
24
(87)

1,335

At 31 December 2009, there was no unrecognised deferred tax liability (2008: nil) for taxes that would be payable on the unremitted earnings of
the Group’s subsidiaries.

70

Annual Report and Accounts 2009

14.

Intangible assets

Goodwill

Cost
At 1 January
Acquisition of estate agency branches
Acquisition of minority interest in existing subsidiaries
Adjustment in respect of change in contingent consideration
Adjustment in respect of subsequent recognition of deferred tax asset
Impairment of goodwill (note 7)

2009
£’000

66,422
33
–
143
–
(126)

2008
£’000

69,572
–
276
(1,342)
(1,048)
(1,036)

At 31 December

66,472

66,422

In 2008, the adjustment to goodwill of £1,048,000 related to recognition of a deferred tax asset on tax losses which have been realised in 2008.
However, a deferred tax asset related to these tax losses was not recognised at the time of accounting for the business combination, in accordance
with IFRS 3 Business Combinations.

Carrying amount of goodwill by operating unit
Estate agency companies

Your-move.co.uk Limited
Reeds Rains Limited
LSLi Limited
property-careers.com Limited
Others 

Surveying companies
e.surv Limited
Chancellors Associates Limited

2009
£’000

38,691
15,243
3,703
–
348

57,985

6,677
1,810

8,487

2008
£’000

38,691
15,243
3,527
126
348

57,935

6,677
1,810

8,487

66,472

66,422

Annual Report and Accounts 2009

71

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

14.

Intangible assets (continued)

Goodwill (continued)

Impairment of goodwill and other intangibles with indeﬁnite useful lives

The carrying amount of goodwill by operating unit is given above. The carrying amount of brand by operating unit is as follows:

Estate agency companies

Your-move.co.uk Limited
Reeds Rains Limited
LSLi Limited

Surveying companies
e.surv Limited
Chancellors Associates Limited

2009
£’000

2,510
1,241
481

4,232

1,281
153

1,434

5,666

2008
£’000

2,510
1,241
481

4,232

1,281
153

1,434

5,666

Goodwill acquired through business combinations and brands has been allocated for impairment testing purposes to statutory companies or groups
of statutory companies which are managed as one cash generating unit as follows:

■ Estate agency companies

o
o
o

o
o

Your-move.co.uk Limited
Reeds Rains Limited
LSLi Limited, which includes
●
●
●
●

Intercounty Estate Agents Limited ^
Zenith Properties Limited ^
David Frost Estate Agency Limited ^
JNP Estate Agents Limited ^

property-careers.com Limited
Others include Martin Stewart partnership and 4 Thornton Hill estate agency branches

■ Surveying companies 

o
o

e.surv Limited
Chancellors Associates Limited

^ Management viewed these companies/operating units as part of LSLi Limited for impairment testing purposes.

These represent the lowest level within the Group at which goodwill is monitored for internal management purposes.

Estate agency companies

The recoverable amount of the Estate Agency companies has been determined based on a value in use calculation using cash ﬂow projections based
on ﬁnancial budgets approved by the board covering a three-year period. The discount rate applied to cash ﬂow projections is 14% (2008: 14%) and
cash ﬂows beyond the 3-year budget are extrapolated using a 0% (2008: 0%) growth rate. 

Surveying companies

The recoverable amount of the Surveying companies is also determined on a value in use basis using cash ﬂow projections based on ﬁnancial
budgets approved by the board covering a three-year period. The discount rate applied to the cash ﬂow projections is 12% (2008: 12%). The growth
rate used to extrapolate the cash ﬂows of the Surveying companies beyond the three-year period is 0% (2008: 0%). 

72

Annual Report and Accounts 2009

14.

Intangible assets (continued)

Goodwill (continued)

Key assumptions used in value in use calculations

The calculation of value in use for each of the estate agency and surveying companies is most sensitive to the following assumptions:

■ gross margin

■ discount rates

■ market share and market recovery

■ growth rate used to extrapolate cash ﬂows beyond the budget period

Gross margins are based on average values achieved in the three years preceding the start of the budget period. These are increased over the
budget period for anticipated efficiency improvements. A factor of 2% per annum was applied for estate agency companies and 1.5% per annum for
the surveying companies. This is based on the opinion of the directors.

Discount rates reﬂect management’s estimate of return on capital employed (ROCE) required in each business. This is the benchmark used by
management to assess operating performance and to evaluate future capital investment proposals. The rates applied in the estate agency and
surveying companies budgets are based on the spread between current ROCE and base interest rates, adjusted by the forward interest rates at the
end of the budget period. 

Market share and market recovery assumptions are important because, as well as using industry data for growth rates (as noted below)
management assess how the company’s relative position to its competitors might change over the budget period. Management expects the
Group’s share of the surveying market to increase over the budget period and expect a signiﬁcant growth in the estate agency companies following
the acquisition of Halifax Estate Agencies Limited in January 2010, and because many smaller estate agents have closed down in the current year
due to the difficult trading conditions. Further, the carrying value of goodwill in the estate agency companies is dependent on future cash ﬂows
arising from a reasonable level of recovery in housing transaction volumes over the next three years.

Growth rate estimates are based on management estimates.

The results of the impairment tests in 2009 conﬁrmed that there had been an impairment of £126,000 in respect of the carrying amount of
goodwill held on the balance sheet regarding property-careers.com Limited (included in the ‘estate agency’ companies).

Sensitivity to changes in assumptions

With regard to the assessment of value in use for each of the above companies, management believes that no reasonably possible change in any of
the above key assumptions would cause the carrying value of the company to exceed its recoverable amount. Despite the unprecedented market
conditions, the principle Estate Agency companies, Your-move.co.uk Limited and Reeds Rains Limited have been proﬁtable in 2009. Underpinning the
carrying amount of goodwill is the assumption that more normal market conditions will resume in the future.

Other intangible assets

As at 31 December 2009

Brand
Names
£’000

Customer
Contracts
£’000

Insurance
Renewals
£’000

Lettings
Contracts
£’000

Cost
At 1 January 2009 
Additions

At 31 December 2009

5,704
–

5,704

Aggregate amortisation and impairment
At 1 January 2009
Charge for the year

38
–

38

At 31 December 2009

Carrying amount
At 31 December 2009

44,774
–

44,774

21,808
7,587

29,395

5,612
–

5,612

3,065
888

3,953

2,044
–

2,044

2,044
–

2,044

5,666

15,379

1,659

–

–

Order
Book
£’000

5,206
117

5,323

5,206
117

5,323

Other*
£’000

1,127
–

1,127

893
43

936

191

Total
£’000

64,467
117

64,584

33,054
8,635

41,689

22,895

Annual Report and Accounts 2009

73

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

14.

Intangible assets (continued)

Other intangible assets (continued)

As at 31 December 2008

Cost
At 1 January 2008 and 
31 December 2008

Aggregate amortisation 
and impairment
At 1 January 2008
Charge for the year
Impairment 

At 31 December 2008

Carrying amount
At 31 December 2008

Brand
Names
£’000

Customer
Contracts
£’000

Insurance
Renewals
£’000

Lettings
Contracts
£’000

Order
Book
£’000

Other*
£’000

Total
£’000

5,704

44,774

5,612

2,044

5,206

1,127

64,467

–
–
38

38

12,874
8,934
–

21,808

2,177
888
–

3,065

2,031
13
–

2,044

5,009
197
–

5,206

5,666

22,966

2,547

–

–

814
79
–

893

234

22,905
10,111
38

33,054

31,413

*Other relates to in-house software and franchise agreements. 

The brand value relates to the following:

■ your-move.co.uk, a network of estate agencies and to e.surv, a surveying company which were acquired by the Group in 2004,

■ Reeds Rains, a network of estate agencies which were acquired by the Group in October 2005,

■ Chancellors Associates, a surveying business which was acquired by the Group in July 2006,

■ ICIEA, a network of estate agencies which were acquired by the Group in February 2007,

■ David Frost Estate Agents, a network of estate agencies which were acquired by the Group in July 2007, and

■ JNP Estate Agents, a network of estate agencies which were acquired by the Group in September 2007.

The businesses are run as separate reporting units within the Group. There have been no fundamental changes to the manner in which the
businesses have been run since their acquisition and therefore the results of the businesses are considered to be derived from the brand names
nationally.

All amortisation charges have been treated as an expense in the income statement. Brand names are not amortised as the directors are of the
opinion that they have an indeﬁnite useful life. This is based on the expectation of the directors that there is no foreseeable limit to the period
over which the asset is expected to generate net cash inﬂows to the businesses and the directors are conﬁdent that trademark registration
renewals will be ﬁled at the appropriate time and sufficient investment will be made in terms of marketing and communication to maintain the
value inherent in the brand.

74

Annual Report and Accounts 2009

15. Property, plant and equipment

As at 31 December 2009

Cost
At 1 January 2009
Additions
Disposals

At 31 December 2009

Depreciation and impairment
At 1 January 2009
Charge for the year
Disposals

At 31 December 2009

Carrying amount
At 31 December 2009

As at 31 December 2008

Cost
At 1 January 2008
Additions
Disposals

At 31 December 2008

Depreciation and impairment
At 1 January 2008
Charge for the year
Disposals

At 31 December 2008

Carrying amount
At 31 December 2008

Leasehold
improvements
£’000

Motor
vehicles
£’000

3,427
60
–

3,487

3,299
85
–

3,384

103

43
6
–

49

16
16
–

32

17

Leasehold
improvements
£’000

Motor
vehicles
£’000

3,700
–
(273)

3,427

3,539
50
(290)

3,299

128

176
–
(133)

43

9
26
(19)

16

27

Fixtures, 
ﬁttings and 
computer 
equipment
£’000

13,614
596
(1,324)

Total
£’000

17,084
662
(1,324)

12,886

16,422

10,928
1,306
(1,305)

14,243
1,407
(1,305)

10,929

14,345

1,957

2,077

Fixtures, 
ﬁttings and 
computer 
equipment
£’000

13,527
1,043
(956)

Total
£’000

17,403
1,043
(1,362)

13,614

17,084

9,255
2,223
(550)

12,803
2,299
(859)

10,928

14,243

2,686

2,841

Annual Report and Accounts 2009

75

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

16. Financial assets

Available-for-sale ﬁnancial assets

Unquoted shares carried at cost
Impairment

Unquoted shares carried at fair value

Carrying value

Unquoted shares carried at cost

2009
£’000

497
(345)

152
3,900

4,052

2008
£’000

497
(345)

152
3,900

4,052

The ﬁnancial assets are in unlisted equity instruments and these are carried at cost less any impairment as the market value cannot be reliably
measured.

Unquoted shares carried at fair value

In 2003 the Group acquired 84 ‘A’ ordinary shares of £0.01 each in Hometrack Data Systems Limited for a consideration of £1. This amounts to a
14.19% shareholding in that company. In 2008 the Directors estimated the value of the unlisted equity shares was £3,900,000 based on the
estimated present value of the expected royalty income stream at a discount rate of 12%, which resulted in an adjustment of £1,600,000 to the fair
value of the unlisted equity share of £5,500,000 at 31 December 2007. The Directors still consider this to be the best estimate of fair value at 31
December 2009. 

No deferred tax has been recognised on the gain as the Group is expected to be able to claim the Substantial Shareholding Exemption to offset
with any capital gains tax arising for future disposal of the investment.

17. Trade and other receivables 

Current
Trade receivables
Prepayments and accrued income

2009
£’000

13,079
6,973

20,052

2008
£’000

9,862
4,062

13,924

Trade receivables are non-interest bearing and are generally on 0-90 days’ terms.

As at 31 December 2009, trade receivables at nominal value of £751,982 (2008: £1,154,000) were impaired and fully provided for. Movements in the
provision for impairment of receivables were as follows:

2009
£’000

1,154
289
(455)
(236)

752

2008
£’000

1,715
789
(1,192)
(158)

1,154

At 1 January
Charge for the year
Amounts written off
Unused amounts reversed

At 31 December

76

Annual Report and Accounts 2009

17. Trade and other receivables (continued)

As at 31 December, the analysis of trade receivables that were past due but not impaired is as follows:

2009

2008

18. Cash and cash equivalents

Short-term deposits

Neither
past due
nor
impaired
£’000

7,766

4,752

Past due but not impaired

0-90 days
£’000

>90 days
£’000

5,171

4,944

142

166

Total
£’000

13,079

9,862

2009
£’000

858

2008
£’000

647

Cash at bank earns interest at ﬂoating rates based on daily bank overnight deposit rates. Short-term deposits are made for varying periods of
between one day and three days depending on the immediate cash requirements of the Group, and earn interest at the respective short-term
deposit rates. The fair value of cash and cash equivalents is £0.9m (2008: £0.6m). At 31 December 2009, the Group had available £50.8m of undrawn
committed borrowing facilities in respect of which all conditions precedent had been met (2008: £27.9m).

19. Trade and other payables 

Current
Trade payables
Other taxes and social security payable
Other payables
Accruals

Non-current
Accruals

Terms and conditions of the above ﬁnancial liabilities:

■ Trade payables are non-interest bearing and are normally settled on between 30 and 60 day terms.

■ Other payables are mainly non-interest bearing and have an average term of three months. 

2009
£’000

6,675
5,631
277
20,626

33,209

2008
£’000

3,886
4,381
310
18,987

27,564

27

39

Annual Report and Accounts 2009

77

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

20. Financial liabilities

Current
Unsecured bank loan
Unsecured loan notes
Other unsecured loans
Cash-settled share based payment
Contingent consideration

Non-current
Secured bank loans – Revolving credit facility 
Unsecured bank loan
Unsecured loan notes 
Other unsecured loans
Cash-settled share based payment
Contingent consideration
Derivatives designated as hedges – interest rate swap

2009
£’000

13
322
24
313
321

993

25,071
–
–
–
90
325
87

25,573

2008
£’000

24
1,048
201
–
–

1,273

47,772
24
50
41
253
471
–

48,611

Secured bank loans – Revolving credit facility

The secured bank loans totalling £25.1m (2008: £47.8m) are secured by a debenture over the Group’s assets excluding the following subsidiaries,
Lending Solutions Limited, First Complete Limited and its subsidiaries, property-careers.com Limited, Chancellors Associates Limited and LSLi Limited
and its subsidiaries. 

The secured bank loans relate to 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 (2008: £75m). The banking facility expires in July 2010 but can be extended at that date until July 2011
only at the option of the company. As at the year end, the intention of the company is to extend the facility until July 2011 and hence the bank
loans have been classiﬁed under non-current liabilities.

Interest payable on the revolving credit facility amounted to £1.6m (2008: £3.6m). The interest rate applicable to the facility is LIBOR plus a margin
rate of 1.5% (2008: LIBOR plus 2.0%). The margin rate is linked to the leverage ratio of the Group and the margin rate is reviewed at six monthly
intervals. 

Unsecured bank loan

An unsecured bank loan of £13,000 (2008: £48,000) is outstanding to Barclays Bank plc by a group company. This is repayable over ﬁve years ending
in June 2010 and incurs interest at a ﬁxed rate of 5.8% per annum.

Unsecured loan notes

Unsecured loan notes of £322,000 (2008: £1,098,000) are outstanding in respect of consideration relating to acquisitions by a group company.
These are repayable in 2010, with a ﬁxed rate of interest of 5% per annum. 

Other unsecured loan

Unsecured loans of £24,000 (2008: £242,000) are outstanding by a group company. These are repayable in 2010 and incur interest at 8.07% per
annum.

Cash-settled share-based payment

An explanation is given in detail in note 12. 

Contingent consideration 

£863,000 (2008: £624,000) of contingent consideration is payable to third parties in relation to the acquisition of its subsidiaries in 2007. This is
payable between three and ﬁve years after the acquisition dates depending on the proﬁtability of those subsidiaries in the relevant years. The
contingent consideration was recorded at a fair value of £1,771,236 in 2007 using a discount rate of 7 per cent. In 2009, the contingent
consideration has been recalculated based on the latest management’s expectation of the proﬁtability of subsidiaries and this resulted in an
increase of the contingent consideration to £646,000 (2008: £471,000) calculated using a discount rate of 7 per cent (2008: 7 per cent).

Interest rate swap

During the year, the Group entered into three interest rate swaps to hedge its interest rate risks (see note 28). These are carried at fair value.

78

Annual Report and Accounts 2009

21. Provisions for liabilities and charges

Balance at 1 January
Amount utilised
Amount released
Provided in ﬁnancial year

Balance at 31 December

Current
Non-current

Professional 
indemnity
claim 
provision
£’000

2009

Onerous
leases
£’000

5,638
(1,663)
–
3,567

7,542

122
7,420

7,542

2,143
(445)
(747)
692

1,643

626
1,017

1,643

Professional
indemnity
claim
provision
£’000

2008

Onerous
leases
£’000

3,925
(445)
–
2,158

5,638

93
5,545

5,638

589
(155)
(109)
1,818

2,143

1,102
1,041

2,143

Total
£’000

7,781
(2,108)
(747)
4,259

9,185

748
8,437

9,185

Total
£’000

4,514
(600)
(109)
3,976

7,781

1,195
6,586

7,781

The professional indemnity claim provision relates to ongoing normal legal claims and is the directors’ best estimate of the likely outcome of such
claims. The provision will be utilised as individual claims are settled and the settlement amount may vary from the amount provided depending on
the outcome of each claim. It is not possible to estimate the timing of payment of all claims and therefore most of the provision has been classiﬁed
as non-current.

The provision for lease obligations relates to obligations under leases on vacant properties. The provision is expected to be fully utilised by June
2020. The ﬁnal outcome depends upon the ability of the Group to sublet or assign the lease over the related properties.

22. Obligations under leases

Operating leases

The Group had annual commitments in respect of non-cancellable operating leases for which no provision has been made in these ﬁnancial
statements (other than the onerous lease provision as disclosed in note 21). Future minimum rentals payable under these operating leases are as
follows: 

Land
and

2009
Plant
and
building machinery
£’000

£’000

No later than one year
After one year but not more than ﬁve years
After ﬁve years

6,073
17,516
10,442

34,031

1,765
1,596
–

3,361

Land
and
building
£’000

6,849
20,478
13,725

41,052

2008
Plant
and
machinery
£’000

1,597
915
–

2,512

Total
£’000

7,838
19,112
10,442

37,392

Total
£’000

8,446
21,393
13,725

43,564

Annual Report and Accounts 2009

79

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

22. Obligations under leases (continued)

The Group had annual commited revenue in respect of non-cancellable operating leases for which no accrual has been made in these ﬁnancial
statements. Future minimum rentals receivable under non-cancellable operating leases are as follows:

2009
Land
and
buildings
£’000

374
914
588

2008
Land
and
buildings
£’000

296
779
546

1,876

1,621

2009

2008

Shares

£’000

Shares

£’000

500,000,000

1,000

500,000,000

1,000

104,158,950

208

104,158,950

208

Not later than one year
After one year but not more than ﬁve years
After ﬁve years

23. Share capital

Authorised:
Ordinary shares of 0.2p each

Issued and fully paid:
At 1 January and 31 December

24. Reserves

Share premium

The amount subscribed for share capital in excess of nominal value less any costs attributable to the issue of new shares.

Share-based payment reserve

The share-based payment reserve is used to record the value of equity-settled share-based payment provided to the employees, as part of their
remuneration. Note 12 gives further details of these plans.

Treasury shares

The Company has an employee share trust (ESOT) for the granting of group shares to executives and senior employees. The Company acquired
147,219 of its own shares via the trust in November 2006. The total amount paid to acquire the shares was £297,920. During the year, an employee
exercised his share options and the trust sold 59,259 shares to the open market on his behalf. The market value of the remaining shares held by
ESOT on 26 February 2010 was £236,612 (20 February 2009: £92,012). The nominal value of each share is 0.2p.

The Company also has an employee beneﬁt trust (EBT) for the granting of group shares under the employee SAYE schemes. The Company acquired
1,000,000 of its own shares via the trust in August 2007 and 200,000 of its own shares via the trust in March 2008. The total amount paid to
acquire the shares was £2,636,000. The market value of the shares held by EBT on 26 February 2010 was £3,228,000 (26 February 2009: 768,000).
The nominal value of each share is 0.2p.

Unrealised gains reserve

This reserve records fair value changes on available-for-sale ﬁnancial assets.

Hedging loss

The cash ﬂow hedge loss contains the effective portion of the cash ﬂow hedge relationships incurred as at the reporting date and the effective
portion of the gain or loss on hedging instruments in cash ﬂow hedge.

80

Annual Report and Accounts 2009

25. Pensions costs and commitments

The Group operates deﬁned contribution pension schemes for all its directors and certain employees. The assets of the schemes are held separately
from those of the Group in independently administered funds.

The Group, from January to March 2009, made a contribution of a maximum of 5% of pensionable salaries and the cost of death-in-service beneﬁts,
where ‘old’ members of the existing deﬁned contribution scheme, make contributions to the scheme. Contributions to the scheme were suspended
by the Group in April 2009.

The Group’s contributions for ‘new’ members of the deﬁned contribution stakeholder scheme (those members who were part of the Aviva scheme
until the Group left the Aviva group in 2004) were 10% of pensionable salaries until the end of July 2007 where members contribute and the cost of
the death-in-service beneﬁts. From August 2007 the Group’s contributions for these ‘new’ members of the deﬁned contribution stakeholder scheme
reverted to a maximum 5% of pensionable salaries where members contribute, and the cost of the death-in-service beneﬁts. The Group made
contributions from January to March 2009, but suspended contributions in April 2009.

Total contributions to the deﬁned contribution schemes in the year were £1.2m (2008: £2.1m). There was an outstanding amount of £159,000 in
respect of pensions as at 31 December 2009 (2008: £199,000).

26. Acquisitions during the year

Year ended 31 December 2009
On 24 April 2009, the Group acquired certain assets of an estate agency business for a cash consideration of £135,000. On 11 June 2009, the Group
acquired another estate agency business for a cash consideration of £15,000. The combined effect of all acquisitions had the following effect on the
Group’s assets and liabilities:

Other intangible assets – order book

Goodwill arising on acquisition

Discharged by:
Cash

Fair
Book 
value
value adjustments
£’000
£’000

–

33

Fair
value
£’000

33

33
117

150

150

Other disclosure required by IFRS 3 was not given as it is not practical on the basis that these acquisitions were considered insigniﬁcant to the
Group. 

Year ended 31 December 2008

On 25 February 2008, the Group acquired the minority interest (4%) in property-careers.com Limited for a cash consideration of £126,000, and the
minority interest (26.5%) in Linear Financial Services Holdings Limited for a cash consideration of £150,000.

The combined effect of all acquisitions had the following effect on the Group’s assets and liabilities: 

Goodwill arising on acquisition

Discharged by:
Cash

Fair value
£’000

276

276

276

Annual Report and Accounts 2009

81

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

27. Client monies

As at 31 December 2009, client monies held by subsidiaries in approved bank accounts amounted to £25,576,000 (2008: £21,423,033). Neither this
amount, nor the matching liabilities to the clients concerned are included in the Group balance sheet, as the Group is not entitled to the beneﬁt
from the use of the amount held in these accounts. 

28. Financial instruments – risk management

The Group’s principal ﬁnancial instruments comprise bank loans and other loans. The main purpose of these ﬁnancial instruments is to raise ﬁnance
for the Group’s operations and to fund acquisitions. The Group has various ﬁnancial assets and liabilities such as trade receivables, cash and short -
term deposits and trade payables, which arise directly from its operations.

The Group enters into derivative transactions, relating to the purchase of interest rate cap products and interest rate swaps. The purpose is to
manage the interest cost arising from the Group’s operations and its sources of ﬁnance.

It is, and has been throughout 2009 and 2008 the Group’s policy that trading in derivatives shall not be undertaken, apart from the interest rate
cap products and interest rate swap agreements mentioned above.

The Group is exposed through its operations to one or more of the following ﬁnancial risks:

■ Cash ﬂow interest rate risk
■ Liquidity risk, and
■ Credit risk

Policy for managing these risks is set up by the Board following recommendations from the Group Finance Director. Certain risks are managed
centrally, while others are managed locally following communications from the centre. 

The policy for each of the above risks is described in more detail below:

Cash ﬂow interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with ﬂoating
interest rates.

It is currently the Group policy that the majority of external Group borrowings are variable interest based. This policy is managed centrally.
Operations are not permitted to borrow from external sources. Where the Group wishes to ﬁx the amount of external variable rate debt, it
considers the use of cap products and interest rate swap agreements available to achieve the desired interest rate proﬁle. The Group purchased an
interest rate cap in September 2004 to protect itself against ﬂuctuating interest rates on £25.9m of the Group’s borrowings initially (reducing in
line with the loan repayments). The borrowings tied to this cap were repaid in July 2006. This cap restricted the LIBOR to 6% until 30 September
2006 and 6.5% until 30 September 2007.

The Group purchased a further interest rate cap in August 2006 to protect itself against ﬂuctuating interest rates on £30m of the Group’s
borrowings initially (reducing in line with the facility). This cap restricted the LIBOR to 6% on £30m of the facility until 24 August 2009. 

The Group entered into an interest rate swap agreement in April 2009 to ﬁx interest rates on £10m of the Group’s bank borrowings. The interest
rate swap agreement restricts the LIBOR to 2.91% until 17 April 2014. On 13 May 2009, the Group entered into a further interest rate swap
agreement for £10m of the Group’s bank borrowings. The interest rate swap agreement restricts the LIBOR to 2.96% until 13 May 2014. On 15 May
2009, a further interest rate swap agreement was entered into for £5m of the Group’s bank borrowings. The interest rate swap agreement restricts
the LIBOR rate to 2.9% until 15 May 2014. The group applied hedge accounting (using cash ﬂow hedge) on these interest rate swap agreements as
these swaps are designated to hedge underlying debt obligations. See note 2 for the accounting policy on hedge accounting.

Although the Group accepts that this policy neither protects the Group entirely from the risk of paying rates in excess of current market rates nor
eliminates fully cash ﬂow risk associated with interest payments, it considers that it achieves an appropriate balance of exposure to these risks.

At 31 December 2009, after taking into account the effect of interest rate swaps, approximately 100% of the Group’s borrowings are at a ﬁxed rate
of interest (2008: 4%).

82

Annual Report and Accounts 2009

28. Financial instruments – risk management (continued)

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings, after the
impact of hedge accounting. With all other variables held constant, the Group’s proﬁt/(loss) before tax is affected through the impact on ﬂoating
rate borrowings as follows. There is no material impact on the Group’s equity.

2009

2008

Liquidity risk 

Increase / 
decrease 
in basis 
point

Effect on
proﬁt/(loss)
before tax
£’000

+100
-100
+100
-100

(1)
1
(478)
478

The Group aims to mitigate liquidity risk by managing cash generation by its operations, dividend policy and acquisition strategy. Acquisitions are
carefully selected with authorisation limits operating up to Group board level and cash payback periods applied as part of the investment appraisal
process. In this way the Group aims to maintain a good credit rating to facilitate fund raising.

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its ﬁnancial
investments and ﬁnancial assets (eg accounts receivables, and other ﬁnancial assets) and projected cash ﬂows from operations. The Group’s
objective is to maintain a balance between continuity of funding and ﬂexibility for potential acquisitions through the use of its banking facilities.

The table below summarises the maturity proﬁle of the Group’s ﬁnancial liabilities at 31 December 2009 based on contractual undiscounted
payments:

Year ended 31 December 2009

Interest bearing loans and borrowings
Trade and other payables
Interest rate swap

On 
demand
£’000

Less than 
3 months
£’000

3 to 12
months
£’000

–
–
–

–

116
33,058
280

33,454

1,647
151
486

2,284

1 to 5 
years
£’000

25,782
27
2,291

28,100

> 5 years
£’000

–
–
–

–

Total
£’000

27,545
33,236
3,057

63,838

The disclosed ﬁnancial derivative instruments in the above table are the gross undiscounted cash ﬂows. However, those amounts may be settled
gross or net. The following table shows the corresponding reconciliation of those amounts to their carrying amounts.

Year ended 31 December 2009

Inﬂows
Outﬂows

Net

Year ended 31 December 2008

Interest bearing loans and borrowings
Trade and other payables 

On 
demand
£’000

Less than 
3 months
£’000

3 to 12
months
£’000

–
–

–

50
(280)

(230)

175
(486)

(311)

On 
demand
£’000

Less than 
3 months
£’000

–
–

–

631
27,564

28,195

3 to 12
months
£’000

2,882
–

2,882

1 to 5 
years
£’000

2,745
(2,291)

454

1 to 5 
years
£’000

51,288
39

51,327

> 5 years
£’000

–
–

–

> 5 years
£’000

–
–

–

Total
£’000

2,970
(3,057)

(87)

Total
£’000

54,801
27,603

82,404

Annual Report and Accounts 2009

83

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

28. Financial instruments – risk management (continued)

Capital management

The primary objective of the Group’s capital management is to ensure that it maintains appropriate capital structure to support its business
objectives and maximise shareholder value. Capital includes share capital and other equity attributable to the equity holders of the parent.

In the medium to long term, the Group will strive to maintain a reasonable leverage (ie balance between debt and equity) to help achieve the
Group’s business objectives of growth (through acquisitions and organic growth) and dividend policy. In the short term, the Group does not have a
set leverage ratio to be achieved but the directors monitor the ratio of net debt to operating proﬁt to ensure that the debt funding is not
excessively high.

The Group has a current ratio of net debt to operating proﬁt of 0.93:1 (2008: 2.96:1 restated), net debt of £24.2m (2008: £49.2m) and operating
proﬁt before exceptional costs, amortisation and share-based payment charge of £28.3m (2008: £18.2m). The business is cash generative with a low
capital expenditure requirement. In light of the unprecedented market conditions in 2008, the Group suspended the payment of dividend for 2008.
However, the Group remains committed to its stated dividend policy of 30% to 40% of net proﬁt and proposes to pay a dividend in early 2010. In
addition, the Group’s other main priority is to generate cash to support its operations and to fund any strategic acquisitions.

Interest bearing loans and borrowings
Less: cash and short term deposit

Net debt

2009
£’000

26,566
(858)

2008
£’000

49,884
(647)

25,708

49,237

The liquidity risk of each Group entity is managed centrally by the Group treasury function. The Group’s cash requirement is monitored closely.

All surplus cash is held centrally to offset against the Group’s borrowings and reduce the interest payable. The type of cash instrument used and its
maturity date will depend on the Group’s forecast cash requirements. The Group has a revolving credit facility with a major banking corporation to
manage longer term borrowing requirements.

Credit risk

There are no signiﬁcant concentrations of credit risk within the Group. The Group is exposed to a credit risk in respect of revenue transactions (ie
turnover from customers). It is Group policy, implemented locally, to obtain appropriate details of new customers before entering into contracts.
The majority of the estate agency customers use the Group’s services as part of a house sale transaction and consequently the debt is paid from
the proceeds realised from the sale of the house by the vendor’s solicitor before the balance of funds is transferred to the vendor. In addition,
during the year, the Group entered into a third party ﬁnance arrangement for the payment of Home Information Packs (‘HIPs’). Any trade
receivables arising from HIPs were paid upfront by the third party ﬁnance company with no recourse. These minimise the risk of the debt not being
collected.

The majority of the surveying customers and those of the asset management business are large ﬁnancial institutions and as such the credit risk is
not expected to be signiﬁcant. The maximum credit risk exposure relating to ﬁnancial assets is represented by the carrying value as at the balance
sheet date.

Interest rate risk proﬁle of ﬁnancial assets and liabilities

Treasury policy is described in the note above. The disclosures below exclude short term receivables and payables which are primarily of a trading
nature and expected to be settled within normal commercial terms.

The interest rate proﬁle of the ﬁnancial assets and liabilities of the Group as at 31 December 2009 is as follows:

Fixed rate

Unsecured loans 
Revolving credit facility*

Within
1 year
£000

(359)
–

1-2 years
£000

2-3 years
£000

3-4 years
£000

4-5 years
£000

More than
5 years
£000

–
–

–
(25,000)

–
–

–
–

–
–

Total
£000

(359)
(25,000)

84

Annual Report and Accounts 2009

28. Financial instruments – risk management (continued)

Interest rate risk proﬁle of ﬁnancial assets and liabilities (continued)

Floating rate

Cash and cash equivalents
Revolving credit facility

Within
1 year
£000

858
–

1-2 years
£000

2-3 years
£000

3-4 years
£000

4-5 years
£000

More than
5 years
£000

–
–

–
(71)

–
–

–
–

–
–

Total
£000

858
(71)

* includes the effect of interest rate swap.

The effective interest rate and the actual interest rate charged on the loans is as follows:

Revolving credit facility
Other unsecured loans
Unsecured loan notes
Unsecured bank loan

Effective rate and
actual rate
4.43%
7.81%
5.00%
5.80%

The interest rate proﬁle of the ﬁnancial assets and liabilities of the Group as at 31 December 2008 is as follows:

Fixed rate

Unsecured loans
Interest rate cap

Floating rate

Cash and cash equivalents
Revolving credit facility
Unsecured loans

Within
1 year
£000

(1,072)
13

Within
1 year
£000

647
–
(201)

1-2 years
£000

2-3 years
£000

3-4 years
£000

4-5 years
£000

More than
5 years
£000

(74)
–

–
–

–
–

–
–

–
–

1-2 years
£000

2-3 years
£000

3-4 years
£000

4-5 years
£000

–
–
(41)

–
(47,772)
–

–
–
–

–
–
–

More than
5 years
£000

–
–
–

Total
£000

(1,146)
13

Total
£000

647
(47,772)
(242)

Interest rate risk proﬁle of ﬁnancial assets and liabilities

The effective interest rate and the actual interest rate charged on the loans were as follows:

Unsecured bank loan
Unsecured loan notes
Revolving credit facility
Other unsecured loans
Other secured loans

Effective rate and
actual rate
10.00%
5.00%
7.88%
6.31%
1.94%

Annual Report and Accounts 2009

85

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

28. Financial instruments – risk management (continued)

Fair values of ﬁnancial assets and ﬁnancial liabilities

Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s ﬁnancial instruments that are carried in the
ﬁnancial statements:

Financial assets
Cash and cash equivalents
Interest rate cap
Available-for-sale ﬁnancial assets
Financial liabilities
Interest-bearing loans and borrowings:
Floating rate borrowings 
Fixed rate borrowings 
Derivative ﬁnancial liabilities – interest rate swaps
Contingent consideration

2009

2008

Book Value
£’000

Fair Value
£’000

Book Value
£’000

Fair Value
£’000

858
–
4,052

(25,071)
(359)
(87)
(646)

858
–
4,052

(25,071)
(359)
(87)
(509)

647
13
4,052

(48,014)
(1,146)
–
(471)

647
13
4,052

(48,014)
(1,100)
–
(451)

The fair values for the majority of the ﬁnancial instruments have been calculated by discounting the expected future cash ﬂows at interest rates
prevailing for a comparable maturity period for each instrument. The fair values of the interest rate caps are determined by reference to market
values for similar instruments. 

Fair value hierarchy

As at 31 December 2009, the Group held the following ﬁnancial instruments measured at fair value:

The Group uses the following hierarchy for determining and disclosing the fair value of the ﬁnancial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all inputs which have a signiﬁcant effect on the recorded fair value are observable, either directly or indirectly;
and

Level 3: techniques which use inputs which have a signiﬁcant effect on the recorded fair value that are not based on observable market data.

2009
£’000

3,900

Level 1
£’000

Level 2
£’000

Level 3
£’000

–

–

3,900

2009
£’000

Level 1
£’000

Level 2
£’000

Level 3
£’000

87

–

87

–

Assets measured at fair value

Available-for-sale ﬁnancial assets
Unquoted shares

Liabilities measured at fair value

Derivatives designated as hedges 
Interest rate swap

86

Annual Report and Accounts 2009

29. Analysis of net debt

Interest bearing loans and borrowings
Less: cash and short-term deposits

Net debt at the end of the year

2009
£’000

26,566
(858)

2008
£’000

49,884
(647)

25,708

49,237

During the year, the Group has repaid £22.7m (2008: borrowed an additional £0.3m) 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 1.5% (2008: 2.0%). The margin rate is linked to the leverage ratio of the
Group and the margin rate is reviewed at six monthly intervals.

30. Related party transactions

There were no other related party transactions with directors in the year ended 31 December 2009 (2008: £nil) other than the remuneration paid
to the directors as disclosed in note 12. 

31. Capital commitments

Capital expenditure contracted for but not provided

2009
£’000

34

2008
£’000

91

Annual Report and Accounts 2009

87

Notes to the group ﬁnancial statements (continued)
for the year ended 31 December 2009

32. Principal subsidiary companies

The Group owns directly or indirectly the following issued and fully paid ordinary and preference share capital of its principal subsidiary
undertakings, all of which are incorporated in Great Britain and whose operations are conducted mainly in the United Kingdom:

Name of subsidiary company

Holding

your-move.co.uk Limited
e.surv Limited *
Homefast Property Services Limited 
Property-careers.com Limited
First Complete Limited
Reeds Rains Limited *
Linear Mortgage Network Limited
Linear Financial Services Limited 
Chancellors Associates Limited
LSLi Limited*
ICIEA Limited
Barnwoods Limited*
David Frost Estate Agents Limited

JNP Estate Agents Limited

Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares 
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary ‘A’ shares
Ordinary ‘B’ shares
Non cumulative preference
redeemable shares 
Ordinary shares
Ordinary ‘B’ shares
Ordinary ‘C’ shares

Proportion of
nominal value
of shares held

100%
100%
77.5%
100%
100%
100%
65%
86%
100%
75%
87.5%
95%
100%

Nature of business

Estate agency and related activities
Surveying and valuation services
Provider of Home Information Packs
Training services
Financial services
Estate agency and related activities
Mortgage services
Mortgage services
Surveying and valuation services
Holding company 
Estate agency and related activities
Surveying and valuation services
Estate agency and related activities

80%

Estate agency and related activities

Albany Insurance Company (Guernsey) Limited Ordinary shares

100%

Captive insurer

* held directly by the Company

33. Post balance sheet events

On 15 January 2010, the Group acquired the entire share capital of Halifax Estate Agencies Limited for the consideration of £1. The details of the
effect of the acquisition on the Group’s assets and liabilities have not been disclosed as the Group is currently in the process of determining the fair
value of the net assets acquired. 

On 9 February 2010, the Group acquired the entire share capital of Templeton LPA Limited for the initial consideration of £462,000 and an element
of contingent consideration, which is dependent on the future performance of the company. The details of the effect of the acquisition on the
Group’s assets and liabilities have not been disclosed as the Group is currently in the process of determining the fair value of the net assets
acquired.

88

Annual Report and Accounts 2009

Statement of directors’ responsiblities in relation to the parent
company ﬁnancial statements

The directors are responsible for preparing the Annual Report and the ﬁnancial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare ﬁnancial statements for each ﬁnancial year. Under that law the directors have elected to prepare the
ﬁnancial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and
applicable law). Under company law the directors must not approve the ﬁnancial statements unless they are satisﬁed that they give a true and fair
view of the state of affairs of the Company and of the proﬁt or loss of the Company for that period.

In preparing those ﬁnancial statements, the directors are required to:

■ select suitable accounting policies and then apply them consistently;

■ make judgements and estimates that are reasonable and prudent;

■ state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the

ﬁnancial statements; and

■ prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the company’s transactions and disclose
with reasonable accuracy at any time the ﬁnancial position of the company and enable them to ensure that the ﬁnancial statements comply with
the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.

Annual Report and Accounts 2009

89

Independent Auditor’s Report to the Members of 
LSL Property Services plc

We have audited the parent company financial statements of LSL Property Services plc for the year ended 31 December 2009 which comprise the
Company Balance Sheet and the related notes 1-15. The financial reporting framework that has been applied in their preparation is applicable law
and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and
the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. 

Respective responsibilities of directors and auditors 

As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the parent company
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the parent company financial
statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with
the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. 

Scope of the audit of the ﬁnancial statements 

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the directors; and the overall presentation of the financial statements 

Opinion on ﬁnancial statements 

In our opinion the parent company financial statements: 

● give a true and fair view of the state of the company’s affairs as at 31 December 2009; 

● have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

● have been prepared in accordance with the requirements of the Companies Act 2006. 

Opinion on other matters prescribed by the Companies Act 2006 

In our opinion the parent company financial statements: 

● give a true and fair view of the state of the company’s affairs as at 31 December 2009;

● have been properly prepared in accordance with the United Kingdom Generally Accepted Accounting Practice; and

● have been prepared in accordance with the requirements of the Companies Act 2006. 

In our opinion: 

● the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

● the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the

parent company financial statements.

Matters on which we are required to report by exception 

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

● adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from

branches not visited by us; or

● the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the

accounting records and returns; or

● certain disclosures of directors’ remuneration specified by law are not made; or 

● we have not received all the information and explanations we require for our audit.

Other matter 

We have reported separately on the group financial statements of LSL Property Services pIc for the year ended 31 December 2009. 

Stuart Watson (Senior statutory auditor) 
for and on behalf of Ernst & Young LLP
Statutory Auditor 
Leeds 
3 March 2010 

90

Annual Report and Accounts 2009

Parent company balance sheet
as at 31 December 2009

Fixed assets
Tangible ﬁxed assets
Investments

Current assets
Debtors
Creditors: amounts falling due within one year

Net current liabilities

Total assets less current liabilities

Creditors: amounts falling due after one year

Net assets

Capital and reserves
Called up share capital
Share premium account
Share-based payment reserve
Treasury shares
Hedging loss
Proﬁt and loss account

Equity shareholders’ funds

2009

£’000

2008
restated*
£’000

Note

3
4

5
6

7

10
11
11
11
11
11

56
109,157

6
108,507

109,213

108,513

37,374
73,936

37,892
53,348

(36,562)

(15,456)

72,651

39,706

32,945

208
5,629
2,019
(2,805)
(63)
27,957

93,057

58,942

34,115

208
5,629
1,742
(2,934)
–
29,470

32,945

34,115

* the details of the restatement of the 2008 ﬁgures are given in note 1 of the company ﬁnancial statements.

The Company has elected to take exemption under Section 408 of the Companies Act 2006 to not present the parent company proﬁt and loss
account.

The ﬁnancial statements were approved by the Board on 3 March 2010 and were signed on its behalf by:

D A Fielding

Director

S D Embley

Director

Annual Report and Accounts 2009

91

Notes to the parent company ﬁnancial statements
for the year ended 31 December 2009

1. Accounting policies

Basis of preparation of ﬁnancial statements

The ﬁnancial statements of the Company have been prepared under the historical cost convention, in accordance with applicable Accounting
standards in the United Kingdom and with those parts of the Companies Act 2006 applicable to companies reporting under UK GAAP.

The accounting policies which follow set out those policies which apply in preparing the ﬁnancial statements for the year ended 31 December
2009. The Company’s ﬁnancial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except when
otherwise indicated.

The Company has taken advantage of the exemption in paragraph of 2D of FRS 29 Financial Instruments: Disclosures and has not disclosed
information required by that standard, as the Group’s consolidated ﬁnancial statements, in which the Company is included, provide equivalent
disclosures for the Group under IFRS 7 Financial Instruments: Disclosures.

Change in accounting policy

FRS 20 Share-based Payment – Vesting Conditions and Cancellations

The amendment to FRS 20 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 company 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 share-based payment reserve
by £1,413,000 for the year ended 31 December 2008, with the corresponding impact on investment in group undertakings, as the share options
were granted to employees of subsidiary undertakings. There is no impact on the ﬁnancial statements as of 1 January 2008.

Taxation

Current Tax
Current tax (UK corporation tax) is provided at amounts expected to be paid (or recovered) using the tax rates and laws that are enacted or
substantively enacted by the balance sheet date.

Deferred Tax
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.
Timing differences are differences between the Company’s taxable proﬁts and its results as stated in the ﬁnancial statements that arise for in the
inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the ﬁnancial statements.

A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as
more likely that there will be suitable taxable proﬁts from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is not recognised when ﬁxed assets are revalued unless by the balance sheet date there is a binding agreement to sell the revalued
assets and the gain or loss expected to arise on sale has been recognised in the ﬁnancial statements. Neither is deferred tax recognised when ﬁxed
assets are sold and it is more likely than not that the taxable gain will be rolled over, being charged to tax only if and when the replacement assets
are sold.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse,
based on tax rates and laws that are enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted
basis.

Pensions costs

The Company operates a deﬁned contribution pension scheme for employees of the Company, although contributions to the scheme were
suspended during the year. The assets of the scheme are invested and managed independently of the ﬁnances of the Company. Contributions to
the deﬁned contribution scheme are recognised in the proﬁt and loss account in the period in which they become payable.

92

Annual Report and Accounts 2009

1. Accounting policies (continued)

Share-based payment transactions

The share option programme allows group employees to acquire shares of the Company. The fair value of the options granted is recognised as an
employee expense with the corresponding increase in equity in the case of equity settled schemes. The fair value is measured at the grant date and
spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is
measured using the Black Scholes model, taking into account the terms and conditions upon which the options were granted. Non-market vesting
conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately,
the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. No expense is recognised for
awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition,
which are treated as vesting irrespective of whether or not the market or non-market vested condition is satisﬁed, provided that all other
performance and/or service conditions are satisﬁed.

The ﬁnancial effect of awards by the Company of options over its equity shares to employees of subsidiary undertakings are recognised by the
company in its individual ﬁnancial statements. In particular, the Company records an increase in its investment in subsidiaries with a credit to
equity equivalent to the FRS 20 cost in subsidiary undertakings.

Investment in subsidiaries

Investments in subsidiaries are stated at cost and reviewed for impairment if there are any indications that the carrying value may not be
recoverable.

Treasury shares

The Company has an employee share trust (ESOT) for the granting of group shares to executives and senior employees. Shares in the Company held
by the employee share trust are treated as treasury shares and presented in the balance sheet as a deduction from equity. Dividends earned on
shares held in the trust have been waived. 

Financial instruments

Financial assets and ﬁnancial liabilities are recognised in the Company’s Balance Sheet when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are de-recognised when the Company no longer has the rights to cash ﬂows, the risks and rewards of
ownership or control of the asset. Financial liabilities are de-recognised when the obligation under the liability is discharged, cancelled or expires. All
regular way purchases and sales of ﬁnancial assets are recognised on the trade date, being the date that the Company commits to purchase or sell
the asset. Regular way transactions require delivery of assets within the timeframe generally established by regulation or convention in the market
place. The subsequent measurement of ﬁnancial assets depends on their classiﬁcation.

The Company’s accounting policy for each category of ﬁnancial instruments is as follows:

Interest bearing loans and borrowings

All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest-bearing
loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses arising on repurchase,
settlement or otherwise cancellation of liabilities are recognised respectively in investment income and ﬁnance costs.

Finance costs comprise interest payable on borrowings calculated at the effective interest rate method and recognised on an accruals basis,
together with dividends paid.

Borrowing costs are recognised as an expense when incurred.

Derivative ﬁnancial instruments

The Company uses derivative ﬁnancial instruments such as interest rate caps to hedge its risks associated with interest rate ﬂuctuations. Such
derivative ﬁnancial instruments are stated at fair value. The fair value of interest rate swap contracts is determined by reference to market values
for similar instruments.

The directors have taken advantage of FRS29 and have excluded disclosures relating to ﬁnancial instruments from the ﬁnancial statements on the
basis that the ﬁnancial instruments of the Company are included within the consolidated ﬁnancial statements of the Group.

Annual Report and Accounts 2009

93

Notes to the parent company ﬁnancial statements (continued)
for the year ended 31 December 2009

1. Accounting policies (continued)

Tangible ﬁxed assets

Tangible ﬁxed assets are stated at cost less accumulated depreciation and accumulated impairment losses. Such cost includes costs directly
attributable to making the assets capable of operating as intended.

Depreciation is provided on all tangible ﬁxed assets at rates calculated to write off the cost, less estimated residual value of each asset evenly over
its expected useful life as follows:

Fixtures and ﬁttings 
Computer equipment

–
–

over 5 years
over 3 years

The carrying values of tangible ﬁxed assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may
not be recoverable.

2. Company loss for the ﬁnancial year after tax

The Company has not presented its own proﬁt and loss account as permitted by Section 408 of the Companies Act 2006. The loss after tax for the
year was £1,513,000 (2008: loss £3,858,000).

Fixtures, 
ﬁttings and 
computer 
equipment
£’000

9
53

62

3
3

6

56

6

3.

Tangible ﬁxed assets

As at 31 December 2009

Cost
At 1 January 2009
Additions

At 31 December 2009

Depreciation
At 1 January 2009
Charge for the year

At 31 December 2009

Carrying amount
At 31 December 2009

At 31 December 2008

94

Annual Report and Accounts 2009

4.

Investments in group undertakings

Details of the subsidiaries held directly and indirectly by the Company are shown in note 32 to the Group ﬁnancial statements. 

At 1 January
Additions
Adjustment for contingent consideration
Adjustments for share-based payment

At 31 December

2009

£’000

108,507
250
89
311

2008
restated*
£’000

107,992
–
(754)
1,269

109,157

108,507

*  the details of the restatement of the 2008 ﬁgures are given in note 1 of the company ﬁnancial statements.

In 2009, an adjustment of £311,000 increase (2008 restated: £144,000 decrease) on investment in subsidiaries for the share-based payment,
representing the ﬁnancial effects of awards by the Company of options over its equity shares to employees of subsidiary undertakings.

In August 2007, the Company set up LSLi Limited (a 75% subsidiary) to acquire other estate agency companies. The Company has a ‘put and call
option’ on the remaining 25% of the shares in LSLi Limited. In 2007, the Company estimated the payout under the ‘call option’ to be £754,003 and
included the same as a cost of investment. In 2008, the Company estimated the payout under the ‘call option’ to be nil and thus, adjustment to
reduce the cost of investment was made. Reassessment in 2009 resulted in an adjustment of the estimate of the payout to £125,000, of which
£89,000 has been adjusted against investment in group undertakings.

5. Debtors

Deferred tax asset (note 8) 
Group relief receivable
Prepayments 
Amounts owed by group undertakings

6. Creditors: amounts falling due within one year

Other taxes and social security payable
Accruals
Contingent consideration
Amounts owed to group undertakings

7. Creditors: amounts falling due after one year

Loans (note 9)
Derivative ﬁnancial liability - interest rate swap
Accruals

2009
£’000

40
8,277
1,643
27,414

37,374

2009
£’000

90
811
125
72,910

73,936

2009
£’000

39,592
87
27

39,706

2008
£’000

16
6,180
18
31,678

37,892

2008
£’000

–
624
–
52,724

53,348

2008
£’000

58,942
–
–

58,942

Annual Report and Accounts 2009

95

Notes to the parent company ﬁnancial statements (continued)
for the year ended 31 December 2009

8. Deferred tax asset

Deferred tax asset at 1 January 
Deferred tax credited to equity
Deferred tax credit/(charge) in income statement for the year 

Deferred tax asset at 31 December 

Deferred tax asset is in relation to a short term timing difference.

9.

Loans 

Amounts falling due
In one year or less
In more than one year but not more than two years

2009
£’000

2008
£’000

16
24
–

40

2009
£’000

–
39,592

39,592

14
–
2

16

2008
£’000

–
58,942

58,942

Secured bank loans - Revolving credit facility

The secured bank loans totalling £39.6m (2008: £58.9m) are secured by a debenture over the Group’s assets excluding the following subsidiaries,
Lending Solutions Limited, First Complete Limited and its subsidiaries, property-careers.com Limited, Chancellors Associates Limited and LSLi Limited
and its subsidiaries. 

The secured bank loans relate to 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 (2008: £75m). The banking facility expires in July 2010 but can be extended at that date until July 2011
only at the option of the company. As at the year end, the intention of the company is to extend the facility until July 2011 and hence the bank
loans have been classiﬁed under non-current liabilities.

The interest rate applicable to the facility is LIBOR plus a margin rate of 1.5% (2008: 2.0%). The margin rate is linked to the leverage ratio of the
Group and the margin rate is reviewed at six monthly intervals.

10. Called up share capital 

Authorised
Ordinary shares of 0.2p each

Issued and fully paid:
At 1 January and 31 December

2009
Shares

£’000

2008
Shares

£’000

500,000,000

1,000

500,000,000

1,000

104,158,950

208

104,158,950

208

96

Annual Report and Accounts 2009

11. Reconciliation of movements in shareholders’ funds 

Share
premium
account
£’000

Share-based
payment
reserve
restated*
£’000

Share
capital
£’000

Treasury
shares
£’000

Hedging
loss
£’000

At 1 January 2008
Share-based payments (restated*)
Purchase of treasury shares 
Dividend paid
Loss for the year 

Balance at 31 December 2008 (restated*)
Share-based payments
Reissuance of treasury shares
Net loss on cash ﬂow hedge (net of tax)
Loss for the year 

Balance at 31 December 2009

208
–
–
–
–

208
–
–
–
–

208

5,629
–
–
–
–

5,629
–
–
–
–

5,629

463
1,279
–
–
–

1,742
277
–
–
–

(2,669)
–
(265)
–
–

(2,934)
–
129
–
–

2,019

(2,805)

–
–
–
–
–

–
–
–
(63)
–

(63)

* the details of the restatement of the 2008 ﬁgures are given in note 1 of the Company ﬁnancial statements.

For a description of the reserves refer to note 24 of the Group ﬁnancial statements.

Share premium

The amount subscribed for share capital in excess of nominal value less any costs attributable to the issue of new shares.

Proﬁt
and loss
account
£’000

37,294
–
–
(3,966)
(3,858)

29,470
–
–
–
(1,513)

Total
£’000

40,925
1,279
(265)
(3,966)
(3,858)

34,115
277
129
(63)
(1,513)

27,957

32,945

Share-based payment reserve

This represents the amount provided in the year in respect of share awards. The Company operates a Long Term Incentive Plan and a number of
Save As You Earn schemes for the employees in the Company and the Group. See note 12 of the Group ﬁnancial statements for details of the Long
Term Incentive Plan and the Save As You Earn schemes.

12. Pensions costs and commitments

The Company operates deﬁned contribution pension schemes for all its directors and employees. The assets of the schemes are held separately
from those of the Company in independently administered funds.

The Company’s contributions for ‘old’ members of the existing deﬁned contribution section of the scheme (those members who have always been
in this scheme) throughout 2008, were a maximum of 5% of pensionable salaries where members contribute and the cost of the death-in-service
beneﬁts. Contributions to the scheme were suspended in April 2009.

The Company’s contributions for ‘new’ members of the deﬁned contribution stakeholder scheme (those members who were part of the Aviva
scheme until the Company left the Aviva group in 2004) were 10% of pensionable salaries until the end of July 2007 where members contribute and
the cost of the death-in-service beneﬁts. From August 2007 the Company’s contributions for these ‘new’ members of the deﬁned contribution
stakeholder scheme reverted to 5% of pensionable salaries where members contribute, and the cost of the death-in-service beneﬁts. Contributions
to the scheme were suspended in April 2009.

Total contributions to the deﬁned contribution schemes in the year were £5,745 (2008: £15,694).

There were no outstanding amounts in respect of pensions as at 31 December 2009 (2008: £nil).

13. Capital commitments

The Company had no capital commitments as at 31 December 2009 (2008: none).

Annual Report and Accounts 2009

97

Notes to the parent company ﬁnancial statements (continued)
for the year ended 31 December 2009

14. Post balance sheet events

On 15 January 2010, the Company acquired the entire share capital of Halifax Estate Agencies Limited for the consideration of £1. The details of the
effect of the acquisition on the Group’s assets and liabilities have not been disclosed as the Group is currently in the process of determining the fair
value of the net assets acquired. 

On 9 February 2010, one of the Company’s subsidiaries, First Complete Limited acquired the entire share capital of Templeton LPA Limited for the
initial consideration of £462,000 and an element of contingent consideration, which is dependent on the future performance of the company. The
details of the effect of the acquisition on the Group’s assets and liabilities have not been disclosed as the Group is currently in the process of
determining the fair value of the net assets acquired.

15. Related party transactions

The Company has taken advantage of the exemption under FRS 8 not to disclose transactions with wholly owned subsidiaries. During the year the
transactions entered into by the Company with the non-wholly owned subsidiaries are as follows:

Sales 
to 
related 
parties
£’000

Purchases 
from
related
parties
£’000

Amounts
owed by
related 
parties
£’000

Amounts
owed to 
related
parties
£’000

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

–
–

231
9

117
25

–
–

80
315

10,679
16,679

–
24

–
–

–
–

5,308
4,865

–
–

–
–

136
–

Linear Mortgage Network Limited
2009
2008
Linear Financial Services Limited 
2009
2008
LSLi Limited
2009
2008
ICIEA Limited
2009
2008
Barnwoods Limited
2009
2008
JNP Estate Agents Limited
2009
2008

98

Annual Report and Accounts 2009

Deﬁnitions

“Adjusted Basic earnings Per Share”

“LSL” or “Group”

Is defined at note 10 of the Financial Statements

LSL Property Services plc and its subsidiaries

“AGM”

Annual General Meeting 

“Barnwoods”

Barnwoods Limited

“CCD”

comprising First Complete and St Trinity providing repossession, asset
management and corporate letting services

“C&G”

Cheltenham & Gloucester

“Chancellors Associates” 

Chancellors Associates Limited

“Combined Code” 

Combined Code on Corporate Governance published by the Financial
Reporting Council in 2006 

“Net Debt” 

is defined as financial liabilities less cash and cash equivalents

“Openwork” 

Openwork Holdings Limited

“Reeds Rains”

Reeds Rains Limited

“Underlying Operating Proﬁt/Loss”

is before exceptional costs, amortisation of intangible assets and share
based payments

“Your Move”

your-move.co.uk Limited

“EPC”

Energy performance certificate

“e.surv”

e surv Limited

“First Complete”

First Complete Limited

“Frosts”

David Frost Estate Agents Limited

“HIP”

Home Information Pack

“Intercounty”

ICIEA Limited

“IFRS”

International Financial Reporting Standards

“JNP”

JNP Estate Agents Limited

“Linear”

Linear Mortgage Network and Linear Financial Services

“Linear Financial Services”

Linear Financial Services Limited

“Linear Mortgage Network”

Linear Mortgage Network Limited

“LSLi”

LSLi Limited and its subsidiaries JNP, Intercounty and Frosts.

Annual Report and Accounts 2009

99

Investor information

Company details

LSL Property Services Plc
Registered in England (Company Number 5114014)
Registered Office
Newcastle House, Albany Court, Newcastle Business Park, Newcastle Upon Tyne, NE4 7YB
Telephone 01904 715324
Facsimile 01904 715354
E-mail enquiries@lslps.co.uk
Website www.lslps.co.uk

Share listing

LSL Property Services plc 0.2 pence ordinary shares are listed on the London Stock Exchange under ISIN GB00BIG5HX72

Registrar

Capita Registrars
Northern House
Woodsome Park
Fenay Bndge
Huddersﬁeld
HD8 0LA
United Kingdom
Telephone 0871 664 0300 (calls cost 10p per minute plus network extras)
Facsimile 01484 600911
Website www.capitaregistrars.com
Email shareholder.services@capitaregistars.com

If you move, please do not forget to let the Registrars know your new address

Provisional calendar of events

Preliminary Results Released 
AGM Proxy Form Deadline 
AGM 

3 March 2010
2.30pm 20 April 2010
2.30pm 21 April 2010

The AGM will be held at the offices of Buchanan Communications, 45 Moorﬁelds, London, EC2Y 9AE. The notice to shareholders details the
proposed resolutions.

In accordance with its Articles of Association, LSL publishes shareholder information, including notice of AGMs and the Annual Report and accounts
on its website, www.lslps.co.uk. Reducing the number of communications sent by post not only results in cost savings to LSL, it also reduces the
impact that unnecessary printing and distribution of reports has on the environment. 

At the 2007 AGM, a resolution was passed to amend LSL’s Articles of Association to take full advantage of the provisions in the Companies Act
2006 in relation to electronic communications. In particular, the provisions enable all communications between the shareholders and LSL to be
made in electronic form. Documents will be supplied via LSL’s website to shareholders who have not requested a hard copy, or provided an e-mail
address to which documents of information may be sent. Where a shareholder has consented to receive information via the website, a letter will be
sent to the shareholder on release of any information directing them to the website. 

If a shareholder wishes to continue to receive hard copy documents they should contact Capita Registrars (details above). 

100

Annual Report and Accounts 2009

Annual Report and Accounts 2009

Registered in England (Company Number 5114014)
Registered Office: Newcastle House, Albany Court,
Newcastle Business Park, Newcastle upon Tyne, NE4 7YB

Tel: 01904 715324
Fax: 01904 715354
Email: enquiries@lslps.co.uk
Web: www.lslps.co.uk