www.lslps.co.uk
LSL Property Services plc
Annual Report & Accounts 2010
Registered in England
(Company Number 5114014)
Registered Office:
Newcastle House
Albany Court
Newcastle Business Park
Newcastle upon Tyne
NE4 7YB
Tel: 020 3215 1015
Fax: 020 7920 9443
email: enquiries@lslps.co.uk
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LSL Property Services plc is a leading
provider of residential property
services to its two key customer
groups. Services to consumers
include: estate agency, lettings,
surveying, and advice on mortgages
and non-investment insurance
products. Services to mortgage
lenders include: valuations and
panel management services,
asset management and property
management services.
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 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 on page 21
Contents
Overview
LSL at a Glance
Highlights
Our Markets
Our Strategy
LSL Today
Chairman’s Statement
Business review
Surveying and Valuation Services
Estate Agency and Related Services
Financial Review
Director Profiles
Directors’ Report &
Corporate Governance
Statement of Directors’ Responsibilities in
relation to the Group Financial Statements
Report of the Directors
Corporate Governance Report
Directors’ Remuneration Report
Corporate Social Responsibility
01
02
03
05
06
08
14
16
20
22
26
27
30
34
39
Financial Statements
Independent Auditors’ Report to the
Members of LSL Property Services plc
Group Income Statement
Group Statement of Comprehensive Income
Group Balance Sheet
Group Statement of Cash Flows
Group Statement of Changes in Equity
Notes to the Group Financial Statements
Independent Auditors’ Report to the
Members of LSL Property Services plc
Parent Company Balance Sheet
Notes to the Parent Company Financial
Statements
Definitions
Investor Information
44
45
46
47
48
49
50
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87
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95
96
Overview
LSL at a Glance
2010
Group
+31%
Surveying and Valuation Services
Group revenue
+16%
Underlying
Operating Profit
2010
2009
£206.6m
2010
2009
£157.7m
£27.3m
£23.5m
+16%
Like-for-like1
Group revenue
2010
2009
£182.4m
£157.7m
+24%
Like-for-like1
Underlying Group
Operating Profit
Estate Agency and Related Services
+7%
Underlying
Operating Profit
2010
2009
£35.1m
2010
2009
£28.3m
£7.2m
£6.7m
+19.3%
Like-for-like1
Underlying
Group Operating
Margin
+55%
Like-for-like1
Underlying
Operating Profit
2010
2009
19.3%
18.0%
2010
2009
£10.4m
£6.7m
+16%
Adjusted Basic
Earnings Per Share
2010
2009
21.0p
18.1p
+56%
Total dividend for
the full year
2010
2009
8.4p
5.4p
1 Like-for-like is total Group revenue excluding the impact of the HEAL Business which was acquired in January 2010.
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Annual Report & Accounts 2010
01
Financial
Underlying Group Operating Profit
Underlying Operating Margin
Net exceptional profit/(cost) arising from an exceptional profit of
£16.0m on acquisition of HEAL business1 and other exceptional
costs of £5.8m
Profit before tax before exceptional items
Basic earnings per share
Final dividend proposed per share
Balance Sheet
Significant cash generation with net cash from operations, before
payment of exceptional costs
Strong balance sheet with net debt reduced (at 31st December).
£75m banking facility extended to 2014
Estate Agency and Related Services
Like-for-like revenue growth supported by:
- improved contribution from lettings
- financial services income (excluding Home of Choice and Pink
Home Loans)
2010
2009
£31.9m £28.3m
17.9%
15.5%
(£0.4m)
£10.2m
£25.8m £17.0m
11.4p
–
33.6p
5.9p
£35.7m £30.8m
£4.9m £25.7m
£23.3m £21.6m
£11.8m £11.0m
1 Like-for-like is total Group revenue excluding the impact of the HEAL Business which was acquired in January 2010.
Surveying and Valuation Services Performance
Further growth in revenue, profit and market share despite total mortgage
approvals falling by 7%.
Estate Agency and Related Services Performance
HEAL Business successfully integrated and delivered close to expectations
in a challenging market. Returned a profit of £0.4m during the second half of
2010 after first half loss of £3.6m.
Key Developments
First full year of the expanded Santander surveying contract performing
well. Strengthened market position in Estate Agency following the
successful acquisition and integration of 206 HEAL branches and St Trinity
Asset Management.
LSL now transformed into one of the largest UK mortgage intermediaries
following the acquisitions of Home of Choice and Pink Home Loans.
Significant investment in new organic growth initiatives focused on growing
market share and longer term profitability in Estate Agency and extending
Surveying services to the private survey market.
Overview
Highlights
02
Overview
Our Markets
LSL delivers regular commentary on the
UK residential property market making it
a recognised expert in this field
Market Transaction Data
House Purchase Approvals1 ’000
1,427
1,260
516
597
575
2006
2007
2008
2009
2010
Total Mortgage Approvals2 ’000
3,534
3,291
1,979
1,301
1,203
2006
2007
2008
2009
2010
Repossessions3 ’000
40
39
36
26
21
2006
2007
2008
2009
2010
1 & 2 Source: Bank of England for “House Purchase
3
Approvals” and “Total Mortgage Approvals”
Source: Council of Mortgage Lenders data for
“Repossessions 2010”
Surveying:
e.surv Chartered Surveyors
Mortgage Monitor – tomorrow’s
mortgage data today
Each month e.surv Chartered Surveyors
produces a forecast on mortgage lending
volumes and loan to value trends. It does
this by analysing tens of thousands of
valuations and uses these trends to
extrapolate from the Bank of England’s
mortgage data to publish mortgage
approval numbers, weeks before the
British Bankers Association, Council of
Mortgage Lenders and Bank of England.
The typical margin of error on a monthly
basis is 1% compared to the Bank of
England final approvals data.
For further information or to view the
latest copy of the report visit:
www.lslps.co.uk/media.html
Estate Agency and Related Services:
LSL Property Services/Acadametrics
House Price Index
The monthly House Price Index reports
on transactions numbers and the
movement of average house prices in
England and Wales, including regional
data. It is the only house price index to
use the actual prices at which every
property in England and Wales was
transacted, including prices for properties
bought with cash, using the factual Land
Registry house price data – seasonally
and mix adjusted by property type – as
opposed to valuation estimates or asking
prices (Crown copyright material
reproduced with the permission of the
Land Registry). It also uses the price of
every single relevant transaction, as
opposed to prices based upon samples.
For further information or to view the
latest copy of the report visit:
www.lslps.co.uk/media.html
LSL Buy to Let Index
Monthly analysis of approximately 18,000
rental properties and tenancies from
around the UK to determine rents,
arrears, yields and voids. Figures for the
whole country are inferred by scaling up
from LSL’s market share.
For further information or to view the
latest copy of the report visit:
www.lslps.co.uk/media.html
LSL Consumer Sentiment Survey
Quarterly survey to determine consumer
views on the UK property market.
To view the latest press release based on
the Survey visit:
www.your-move.co.uk/news.aspx
LSL Landlord Sentiment Survey
A quarterly survey which determines the
views of landlords on the UK lettings
market.
For further information or to view the
latest copy of the report visit:
www.your-move.co.uk/news.aspx
LSL Property Press Awards
These Awards celebrate the outstanding
achievements of property journalists from
across the UK culminating in a prestigious
awards event where winners of the
thirteen categories are announced. The
Awards, launched in 2011, were
announced on 21st March 2011 at the
Mandarin Oriental Hotel, Knightsbridge.
For further information visit:
www.awards.lslps.co.uk
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Annual Report & Accounts 2010
03
Overview
Our Markets Continued
LSL operates across the residential
property services value chain
Our market can be categorised into two
principal segments:
•
•
Surveying and Valuation Services; and
Estate Agency and Related Services.
landlords) and Financial Services –
predominantly mortgage and protection
brokerage – which includes the operation
of intermediary networks.
In 2010 there were 36,300 repossessions
compared to 39,300 in 2009 and 60,000
in 2008.1
Surveying and Valuation Services
39% of Group revenue in 2010
•
Valuation services for lenders for
residential mortgage purposes.
Surveying services for private house
purchasers.
•
Core Estate Agency and Lettings
45% of Group revenue 2010
•
Estate Agency services for residential
property sales.
Comprehensive lettings service for
residential landlords and tenants.
•
In 2010 the market was at a low point
in the cycle with 1.2m total mortgage
approvals which was 7% lower than
in 2009 (2009: 1.3m) and compares
to a historic normalised level of 2.5m
per annum.
In 2010 transaction volumes were
575,000 mortgage approvals for house
purchase which was 4% lower than 2009
(2009: 597,000). Historic normalised
transaction levels are in excess of 1.2m
per annum.
Mortgage and Protection
9% of Group revenue 2010
•
•
Broking services for mortgages.
Broking services for mortgage
protection products.
2010 Total Mortgage Approvals 1.2m
(2009: 1.3m) including House Purchase
Approvals of 575,000 (2009: 597,000).
These volumes are less than half historic
normalised levels
1 Source: Council of Mortgage Lenders data on
repossessions 2010.
Estate Agency and Related Services
The Estate Agency and Related Services
segment includes Core Estate Agency
and Lettings and the related markets
of Asset Management (including
repossessions asset management and
property management for multi property
Market Share Growth
Asset Management
7% of Group revenue 2010
•
Repossessions asset management
services for lenders.
Property management services for
multi property landlords.
•
Surveying Market Share Growth
Estate Agency Market Share Growth
Jobs Performed ’000
Market Share
533
531
461
439
1.3%
3.7%
1.0%
3.0%
3.1%
2.3%
2007
2008
2009
2010
H1 09
H2 09
H1 10
H2 10
Original
HEAL
04
Overview
Our Strategy
LSL is committed to delivering long term
shareholder value by building a market
leading position in the residential
property services market through both
organic growth and selective acquisitions
LSL Surveying and Valuation
412 surveyors
LSL Estate Agency
branch network
584 branches
The Group’s strategy is to grow long term
profitability from the provision of
residential property services by building
long term shareholder value across our
two market segments:
•
•
Surveying and Valuation Services; and
Estate Agency and Related Services.
The current depressed market creates
significant opportunities for the Group to
achieve market share growth in both of its
market segments.
Surveying and Valuation Servies
Drive market share through continued
development of strong relationships with
lenders in order to become their partner
of choice.
Be renowned for quality and excellence in
service delivery and provide ongoing
strategic and operational added value to
lenders and corporate clients.
Deliver organic growth by developing the
market for the provision of private
surveying services such as the RICS
Condition Report, RICS HomeBuyer
Report and Building Survey, delivered
direct to private house purchasers.
Estate Agency and Related Services
Core Estate Agency and Lettings
Provide a service proposition that
recognises customers needs and
maximises income across the value chain.
Further improve market share by driving
organic growth through increased overall
transaction volumes and specifically
through increased share of higher value
transactions.
Asset Management
Grow market share by providing
innovative solutions and strong service
delivery.
Mortgage and Protection services
Build strong broker networks for the
provision of mortgage and protection
products and realise synergies and costs
savings to make the networks profitable
even at very low transaction volumes.
Use the networks to strengthen
relationships with key lender clients.
In addition the Group will look to deliver
further growth through selective
acquisitions within the residential property
services value chain in order to enhance
market positions and to grow scale.
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Annual Report & Accounts 2010
05
Overview
LSL Today
LSL has made good progress and
established market leading positions in
its market segments
LSL is one of the leading residential property services groups in the UK which operates throughout the residential property
services value chain – Surveying, Estate Agency, Corporate Services (including Asset Management), and Financial Services
(including Mortgage and Protection Brokerage).
It provides a broad range of services to a range of customers including lenders, buyers and sellers of residential properties and
landlords.
Surveying and Valuation Services
Surveying and valuation
•
•
Market leader.
531,000 valuation jobs completed in
2010.
412 employed surveyors.
•
– e.surv Chartered Surveyors
One of the leading firms of Chartered
Surveyors in the UK, providing
services to a broad range of lenders
and private house purchasers.
www.esurv.co.uk
– Barnwoods
Founded in 2007 and operating
throughout the UK principally to
provide services on an exclusive basis
to C&G, part of the Lloyds Banking
Group.
www.barnwoods.co.uk
Estate Agency and Related Services
Core Estate Agency
•
Second largest estate agency network
in the UK and the largest lettings
network (made up of wholly owned,
franchised and virtual branches).
Strong established high street brands
within 584 branches (2009: 369)
(made up of wholly owned, franchised
and virtual branches).
Residential Sales, Lettings and
Financial Services provided across
all branches.
Technically advanced proprietary
browser based IT systems common
across all brands.
Successful franchise model operating
in 158 branches across Your Move,
Reeds Rains, and Intercounty.
Members of The Property
Ombudsman, with a sales code
of practice which is approved by
the OFT.
•
•
•
•
•
06
– Your Move
The largest single brand UK estate
agency with 327 branches operating
throughout the UK (made up of wholly
owned, virtual and franchised
branches). Your Move is the most
visited UK estate agency website.1
www.your-move.co.uk
1 Source: Hitwise February 2011
– Reeds Rains
A predominantly northern
based network of 211 branches
(made up of wholly owned
and franchised branches).
www.reedsrains.co.uk
– LSLi
Launched in 2008 LSLi is the holding
company for 6 estate agency brands
based largely in the Home Counties
with a combined network of 46
branches (made up of wholly owned
and franchised branches).
www.lsli.co.uk
Overview
Estate Agency and Related Services Continued
Asset Management
•
Market leader.
•
10,500 repossessions in 2010.
Utilises network of up to 3,500 estate
•
agency branches.
Financial Services
•
Specialising in brokerage of mortgage
and protection products – LSL has the
fourth largest Appointed
Representative network.1
Multi brand including Your Move,
Reeds Rains, Linear, First Complete
(rebranded from Home of Choice
which was acquired in 2010) and Pink
Home Loans (also acquired in 2010).
Total value of mortgage applications
arranged, £2.6bn.
•
•
1 Source: Mortgage Strategy Network Report
– January 2011.
– LSL Corporate Client Department
Was started in 2008 and operates a
repossessions asset management
business and a property management
business for multi-property landlords.
www.lsl-ccd.co.uk
– St Trinity Asset Management
The Group’s second asset
management business created in
2010 following the acquisition of
HEAL Corporate Services (as part
of the HEAL Business acquisition).
www.sttrinityassetmanagement.co.uk
– Templeton LPA
Law of Property Act fixed charge
receiver acquired in 2010.
www.templetonlpa.co.uk
– First Complete
Operates a mortgage brokerage
business and mortgage intermediary
network, acquiring the business of
Home of Choice in 2010. The First
Complete employed financial
consultants offer financial services
across LSL’s entire estate agency
branch network.
www.firstcomplete.co.uk
– Pink Home Loans
Mortgage distribution businesses
providing products and services to
financial intermediaries since 1990,
joining the Group in 2010.
www.pinkhomeloans.co.uk
– Linear Financial Services
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.
www.linearfs.co.uk
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For further information on all LSL brands
please visit www.lslps.co.uk
Annual Report & Accounts 2010
07
Overview
Chairman’s Statement
Introduction
We are delighted to report excellent
progress in 2010 with Underlying
Operating Profit increasing strongly
by 13% to £31.9m despite further
market contraction during the
year. Both the Estate Agency and
Surveying Divisions have contributed
significant profit growth and Halifax
Estate Agencies Limited (“HEAL”)
has been successfully integrated
into the Estate Agency Division. On
a like-for-like basis, excluding the
HEAL Business acquired in January
2010, Underlying Group Operating
Profit increased by 24% to £35.1m
(2009: £28.3m).
Transaction volumes worsened again
during 2010 and remain subdued at a low
point in the cycle. Mortgage approvals
for house purchases deteriorated in the
second half of the year compared to the
first and at 575,000 for the full year were
4% lower than 2009 (2009: 597,000) and
less than half the historic norm of 1.2m
per annum.
Remortgage activity was extremely weak
and at 328,000 for the full year was also
4% lower than 2009 (2009: 343,000). As
a consequence total mortgage approvals
fell by 7% in 2010 to 1.2m (2009: 1.3m).
Against this challenging backdrop the
LSL business model has performed
extremely well. The Estate Agency and
Surveying Divisions have both grown
market share and Estate Agency in
particular has been driven by another
strong contribution from its counter
cyclical income streams. Furthermore, the
Group has strengthened the positions
of all of its core businesses in 2010. The
expansion of the Santander contract in
Surveying has consolidated our market
leadership. In Estate Agency the
acquisition of the HEAL Business has
given LSL the UK’s second largest Estate
Agency branch network, the largest
lettings network and market leadership
in the repossessions market. The Estate
Agency business also acquired Home of
Choice and Pink Home Loans and as a
result the Group is now one of the largest
financial services intermediary networks
in the UK, focusing on mortgage and
protection advice.
organic growth in both Estate Agency
and Surveying. In Estate Agency, the
plans focused on improving market
share and profitability by branch through
investment in the branches, people and
a new call centre to increase branch
instruction levels. In Surveying, we remain
committed to providing excellent quality
and service levels to all lender clients and,
in addition, have launched new products
to extend our surveying services to
private buyers.
Financial Results
Group revenue increased by 31% to
£206.6m (2009: £157.7m) and Underlying
Group Operating Profit increased 13%
to £31.9m (2009: £28.3m). However,
the result included an Operating Loss
of £3.2m for the HEAL Business without
which like-for-like Group revenue
increased by 16% to £182.4m
(2009: £157.7m) and like-for-like Underlying
Group Operating Profit increased by
24% to £35.1m (2009: £28.3). Like-for-like
Underlying Group Operating Margin
increased from 17.9% to 19.3%, a level
which is more than 2% higher than that
achieved during the 2006/2007 period of
peak transaction volumes.
The HEAL Business operating result
was very close to our expectations at
the time of the acquisition, despite the
deterioration in the market, and it is
pleasing to see that the HEAL Business
contributed a profit of £0.4m in the
second half. Overall the Estate Agency
Division increased Underlying Operating
Profit from £6.7m to £7.2m even with the
HEAL Business loss included. If the HEAL
Business loss is excluded, Underlying
Operating Profit increased to £10.4m and
Underlying Operating Margin was 10%
(2009: 8%). This was an exceptional
performance given the continued decline
in housing transaction volumes and was
underpinned by strong profitability in
asset management and lettings.
The Surveying Division has again
significantly outperformed the market.
Whilst total mortgage approvals fell by
7%, Surveying revenue increased by 16%
and Underlying Operating Profit increased
by 16% to £27.4m (2009: £23.5m) with
Underlying Operating Margin of 34%
(2009: 34%).
During 2010 the Group started to
implement a strategy to drive further
The Group produced £30.7m
(2009: £29.9m) of operating cashflow
Roger Matthews
Underlying Group Operating Profit
+13%
Market leader
Against a
challenging
backdrop the LSL
business model has
performed
exceptionally well
08
Overview
EPS +16%
Dividend +56%
21.0p
18.1p
8.4p
5.4p
2009
2010
Dividend
EPS
The Surveying Division has again
significantly outperformed the
market.
even after capital expenditure of £5.0m
(2009: £0.7m) which was mostly on
branch refurbishment. Cashflow was
driven by the high levels of profit from
both Divisions. Net debt reduced from
£25.7m in December 2009 to £4.9m in
December 2010.
The acquisition of the HEAL Business
contributed to an overall net exceptional
profit of £10.2m (2009: exceptional
loss £0.4m), resulting in an overall profit
before tax and amortisation of £44m
(2009: £25.2m). The net exceptional
profit of £10.2m (2009: loss of £0.4m)
comprised an exceptional profit of
£29.8m as a result of the acquisition
of the HEAL Business for £1 offset by
exceptional costs of £19.6m, of which
£13.8m related to the HEAL Business,
£2.8m to increasing the PI provision and
£2.0m to finance costs. Amortisation
during the year was £8.1m (2009: £8.6m)
giving a profit before tax of £36.0m
(2009: £16.6m). The profit after tax was
£34.5m (2009: £11.7m). Adjusted EPS
increased by 16% to 21.0p (2009: 18.1p).
Dividend
As a result of the strong operating
performance, continued reduction in net
debt and the Board’s view of the future
prospects of the business a final dividend
of 5.9p per share will be proposed to
shareholders at the forthcoming AGM,
bringing the total dividend for 2010 to
8.4p per share. This represents a 40%
payout ratio (based on adjusted EPS of
21.0p per share) and a 56% increase on
the 2009 dividend of 5.4p per share. The
proposed dividend payment is in line with
our previously stated policy of applying a
dividend pay out ratio of between 30% to
40% of Underlying Group Operating Profit
after interest and tax. The ex-dividend
date for the final dividend is 30th March
2011, with a record date of 1st April 2011,
and a payment date of 27th April 2011.
Shareholders have the opportunity to
elect to reinvest their cash dividend and
purchase existing shares in LSL through
a Dividend Reinvestment Plan.
Developments
The surveying market remains at a low
point in the cycle with total mortgage
approvals of 1.2m, down 7% on 2009
(2009: 1.3m). However, our Surveying
Division has improved its market position
as a result of a number of recent contract
extensions which were achieved through
continued focus on service levels for
existing clients. In particular there has
been an initiative to support and
Milestones
MBO of Your Move and e.surv
IPO on main market, valuing the
business at £208m
Launch of Asset Management and
Corporate Lettings business
Santander
contract
expansion
2004
2005
2006
2007
2008
2009
2010
Acquisition of Reeds Rains
Estate Agency acquisition of
Intercountry, Frost and JNP
Acquisition of Linear
Mortage Network
Cheltenham & Gloucester
valuations panel management
contract acquired
Acquisition of the HEAL Business
– 206 estate agency branches
rebranded Your Move, Reed Rains and
Intercounty and asset management
business now trading as St Trinity Asset
Management.
Acquisition of Templeton LPA Receiver,
Home of Choice, Goodfellows and
Pink Home Loans
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Overview
Chairman’s Statement Continued
Overall market share in Core Estate
Agency increased from 2.7% in 2009
to 4.5% in 2010.
Acquisition of the
HEAL Business
was awarded the
“Deal of the year”
at the Quoted
Company Awards.
HEAL Business
delivered a profit
of £0.4m in the
second half
of 2010.
contribute to revised risk management
strategies for a number of clients. The
expanded Santander contract which
came on stream in December 2009, has
made a significant contribution to the
2010 result not only in terms of revenue
but also through driving operational
efficiency across the division. Late in the
fourth quarter e.surv Chartered Surveyors
commenced the marketing of private
survey services to home buyers (as
opposed to lenders). Despite low
transaction volumes and the seasonal
slowdown in the quarter, early feedback
and penetration rates of these services
are promising.
PI claims in the market have continued
at high levels as a result of higher
repossession rates relating to valuations
undertaken in the 2004 to 2007 period.
PI claims are monitored extremely
carefully and the provision (net of payouts)
has been increased by £3.4m in the
period with a total provision at the year
end of £10.9m (2009: £7.5m).
Our Estate Agency Division has continued
to advance strongly especially through
the acquisition of the HEAL Business for
which LSL was awarded the ‘Deal of the
Year’ at the Quoted Company Awards.
The HEAL Business was fully integrated
during the year with 206 branches
re-branded to Your Move, Reeds Rains
and Intercounty. The cost base of the ex
HEAL branches has been right-sized to
just under £28m and significant progress
has been made in growing in lettings
and financial services income streams.
Between the first quarter and the last
quarter, lettings income has increased
nearly two-fold and financial services
income has gone up by a factor of four.
This compares to growth in the original
Your Move and Reeds Rains branches
over the same period of 12% for lettings
and 35% for financial services. The HEAL
Business showed dramatically improved
performance over the year as had been
planned. After a loss of £3.6m in the
first half the HEAL Business delivered a
profit of £0.4m in the second half of 2010
and is expected to make a significant
contribution once lettings and financial
service income streams are more fully
developed and housing transaction
volumes return to more normal levels.
Overall market share in Estate Agency
increased from 2.7% in 2009 to 4.5% and
on a like-for-like basis excluding the HEAL
Business, market share increased from
2.7% to 3.3%. These gains were partly
driven by a refurbishment programme
which covered all branches and there
has also been targeted investment in
additional headcount and marketing.
With exchange income constrained by
the challenging market conditions, the
division has continued to drive counter
cyclical income including lettings which
grew by 14% in the year (like-for-like 8%).
The asset management business
benefitted from the creation of St Trinity
Asset Management (following the
acquisition of the asset management
business as part of the HEAL Business)
and total income was £13.9m
(2009: £9.3m).
The Group intends to continue investment
in the Estate Agency Division in order to
further build market share in advance
of improvement in transaction volumes.
During the final quarter of 2010 a new call
centre (“The Bridge”) was built to support
the Estate Agency branches and the
quality of branch management was
improved through both training and
recruitment. We continue to plan further
investment in branch headcount and
marketing in 2011. The Bridge is already
producing good results although P&L
benefits in 2011 will be held back by
cost of investment. The continued
development of lettings, financial services
and other income streams in the ex HEAL
branches together with the combined
market share growth initiatives should
generate a material uplift in Estate Agency
profits in the longer term.
During 2010 we made a step change in
our financial services offer within the
Estate Agency Division through two
major acquisitions. In May the business
and assets of Home of Choice, now
rebranded to First Complete, was
acquired for total consideration of £0.4m.
Pink Home Loans was acquired in
November 2010 for a cash consideration
of £1.6m. LSL’s expanded financial
services business is now one of the
largest intermediary networks in the UK
focused on mortgage and protection
advice. Profitability of the new business
will be constrained until such time as the
mortgage market improves but
10
Overview
Acquisitions
during the year
I am also very pleased to report that,
e.surv Chartered Surveyors, our largest
surveying business, was awarded
“The Sunday Times Best Companies –
One to Watch Award”.
Current Trading and Outlook
The Group made excellent progress in a
market where housing transaction levels
are circa 50% of historic normal levels.
LSL still has a cautious view of the market
for 2011 in view of the ongoing shortage
of available mortgage finance and
broader well documented economic
challenges. However, we are confident
that the Group can build on the market
share gains made in 2010 and grow the
business even in these market conditions.
Further marketing of private surveys in
our Surveying Division and the success
of our market share plans for the Estate
Agency businesses will be central to
delivering this growth. In addition, the
ex-HEAL branches will continue to
develop their lettings and financial
services income streams and we can
expect our asset management business
to continue to make a significant
contribution in an environment of low
transaction volumes.
Activity levels to the end of February 2011
are in line with our expectations with no
sign of a recovery in market volumes.
Early results from our organic growth
initiatives are on target with strong
positive feedback from clients and from
within the business.
The Group has a very strong balance
sheet with net debt of only £4.9m and an
available debt facility of £75m. We are
well placed to grow both organically and
through further acquisitions in the current
market and to deliver further substantial
growth when transaction volumes
recover.
Roger Matthews
2nd March 2011
importantly these acquisitions significantly
strengthen LSL’s relationship with its key
lender clients.
There have also been a number of smaller
acquisitions within the Estate Agency
Division which have increased our
exposure in the South East region and
expanded our counter-cyclical business.
Templeton LPA, a Law of Property Act
fixed charge receiver, and Goodfellows,
a seven branch agency chain in South
London were acquired for £0.4m and
£1.0m respectively.
Board
As previously announced there were a
number of significant changes to the
Board during the year. Paul Latham,
retired from his role as Group Deputy
CEO, to become a Non Executive
Director and in June 2010 Alison
Traversoni and David Newnes joined the
Board as Executive Director for Surveying
and Executive Director for Estate Agency
respectively. Steve Cooke joined the
Board as Group Finance Director in July
2010 and Dean Fielding has retired from
the Board. The Board has currently three
Non Executive Directors, excluding the
Chairman, two of whom are independent.
Following the changes made during the
year, the Board is well qualified to lead the
business through the next stages of its
ambitious growth plans.
People
During 2010, the Group expanded
significantly through both investing in our
existing businesses and acquisitions. As
a result, we have a large number of new
colleagues either recruited to support our
organic growth plans or who have joined
the Group through an acquisition made
during the year, and I would like to extend
a warm welcome to them all. Overall, the
number of Group employees increased
by 1,205 to 4,490 (2009: 3,285).
Our success in providing the best
possible service to our customers is
dependent on the skills and enthusiasm
of all our employees. Great commitment
has been shown this year in the face of
extremely challenging market conditions
and I would like to thank all of them for
their efforts.
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Business
Review
In this section
Surveying and Valuation Services
Estate Agency and Related Services
Financial Review
Director Profiles
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Surveying and Valuation Services
Financial
Turnover
Expenditure
Underlying Operating Profit
KPIs
2010 £m
2009 £m
% change
80.9
(53.5)
27.3
70.0
(46.5)
23.5
16%
15%
16%
Profit margin %
Jobs Performed 000s
Income per job £
Professional Indemnity insurance provision £m
34%
531
153
10.9
34%
439
159
7.5
–
21%
(4)%
45%
Surveying Division Performance
The Surveying Division increased turnover
by 16% to £80.9m (2009: £70.0m) against
a market decline of 7% in total mortgage
approvals to 1.2m (2009: 1.3m). The
increase in revenue drove a 16% increase
in Underlying Operating Profit to £27.3m
(2009: £23.5m) with the Underlying
Operating Profit margin holding steady at
34% (2009: 34%).
Total job numbers increased by 21% to
531,000 (2009: 439,000) with much of the
increase being driven by the expanded
Santander contract coming on stream in
December 2009. Average fees across all
contracts were lower by 4% reflecting the
market conditions and job mix.
Expenditure increased by 15% compared
to 2009, which was in line with the
increase in turnover (2009: £46.5m). The
cost movement reflected the variable
costs across our key contracts. In addition
there was an increase in PI Insurance
costs as provisioning relating to the 2004
to 2007 trading period was increased.
and service levels to all lender clients.
Feedback from our clients is consistently
positive and we particularly differentiate
our service on measures including
turnaround time for valuations reflecting
our use of innovative technology and the
flexibility of our panel management
arrangements. One of the key factors that
lenders use in assessing service is the
support provided in relation to the
management of risk faced by lenders.
Here, the Surveying Division’s risk
management arrangements have been
widely acknowledged by its customer
base as being market leading and unique.
Further, during 2010, e.surv Chartered
Surveyors was a finalist for the MPF
European Practice Management Awards
for Risk Management. It achieved this
award because it was able to
demonstrate that it has an integrated and
embedded approach to risk
management.
For further details of how we manage
customer relationships, see page 21 of
this Report.
Surveying Developments
2010 saw a full year of benefit from the
expanded Santander contract. Looking
forward, the contract offers an excellent
opportunity to leverage Surveying assets
across the Group in what continues to be
very uncertain market conditions.
In December 2010, e.surv Chartered
Surveyors trialled exclusively with RICS,
the RICS Condition Report, which is
aimed at the private survey market. This
product is being sold alongside existing
private survey services, such as the RICS
HomeBuyer Report and Building Survey.
The C&G contract contributed £13.6m of
turnover in 2010 compared to £15.5m in
2009 due to a combination of the market
decline in total mortgage approvals and
the impact of Lloyds Banking Group’s
mortgage strategy.
The Division has a number of key
relationships which are managed both on
an exclusive basis and through panel
management arrangements. We remain
committed to providing excellent quality
In the medium term we expect to be able
to capitalise on what is a significant
opportunity to claim our share of the
current private survey market and also to
expand the market. The Group is in an
excellent position to do this by leveraging
its unrivalled distribution network covering
our major lender clients, the Group’s
Estate Agency network including the new
“Bridge” call centre and the principal
Surveying brands of e.surv Chartered
Surveyors and Barnwoods.
In 2010 e.surv Chartered Surveyors
developed and launched services for
the private survey market.
14
Business Review
and senior executives taking individual
responsibility for the management and
control of key risks. The reporting
process is simple, clear and effective. In
delivering the award, MPF commented:
“To ensure that e.surv Chartered
Surveyors benefits from good risk
management, they have embedded it in a
number of their business management
processes. This is an excellent example
of moving beyond basic compliance to
adding value to their business.”
BSi ISO 9001 Accreditation Extended
During 2010, e.surv Chartered
Surveyors secured an extension to
its ISO 9001:2008, which it originally
secured in 1996. e.surv Chartered
Surveyors again conformed 100% to
the requirements of the internationally
recognised standard, when independently
reviewed by the leading global provider of
standards and certification body, British
Standards Institution (BSi).
ISO 9001:2008 is the internationally
recognised standard for quality
management systems, maintained
by the International Organisation for
Standardisation. The standard requires
companies to adhere to procedures
covering all key processes in their
business: monitoring processes to ensure
they are effective; keeping adequate
records; checking output for defects, with
appropriate and corrective action where
necessary; regularly reviewing individual
processes and the quality system itself
for effectiveness; and facilitating continual
improvement. One of the goals of this
standard is to improve effectiveness via
process performance metrics — numerical
measurement of the effectiveness of tasks
and activities. ISO 9001 also requires
companies to track customer satisfaction.
The cost of PI claims relating to valuations
carried out between 2004 to 2007
remains a key risk for the business.
While the six year statutory limit on claims
means that we are now clear from
receiving new claims for 2004, there has
been a steady flow of new claims during
2010 for the 2004 to 2007 period. As a
result the Group has increased its PI
provision from £7.5m to £10.9m.
During the year the Group disposed of its
14.19% stake in Hometrack Data Systems
Limited for consideration of £3.9m which
was the carrying value of the investment
in the accounts at 31st December 2009.
e.surv Chartered Surveyors
Achievements/Awards 2010 & 2011
e.surv Chartered Surveyors, LSL’s largest
surveying business, has achieved a
number of awards:
Sunday Times – Best Companies 2011
– one to watch
IIP Accreditation
The Investors In People accreditation was
achieved at e.surv Chartered Surveyors’
Head Office location in Kettering.
Mortgage Strategy Awards 2010
e.surv Chartered Surveyors was awarded
the Best Surveyor/Valuer award at the
Mortgage Strategy Awards.
Mortgage Strategy Awards 2011 –
Finalist for Best Surveyor/Valuer
e.surv Chartered Surveyors was a finalist
in the Best Surveyor/Value category at
the Mortgage Stratgy Awards 2011.
MPF European Practice Management
Awards for Risk Management
e.surv Chartered Surveyors was listed
as a finalist at the MPF European
Practice Management Awards for Risk
Management. It achieved this award
because it has an integrated and
embedded approach to risk management
promoted by the e.surv Chartered
Surveyors Board and with active
involvement from it. In granting the award,
MPF commented on the internal audit
team and IT resources, concluding
that they are dedicated to driving
continuous improvement.
The MPF noted that board support is
maintained by having risk management
as a standard item on meeting agendas
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Estate Agency and Related Services
Actual – including HEAL Business
Like-for-like – excluding HEAL Business
Exchange fees
Financial Services income1
Lettings income
Asset management income
Other income2
Total income
Expenditure
Underlying Operating Profit
KPIs
Exchange units
Market Share
Underlying Operating Margin
2009
£m
%
change
2010
£m
52.4
18.6
24.6
13.9
16.2
125.7
(118.5)
7.2
2009
£m
%
change
33.0
12.5
21.6
9.3
11.3
87.7
(81.0)
6.7
59%
49%
14%
49%
43%
43%
46%
7%
2010
£m
40.3
16.1
23.3
9.0
12.9
101.6
(91.2)
10.4
33.0
12.5
21.6
9.3
11.3
87.7
(81.0)
6.7
25,766
4.5%
5.7%
16,327
2.7%
7.6%
58%
67%
(25)%
19,232
3.3%
10.3%
16,327
2.7%
7.6%
22%
29%
8%
(4)%
14%
16%
13%
55%
18%
22%
36%
1
Financial services income on a like-for-like basis as given in the table above includes revenue from Home of Choice and Pink Home Loans, which were acquired during the
year. Excluding these, the financial services income increased by 6% to £13.3m from £12.5m.
2
‘Other income’ includes franchising income, conveyancing services, EPCs, Home Reports, utilities and other products and services to clients of the branch network.
Key Performance Indicators (Like-for-like)
Exchange units
Your Move, Reeds Rains and LSLi
brands all out performed the market
during 2010 (Like-for-like).
Market share
+18% (Like-for-like)
’000
19,232
16,327
2009
2010
+22% (Like-for-like)
3.3%
2.7%
Underlying operating margin
2009
2010
+36% (Like-for-like)
10.3%
7.6%
2009
2010
16
Business Review
Total exchange units
+58% (Actual)
Total market share
+67% (Actual)
25,766
16,327
2009
2010
4.5%
2.7%
2009
2010
Estate Agency Performance
The Estate Agency Division acquired the
HEAL Business in January 2010 and
the HEAL Business trading has had, as
expected, a significant impact on overall
performance. Therefore the results are
presented on both an actual and like-for-
like basis (excluding the HEAL Business).
Estate Agency delivered an excellent
performance in 2010 even though the
market declined still further from what
were already extremely low transaction
levels. The number of mortgage
approvals for house purchases fell by
4% to 575,000 (2009: 597,000) which
compares to historic normalised levels
of 1.2m. Transactions fell steadily during
the year such that volumes in the second
half of 2010 were 6% lower than in the
first half of 2010 and were 16% lower
than the second half of 2009.
Total Estate Agency income increased
by 43% to £125.7m (2009: £87.7m)
and on a like-for-like basis by 16% to
£101.6m (2009: £87.7m). Underlying
Operating Profit increased by 7% to £7.2m
(2009: £6.7m). However, this included
trading losses for the newly acquired
HEAL Business without which, on a
like-for-like basis, Underlying Operating
Profit was 55% higher at £10.4m (2009:
£6.7m). As a result Underlying Operating
Margin increased from 7.6% to 10.3%
which was a very robust performance in
such tough market conditions.
The plan for the HEAL Business, which
was acquired in January 2010 has been
delivered despite the deterioration in the
market. The HEAL Business made a
£3.6m loss in the first half of 2010 and
this has been followed by a profit of
£0.4m for the second half. The
improvement has been driven partly by
further cost reductions but mostly by
increasing lettings and financial services
revenue. At the time of the acquisition, the
HEAL Business exchange fee income
was already at a comparable level to
the other LSL businesses but lettings
and financial services were lagging
significantly. These offers were rolled out
to all ex HEAL branches during the year
and as a result revenue from lettings,
financial services and other income has
increased by 50% from £2.9m to £4.3m
between the first and second half of 2010.
The improvement is even more dramatic
on a quarterly comparison. Between the
first and last quarter of 2010, lettings
income has nearly increased two-fold and
financial services income has gone up by
a factor of four. This compares to growth
in the original Your Move and Reeds Rains
branches over the same period of 12% for
lettings and 30% for financial services.
However, the level of lettings, financial
services and other income per branch is
still behind the other LSL estate agency
branches and this gap represents a
significant opportunity for 2011.
Estate Agency Branches
Your Move, Reeds Rains and the LSLi
brands all outperformed the market
during 2010. Excluding the ex HEAL
branches, exchange units were 18%
higher than 2009 and exchange fee
income increased by 22% to £40.3m
(2009: £33.0m). Every branch was
refurbished during 2010 and there was
additional investment in headcount and
marketing all of which contributed to a
market share increase on a like-for-like
basis from 2.7% to 3.3%. If the HEAL
Business is included, Group market share
now stands at 4.5%.
Counter Cyclical Income
The counter cyclical income streams
of lettings and asset management
have been particularly important to the
Group in depressed market conditions.
During 2010 like-for-like lettings income
HEAL Business
Exchange fees
Total income
Expenditure
Underlying Operating Profit
KPI
Exchange units
2010
Total
£m
12.0
24.2
(27.4)
(3.2)
2010
H2
£m
6.3
13.5
(13.1)
0.4
2010
H1
£m
5.7
10.7
(14.3)
(3.6)
6,534
3,500
3,034
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Estate Agency and Related Services Continued
grew by an impressive 8% and now
accounts for 23% of income in the non
ex-HEAL branches.
The asset management business is
dependent on the repossessions market
which fell by 8% to 36,300 repossessions
in 2010 (2009: 39,300). On a like-for-like
basis asset management income fell by
4% so market share did increase slightly.
The Group only started up its asset
management business in 2008 but it
has grown rapidly and now, including
the newly created St Trinity Asset
Management business, total asset
management income contributes 11%
of total Estate Agency revenue.
Financial Services
The Group’s financial services offer has
been transformed by the acquisition of
Home of Choice and Pink Home Loans
during the year. These businesses have
not contributed materially to the 2010
operating profit and yet like-for-like
financial services income increased by
6% to £13.3m (2009: £12.5m). Once the
mortgage market improves, financial
services will become a very significant
income line for the Group. A key objective
for 2011 is to complete the integration of
the new financial services businesses and
roll out a new simplified operating model
across the Group.
Developments
2010 was a year of repositioning the
Estate Agency business ready to take
advantage of organic growth
opportunities and for market recovery
in due course. The HEAL Business
acquisition is proving to be a significant
source of added shareholder value. The
deal brought in net cash as well as a
business that returned to profit in the
second half of the year and the Group
now has the second largest agency
branch network in the UK (by reference to
the number of branches). The St Trinity
Asset Management business was also
acquired as part of the HEAL Business
and as a result LSL is a market leader
in residential asset management in the
UK. The third part of the Estate Agency
business offer is financial services and
the addition of Home of Choice and Pink
Home Loans makes the Group one of the
largest intermediary broking networks for
mortgage and protection products in the
country (by reference to the number of
appointed representatives).1
The other main development during 2010
was that the Estate Agency business
began to execute a plan to drive organic
growth improving market share both in
total and especially in the higher value
market segments. Firstly, all branches
were refurbished during the year and the
full lettings and financial services offer
was rolled out to the ex HEAL branches.
In addition a major programme of training
and recruitment has been undertaken to
ensure that each branch has management
and staff with the right skills to grow the
business. There has also been investment
in marketing and headcount to deliver
higher levels of instructions and a new
call centre, The Bridge, has been
built to help generate instructions for
the branches.
The size of the opportunity over the
next three to five years is significant.
Benchmarking has shown that Your Move
and Reeds Rains currently list around 50
instructions fewer per annum than the
best of the competition. Furthermore,
Your Move and Reeds Rains branches
typically sell properties at around the
national average house price of circa
£160,000.2 The impact on profitability of
moving into higher price segments by
using for example the Your Move
“Premier” or Reeds Rains “Cream”
marketing packages is substantial. Overall
the size of the opportunity to be targeted
is significant at around £30,000 to
£50,000 profit per branch.
Early signs of progress have been very
encouraging. The key performance
measure is market share growth measured
on a local basis both in total and for
specific higher property price segments.
During the second half of 2010, LSL
market share increased to 5% compared
to 4% in the first half of the year. Since it
began operating in early January 2011, the
Bridge has made good progress delivering
instructions into branches.
2011 promises to be an exciting year for
the Estate Agency Division as we expect
to make good progress in building an
enhanced market position.
1 Source: Mortgage Strategy Network Report
January 2011.
2 Source: RightMove January 2011.
Breakdown of Estate Agency branches
YM
RR
LSLi
Totals
Owned
Franchised
Totals
236
160
30
426
91
51
16
158
327*
211
46
584
* Includes 9 virtual branches and 4 lettings only
branches
18
Business Review
Awards 2010 & 2011:
The Estate Agency businesses,
achieved the following industry awards
demonstrating LSL’s continued
commitment to customer services:
Your Move:
Property Professional Awards 2010:
Best National Estate Agency
Sunday Times Estate Agency of the
Year Awards 2010:
Bronze – Best Financial Services
provider joint winner – Reeds Rains
Bronze – Best Estate Agency
Franchise
Sunday Times Lettings Estate Agency
of the Year Awards 2010:
Silver – Best Lettings Franchise
Silver – Best Lettings Customer
Service
Silver – Best Lettings Training &
Development
Bronze – Best Large Lettings
Agency
Bronze – Best Lettings Technology
Online
Estate Agent and Letting Agent of the
Year Awards (ESTAs) 2010, sponsored
by RICS, Home Let and Estate Agency
Today:
Bronze – Best Large Estate Agency
Chain
Bronze – Best Large Lettings
Agency
Reeds Rains:
Sunday Times Estate Agency of the
Year Awards 2010: Bronze – Best
Financial Services Provider – joint
winner with Your Move
Phillip Green & Partners (a trading
name of Intercounty)
Sunday Times Estate Agency of the
Year Awards 2010:
Gold – Best Small Estate Agency
South East
Silver – Best Small Estate Agency
UK
Pink Home Loans
Mortgage Strategy Awards 2011:
Finalist in the Best Mortgage
Network Category
Linear Financial Services
Mortgage Strategy Awards 2011:
Best Broker for Protection
First Complete
Mortgage Strategy Awards 2011:
Finalist in the Best Mortgage
Network Category
Regulation
First Complete, AMF and BDS are all
directly authorised by the FSA in relation
to the sale of mortgage, pure protection
and general insurance products. During
2010, Your Move cancelled its permission
and became an appointed representative
of First Complete, along with Reeds Rains
who ceased to be an appointed
representative of Openwork. This
restructuring was undertaken to simplify
LSL’s financial services operating model.
Linear has become an appointed
representative of AMF for mortgage and
insurance business and continues to also
be an appointed representative of
Openwork (for investment business).
Reeds Rains has also remained an
appointed representative of Letsure for
the sale of rent indemnity insurance.
As a result of Linear’s appointment by
Openwork, LSL has a small indirect
shareholding of Openwork.
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19
Business Review
Financial Review
The key drivers of
the financial
performance of LSL
are summarised
below
Income statement
Revenue
Revenue increased by 31% to £206.6m
in the year ended 31st December 2010
(2009: £157.7m) due to the impact of the
HEAL Business acquisition and also
market share gains in both Estate Agency
Division and Surveying Division as
mentioned in the segment review.
Operating Expenses excluding
exceptional costs, amortisation and
share based payment
Operating Expenses increased by 36%
to £176.3m (2009: £129.9m). This was
mainly due to an increase in employee
related costs due to recruitment of
additional colleagues to support our
organic growth and also colleagues
who have joined the Group through an
acquisition made during the year. Average
full time equivalent employees during the
year was 3,649 (2009: 2,534).
Underlying Operating Profit
Underlying Operating Profit was £31.9m
(2009: £28.3m) with the Underlying
Operating Profit margin of 15.5%
(2009: 17.9%). Like-for-like Underlying
Operating Margin increased from 17.9%
to 19.3%.
Exceptional Items
Exceptional profit in the year ended
31st December 2010 amounted to £10.2m
(2009: costs of £0.4m). Exceptional profit
was mainly due to negative goodwill
arising on the HEAL Business acquisition
as net assets of £29.8m were acquired
for £1. This exceptional profit was offset
by exceptional costs of £19.6m, of which
£13.8m related to the HEAL Business
reorganisation undertaken to right size
the cost base, £2.8m to increasing the PI
provision and £2.0m to finance costs.
Net Financial Costs
Net financial costs (excluding exceptional
finance costs) amounted to £2.2m
(2009: £2.2m). The finance costs did not
decrease in line with the decrease in net
debt due to the existence of the interest
rate swap (entered into in April and May
2009) which fixed the interest at an
average of 2.93% on £25m of debt. In
view of the low level of net debt of the
Group at 31st December 2010, LSL are
currently reviewing the exit options
available to cancel the interest rate swap.
However, no decision has been made in
this regard as at the date of approval of
the Financial Statements.
The exceptional finance cost is £2.0m.
Of this £1.1m relates to discontinuance of
hedge accounting on interest rate swap
and £0.9m relates to arrangement fees
and costs relating to the extension of the
banking facility to March 2014.
Taxation
The effective rate of corporation tax for
the year was 4% (2009: 29.3%). The
effective rate of tax for 2010 was very low
due to the impact of non-taxable
negative goodwill arising on the HEAL
Business acquisition. After excluding the
effect of negative goodwill the effective
tax rate is 23.2% (2009: 29.3%). The
effective tax rate is still low due to the
impact of non-taxable income on profit
made on disposal of the investment in
Hometrack Data Systems Limited.
Adjusted Basic Earnings Per Share
The Adjusted Basic Earnings Per Share
(as calculated in note 10) is 21.0p
(2009: 18.1p). The Directors consider
this provides a better and more
consistent indicator of the Group’s
underlying performance.
Balance Sheet
Capital Expenditure
Total capital expenditure in the year
amounted to £5.0m (2009: £0.7m).
The capital expenditure predominantly
comprised expenditure on refurbishment
of the Estate Agency branches.
Financial Structure
As at 31st December 2010 net debt was
£4.9m (2009: £25.7m). LSL has a £75.0m
revolving credit facility in place until March
2014 (2009: £75.0m).
Cash Flow
The business is cash generative and
has low capital expenditure requirements.
The Group generated net cash from
operations before exceptional cost
payment of £35.7m (2009: £30.8m).
The improved cash generation is due
principally to increased profitability and a
positive movement in working capital.
Net Assets
The net assets as at 31st December 2010
were £68.1m (2009: £45.9m).
Treasury & Risk Management
LSL has an active debt management
policy and due to the cash generative
nature of the business and the cash
acquired on the HEAL Business
acquisition the Group’s net debt position
at 31st December 2010 is £4.9m
(2009: £25.7m). As mentioned under Net
Financial Costs on page 20 the Group
is currently reviewing the exit options
available with respect to the interest rate
swaps. 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 1st January 2005.
20
Business Review
Principal Risks & Uncertainties
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:
•
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 key surveying or corporate
services 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.
Liability for inaccurate professional
services advice to clients (e.g.
inaccurate valuations) together with
the risk that LSL fails to maintain
appropriate risk management
arrangements.
Failure to effectively deliver and
manage the integration and
expansion of newly acquired or
created businesses and initiatives
into the Group.
Being subjected to investigations or
enforcement action (including any
fines) by a regulator resulting in the
loss of any licences or permissions
necessary for the performance of the
Group business. The reputation and
profitability of LSL could be adversely
affected by the actions of one or a
limited number of employees or
franchisees.
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 – for example web
based estate agency or Automated
Valuation Models in relation to
surveying.
Changes in legislation or regulation
(e.g. Mortgage Market Review) or
Government policy may impact on
business results or the UK housing
market in general.
•
•
•
•
•
•
•
Further information relating to the
management of these risks and
uncertainties is set out in the Corporate
Governance Review (Internal Controls)
of this Report on page 33.
Relationships
The Corporate Social Responsibility
(CSR) statement at pages 39 to 42
details the arrangements for all Group
companies in relation to: Employment
(including Equal Opportunities); Health,
Safety & Welfare; Environmental; and
Social and Community Interests (including
social and ethical issues).
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 with LSL
recognising Unite as an employee
representative body.
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, National Federation of
Property Professionals 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.
Environmental Matters
LSL recognises that the environment
has an intrinsic value, central to the
quality of life and underpins economic
development. LSL understands that its
stakeholders are interested in how LSL
manages its impact on the environment
and how it is performing. Further,
stakeholders may also provide LSL with
views and opinions which can strengthen
LSL’s approach to environmental
management. Accordingly, LSL is
committed to communicating on
environmental matters with all interested
parties and to report on progress
at regular intervals via the website
(www.lslps.co.uk). Appropriate guidance
and training is also provided to all
employees to ensure they have an
awareness of their impact on the
environment and the role that they play
in managing the impact.
For further information on other
environmental issues and to read LSL’s
CSR statement please see pages 39 to
42 of this Report.
Approved by and signed on behalf
of the Board of Directors on
2nd March 2011.
Steve Cooke
Group Finance Director
Simon Embley
Group Chief Executive Officer
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Business Review
Director Profiles
22
Steve Cooke, Group Finance Director
Steve was appointed Group Finance Director in July 2010 and is responsible for
all aspects of the financial management of the Group. Previously Steve was chief
operating officer of Bestinvest, the 3i backed wealth management business and
before that was chief financial officer of Mapeley, the FTSE 250 property company.
He was also CFO of Energis as part of the new management team which delivered
a successful turnaround before selling the business to Cable and Wireless. Steve
trained with Coopers and Lybrand and on qualifying as a chartered accountant
worked as a strategy consultant for OC&C followed by senior finance and operational
roles in the Sainsbury’s and Kingfisher Groups.
Simon Embley, Group Chief Executive Officer
Simon became the Group Chief Executive Officer of LSL at the time of the
management buy-out of e.surv Chartered Surveyors and Your Move from Aviva
(formerly Norwich Union Life) in 2004. Prior to the management buy-out, Simon was
responsible for the strategic direction of these companies, and subsequent to the
management buy-out Simon has overseen and been responsible for the turnaround
of the initial Group from a heavily loss-making business to the successful business it
is today. As the Group Chief Executive Officer, he has the primary responsibility for
the performance, strategy and development of the Group and in this role he has
been instrumental in taking the business forward in a down turn through both
organic growth (including development of counter cyclical income) and selective
strategic acquisitions.
Paul Latham, Non Executive Director
Prior to being appointed to the Board as a Non Executive Director in June 2010, Paul
had been Deputy Chief Executive Officer of LSL since the management buy-out in
2004. As an Executive Director, Paul had overall responsibility for the performance
and strategic direction of the Surveying Division. Under Paul’s direction, the
Surveying Division developed into one of the UK’s largest distributors of residential
valuations. Paul is a qualified chartered surveyor and is the current RICS chairman of
the Residential Professional Group board and sits on a number of influential UK trade
association boards.
Roger Matthews, Non Executive Chairman
Roger was appointed Chairman of the Company in October 2006 and is currently
also non executive chairman of MITIE Group plc and a non executive director
of Zetar plc (AIM Listed). He was formerly chairman of Sainsbury’s Bank plc and
Land of Leather Holdings plc, 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 PricewaterhouseCoopers.
Roger is a chartered accountant.
Business Review
Mark Morris, Senior Independent Non Executive Director
Mark was appointed as a Non Executive Director of the Company in October 2006.
Mark has many years experience of business management with particular focus on
growing businesses and mergers and acquisitions. Mark is a chartered accountant
and worked for twelve years at PricewaterhouseCoopers. Mark is currently non
executive director and audit committee chairman at HomeServe plc and is non
executive director of a number of entrepreneurial private companies. Mark previously
worked at Sytner Group as finance director and managing director from 1995 to
2005 including the period during which it was listed on the London Stock Exchange.
David Newnes, Executive Director, Estate Agency
David has been with the Group since 1980 and was part of the management
buy-out team. David joined the Board in May 2010 with overall responsibility for
the performance, strategy and development of the Estate Agency Division
across the Group. Prior to this he was MD of Your Move from 2005, shortly after
the management buy-out, where he managed its successful turnaround and
development into the largest single brand estate agency business in the UK. David
has extensive experience within the estate agency industry, holding memberships of
both the Association of Residential Lettings Agents (ARLA) and the National Estate
Agency Association (NAEA). David is also a trustee of the Estate Agency Foundation
and a director of The Property Ombudsman scheme. During 2010 David was
shortlisted for the Negotiator Awards – in the category of ‘Agency Leader of the Year’.
Mark Pain, Non Executive Director
Mark Pain, was appointed as an Independent Non Executive Director and chair
of the Remuneration Committee in July 2009. He brings with him a wealth of
experience as a FTSE 100 main board director covering a range of sectors including
property, media, housebuilding, retail and wholesale banking, consumer and
business finance, and life assurance. 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 and is a non executive director of Punch Taverns Plc and
Northern Rock PLC. Mark is also a trustee of Somerset House and is a Fellow of the
Institute of Chartered Accountants.
Alison Traversoni, Executive Director, Surveying
Alison has been with the Group for over 20 years and was part of the management
buy-out team. She is a director of the boards of e.surv Chartered Surveyors,
Barnwoods and Chancellors Associates and at e.surv Chartered Surveyors, one of
the UK’s largest distributors of residential valuations, Alison held various senior
positions before her appointment as chief operating officer in September 2008.
She joined the Board as an Executive Director in May 2010 with overall responsibility
for the performance and development of the Group’s Surveying Division. Alison
has significant experience within the surveying industry.
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Directors’
Report &
Corporate
Governance
In this section
Statement of Directors’ responsibilities
in relation to the Group Financial
Statements
Report of the Directors
Corporate Governance Report
Directors’ Remuneration Report
Corporate Social Responsibility
26
27
30
34
39
24
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Directors’ Report & Corporate Governance
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 (“IFRS”) 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 the Group 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 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 and enable them to ensure that
the Financial Statements comply with the Companies Act 2006
and Article 4 of the IAS Regulation. 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.
2626
Directors’ Report & Corporate Governance
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:
•
•
Surveying and Valuation Services; and
Estate Agency and Related Services, which includes estate
agency, lettings, asset management and financial services
(predominantly mortgage and protection brokerage).
Further details of how LSL engages with its employees is detailed in
the CSR statement at pages 41 to 44 of this Report. The CSR
statement also summaries the Group’s policy on disabled employees.
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 Financial Statements.
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.
Directors
The current Directors are listed with their biographies in
Directors’ Profiles at pages 22 and 23 of this Report.
Annual General Meeting
The AGM will be held at the London offices of LSL, 1 Sun Street,
London EC2A 2EP on 20th April 2010 starting at 2.30pm.
The notice convening the AGM (Notice of Meeting) is in a separate
circular to be sent to shareholders with this Report. The Notice of
Meeting also includes a commentary on the business of the AGM
and notes to help shareholders to attend, speak and/or vote at
the AGM.
During 2010 Paul Latham and Dean Fielding retired as Executive
Directors on 31st May and 1st July 2010 respectively. Paul Latham
agreed to remain on the Board as a Non Executive Director to
ensure that LSL continues to benefit from his expertise and
industry knowledge.
With effect from 1st June 2010 Alison Traversoni (Executive
Director, Surveying) and David Newnes (Executive Director, Estate
Agency) joined the Board and on 1st July 2010 Steve Cooke joined
the Board as Group Finance Director, replacing Dean Fielding.
Financial Results
The Business Review and Financial Statements set out the results
of LSL.
Full details of Director appointments and resignations are also
detailed at page 36 in the Directors’ Remuneration Report.
Dividend
As a result of the strong operating performance, continued
reduction in net debt and the Board’s view of the future prospects
of the business a final dividend payment of 5.9p per share will be
proposed to shareholders at the forthcoming AGM, bringing the
total dividend for 2010 to 8.4p per share. This represents a 40%
payout ratio (based on adjusted EPS of 21.0p per share) and a
55% increase on the 2009 dividend of 5.4p per share. The
proposed dividend payment is in line with our previously stated
policy of applying a dividend pay out ratio of between 30% to 40%
of Underlying Group Profit after tax.
The ex-dividend date for the final dividend is 30th March 2011, with
a record date of 1st April 2011, and a payment date of 27th April
2011. Shareholders have the opportunity to elect to reinvest their
cash dividend and purchase existing shares in LSL through a
Dividend Reinvestment Plan.
Employees
LSL recognise that our people are a valuable asset and we are
committed to providing a working environment in which our
employees can develop to achieve their full potential with
opportunities for both professional and personal development. By
creating such an environment, LSL believe that this will enable the
retention and recruitment of the right people to work at every level
throughout the Group. An essential part of this strategy is to
encourage and promote effective communication with all
employees, which also ensure that LSL, in its decision-making,
takes into account its employees views.
Re-election and election
In accordance with the Articles of Association, Alison Traversoni,
David Newnes and Steve Cooke will each retire at the AGM and,
being eligible, intend to stand for election.
LSL’s articles provide that 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 the three Directors
appointed since the last AGM are standing for election. LSL may
by ordinary resolution elect or re-elect any individual as a Director.
The biographical details for all Directors including Alison
Traversoni, David Newnes and Steve Cooke are set out on pages
22 and 23 of this Report.
During the 2010 Board effectiveness review, the performance of all
those Directors standing for election was specifically evaluated
and the Board confirmed that it values the experience and
commitment to the business demonstrated by each of
these individuals.
Directors’ Interests
The interests of the current Directors in LSL are contained within
the Directors’ Remuneration Report at pages 34 to 38 of this
Report. In the period between 31st December 2010 and the date of
this Report, there were no changes in the Directors’ interests.
The Board has during the year observed and maintained
arrangements for the management and recording of conflicts in line
with its policy. This includes the observance of a hospitality policy
to ensure compliance with section 176 of the Companies Act 2006.
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.
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.
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Report of the Directors Continued
Directors Service Contracts
Details of the Executive Directors’ service agreements and the Non
Executive Directors’ letters of appointment are set out in the
Director’s Remuneration Report at page 35 and 36 of this Report.
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 is included in the Corporate
Governance section of this Report.
Share Capital
LSL 0.2p 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 Financial
Statements. There have been no changes to the share capital
during 2010. 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 AGM are set out
in the Notice of Meeting.
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 Financial
Statements.
The Trustees have waived the right to any dividend payment in
respect of each share held by them.
Charitable & Political Donations
LSL Group companies in total made a number of charitable
donations throughout the year totalling £7,886 (2009: £730).
Further information about the Group’s charitable initiatives is
contained within the CSR at page 42 of this Report.
Creditors & Supplier Payment Policy
LSL’s normal terms are to make payment in accordance with
suppliers’ terms of trade or within 45 days (2009: 45 days) from the
receipt of services or invoices subject to satisfactory performance
by the supplier. At 31st December 2010, LSL 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 39 to 42 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 12 to 23 of this Report. 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 20. 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 page 21 of this Report.
As explained in note 28 to the Financial Statements, the Group
meets its day-to-day working capital requirements through a
revolving credit facility, which was renewed in June 2010 and
the Group currently has a £75m facility which is committed
for a period up to March 2014. As stated in note 18 of the Financial
Statement as at 31st December 2010 the Group had available
£73.5m 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.
Substantial Shareholding
As at 28th February 2011, the shareholders set out below have notified LSL of their interest in 3% or more of the issued Ordinary Shares:
Institution
Harris L.P
International Value Advisers LLC
Sheffield Asset Management LLC
Individual (excluding Executive Directors)
Dean Fielding
Nature of holding
Beneficial
Beneficial
Beneficial
Number of
0.2 pence
Ordinary
Shares
17,971,460
12,417,376
5,898,331
% of
issued
shares
17.25%
11.92%
5.66%
Registered Holder
5,230,000
5.02%
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Directors’ Report & Corporate Governance
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 2010.
The trading performance of the Group has improved significantly in
2010. Underlying Group Operating Profits have improved by 13%,
net debt has reduced from £25.7m to £4.9m, 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/her 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/she 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
LSL 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 31st December 2010, 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.
•
There are no restrictions on the transfer of Ordinary Shares in LSL
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 LSL require the approval of LSL
to deal in LSL’s securities.
•
LSL’s Articles of Association may only be amended by way of a
special resolution at a general meeting of the shareholders.
Company share schemes
The Trust holds 1.33% (2009: 1.1%) 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 28 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 22 to 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 LSL 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 LSL and its subsidiaries included in the
consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face.
Ordinary Shares
On a show of hands at a general meeting of LSL 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).
Approved by and signed on behalf of the Board of Directors
Sapna B FitzGerald
Company Secretary
2nd March 2011
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Corporate Governance Report
UK Corporate Governance Code (“Code”)
The Directors recognise the value and importance of meeting the
principles of good corporate governance as set out in the Code.
This part of the Report describes the corporate governance
arrangements that are in place.
During 2010, LSL complied with the provisions of the FRC
Combined Code on Corporate Governance (June 2008) in all
respects. The Directors have also undertaken a review of its
compliance with the Code which was published in May 2010 and
which applies to the financial year commencing on 1st January
2011. The Terms of Reference for each of the committees of the
Board have also been updated to take into account the
requirements of the new Code.
The Board
The Board has eight members and it comprises of the Chairman,
four Executive Directors and three Non Executive Directors.
Whilst no significant issues requiring action arose from these
evaluations, the outcomes of the exercise were reported to the
Board and showed that the Board and its committees were
discharging their responsibilities effectively. The appraisal
produced a number of recommendations to further improve
effectiveness of the Board which will be implemented during 2011.
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
LSL’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.
Due to Paul Latham’s previous role within LSL as the Deputy CEO,
he is not considered to be independent. Paul took on the Non
Executive Director role with effect from 1st June 2010 and agreed
to stay on the Board to ensure that LSL continued to benefit from
his expertise and industry knowledge.
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.
Therefore, the Board has currently three Non Executive Directors,
excluding the Chairman, two of which are independent.
The Directors are listed with their biographies in Directors’ Profiles
at pages 22 and 23 of this Report.
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.
Save for Paul Latham, the Non Executive Directors are
independent of management and have a range of experience
covering strategy, business operations, customer and employee
matters/issues, corporate governance and finance.
When Roger Matthews was appointed Chairman he was deemed
to be independent under the provisions of the 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 and chaired by the Senior Independent Non Executive
Director, to appraise his performance). The Non Executive
Directors evaluate the Chairman’s performance, after taking into
account the views of the Executive Directors.
During 2010 the Board held 10 scheduled meetings and an Annual
Strategy Meeting. The attendance of each of the Directors at these
meetings as a Director or a committee member is set out below.
During 2011 the Board is scheduled to meet ten times, including
the annual strategy meeting and additional meetings will be held
as required.
During 2010 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 2011.
Board and Committee Attendance 2010
Director
Roger Matthews
Simon Embley
Paul Latham1
Dean Fielding2
Mark Morris
Steve Cooke3
Mark Pain
Alison Traversoni4
David Newnes5
Board
(including
annual
strategy
meeting)
10
11
10
6
11
5
11
5
6
Audit
Committee
Remuneration
Committee
Nominations
Committee
4
–
–
–
4
–
4
–
–
3
–
–
–
4
–
4
–
–
2
–
–
–
2
–
2
–
–
1 Paul Latham became a Non Executive Director on 1st June 2010.
2 Dean Fielding resigned on 1st July 2010.
3 Steve Cooke joined the Board on 1st July 2010.
4 Alison Traversoni joined the Board on 1st June 2010.
5 David Newnes joined the Board on 1st June 2010.
Whilst both Alison Traversoni and David Newnes were invited to
attend Board meetings prior to their appointments as Executive
Directors, their attendance prior to their appointments are not
recorded in the above table. This attendance facilitated their
succession to becoming Executive Directors on to the Board.
30
Directors’ Report & Corporate Governance
In accordance with the Articles of Association, Alison Traversoni,
David Newnes and Steve Cooke will retire at the AGM, and, being
eligible, are intending to stand for 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 proposals,
accounting policies, material capital projects, investments and
disposals, succession plans and the monitoring of financial
performance against budget and forecast. There is also a
schedule of Matters Reserved for the Board which is annually
reviewed by the Board.
There is a programme of regular reviews of performance and
developing best practice in matters such as employment, health
and safety, environmental and social and community interest. LSL
believes that corporate social responsibility is necessary to
support responsibly-grounded business decision-making that
considers the broad impact of corporate actions on people,
communities, and the environment accordingly, the Board takes
account of the significance of environmental, social and
governance matters when making decisions. Further details of LSL
corporate social responsibility objectives can be found in the CSR
statement at pages 39 to 42 of this Report.
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
and these arrangements are reviewed annually as part of the
Boards evaluation process referred to above.
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). During 2010, the Board reviewed the Terms of
Reference for each of the Committees and agreed amendments to
take into account the requirements of the new Code. 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. The Board is
satisfied that Mark Morris has recent and relevant financial
experience as is required by the Code.
The Committee met on four occasions in 2010. LSL’s internal and
external auditors, Executive Directors (including the Group Chief
Executive Officer 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 four times during 2010.
The duties of the Audit Committee are governed by its Terms of
Reference and its role includes:
•
to ensure that the Group’s accounting and financial policies and
controls are proper, effective and adequate;
to ensure that internal and external auditing processes are
properly co-ordinated and work effectively and to oversee the
relationship with the external auditor, including reviewing the
scope and results of audits;
to monitor the integrity of LSL’s financial statements and any
formal announcements relating to its performance, reviewing
significant financial reporting issues and judgements contained
in them;
to review the effectiveness of the internal control and risk
management systems;
to review procedures for handling any internal allegations;
to oversee and assess the effectiveness of the internal audit
function; and
to keep under review the nature and extent of non audit
services provided by the external auditors.
•
•
•
•
•
•
The Committee has an established programme of work to ensure
that each of its responsibilities are 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
integration of newly acquired businesses, including the measures
for improvement of the financial control environment; further focus
on controls to prevent inaccurate valuation opinions; and ensuring
appropriate regulatory control environments are in place as LSL’s
financial services business has expanded.
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 (“Policy”).
The Audit Committee is kept informed of the fees paid to the
auditor in all capacities.
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.
The split between audit and non audit fees for 2010 appears at
note 9 to the Financial Statements. The non audit fees relate to tax
compliance services, tax due diligence and structure advice, and
reporting on banking covenants. The Committee considered that
Ernst & Young LLP 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.
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Directors’ Report & Corporate Governance
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. The Committee met on two occasions in 2010.
The duties of the Nominations Committee are governed by its
Terms of Reference and its role includes:
•
to regularly review the structure, size and composition (including
skills, knowledge and experience) of the Board;
prior to recommending any appointments, evaluate the balance
of skills, experience, independence and knowledge on the
Board and prepare a description of the role and capabilities
required for each appointment;
to review succession plans for the Directors and senior
managers, taking into account the challenges and opportunities
facing LSL, and what skills and expertise are therefore needed
on the Board in the future. The plans are also reviewed to
ensure that LSL maintains an appropriate balance of skills and
experience within the Group and on the Board to ensure
progressive refreshing of the Board;
to recommend to the Board the selection and appointment of
new executive and non executive directors in accordance with
the Code, ensuring that any search is conducted, and
appointments made, on merit, against objective criteria, with
due regard for the benefits of diversity on the Board, including
gender; and
to review the leadership needs of the Group at varying levels
with a view to ensuring the continued ability to compete
effectively in LSL’s marketplaces.
•
•
•
•
During the year, the Committee nominated Paul Latham for
appointment as a Non Executive Director and Alison Traversoni
and David Newnes as Executive Directors for Surveying and Estate
Agency respectively, and Steve Cooke as the Group Finance
Director.
All recommendations for appointments made in 2010 took into
account the individuals experience in both the sector, and in
the case of Paul Latham, Alison Traversoni and David Newnes,
their previous roles within the Group. While the Committee did not
utilise the services of any external search consultancy or open
advertising in recommending the appointments of Paul Latham,
Alison Traversoni and David Newnes all of the appointments were
discussed with advisers prior to being made. In respect of the
appointment of Steve Cooke as Group Finance Director, the
Committee engaged the services of an external search consultant
as well as considering internal candidates.
Alison Traversoni is the first female Executive Director to be
appointed to the Board, and LSL remains committed to the
promotion of equality and diversity across the Group.
Remuneration Committee
During 2010 the Remuneration Committee was chaired by
Mark Pain and its other members were Roger Matthews and
Mark Morris. The Committee met four times in the year and the
Group Chief Executive Officer, Group HR Director and Company
Secretary also attended meetings (not when their own
remuneration was being discussed) and assisted the
Remuneration Committee in its deliberations during this period.
32
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 Directors’ Remuneration Report provides details of
how the Committee has discharged these duties which can be
found on page 34 of this Report.
The Remuneration Committee’s overall purpose is to ensure that
the levels of remuneration are sufficient to attract, retain and
motivate Directors of the quality required to run LSL successfully.
The Remuneration Committee also ensures that a significant
proportion of the Executive Directors’ remuneration is structured
so as to link rewards to corporate and individual performance and
that it is sensitive to pay and employment conditions elsewhere in
the Group, especially when determining annual salary increases.
None of the Remuneration Committee members has any personal
financial interest (other than as shareholders), conflicts of interest
arising from cross directorships or day to day involvement in
running the business. The Remuneration Committee makes
recommendations to the Board. No Director plays a part in any
discussion about their remuneration. The terms of reference of the
Remuneration Committee are available from the Company
Secretary or LSL’s website at www.lslps.co.uk.
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
and 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.
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 such 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. In addition presentations will be arranged from time to time
for shareholders and analysts, including after the interim and
preliminary results.
Steps are taken to ensure that all members of the Board
understand the views of major shareholders. This is achieved in a
number of ways including feedback from the corporate advisors,
Executive Directors and the distribution of analysts reports to
the Board.
Whilst the Board notes that the Code encourages meetings
between Non Executive Directors and institutional investors, to
date no such meetings have taken place. However, all of the Non
Executive Directors, including the Chairman and the
Senior Independent Director are available to meet with all
Directors’ Report & Corporate Governance
shareholders to discuss any issues or concerns and they can be
contacted through the Company Secretary’s office.
With regard to individual shareholders, the Board considers that
the main forum for communication is at the AGM and all of the
Directors will be available at the AGM to meet with investors.
All of LSL’s announcements are published on the LSL website
(www.lslps.co.uk), together with copies of presentation material
and financial reports.
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.
LSL 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
2nd March 2010
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 Code, including clear operating
procedures, lines of responsibility and delegated authority. These
procedures have been in place since LSL was listed and are
regularly reviewed by the Board and the Audit Committee.
The Group has in place internal control and risk management
systems in relation to LSL’s financial reporting process and the
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 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 2010 the Executive Directors have continually identified,
evaluated and managed material risks and uncertainties faced by
LSL which could adversely affect 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 at page 21.
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.
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Directors’ Report & Corporate Governance
Directors’ Remuneration Report
The Directors’ Remuneration Report has been prepared in
accordance with the Companies Act 2006 and Schedule 8 of the
Large and Medium Sized Companies and Groups (Accounts and
Reports) Regulations 2008. The Report also meets the relevant
requirements of the Listing Rules of the Financial Services
Authority and describes how the Board has applied the principles
relating to Directors’ remuneration in the Code. A resolution to
approve this Report will be proposed at the AGM at which the
Financial Statements will also be approved. This part of the
Report, has been divided into separate sections for audited and
unaudited information.
Details of the Remuneration Committee’s composition and
responsibilities are set out in the Corporate Governance Report at
page 32 of this Report.
Unaudited Information
The Remuneration Committee has considered in the financial
period matters relating to the remuneration of the Chairman and
the Executive Directors.
None of the Committee members has any personal financial
interest (other than as shareholders), conflicts of interests arising
from cross-directorships or day to day involvement in running the
business. The Committee makes recommendations to the Board.
No Director plays a part in any discussion about their
remuneration. The terms of reference of the Committee
are available from the Company Secretary or LSL’s website at:
www.lslps.co.uk.
The Remuneration Committee was advised during the year by
Hewitt New Bridge Street (“HNBS”), the Committee’s independent
adviser, and Deloitte LLP on matters relating to senior executive
remuneration. HNBS provided no other advice to LSL during
the year.
Remuneration policy for the Executive Directors
General policy
LSL’s strategy has been designed to create shareholder value and
the aim of LSL’s remuneration policy is to attract, retain and
motivate Executive Directors with the experience and skills
necessary to deliver that strategy and run LSL successfully. The
Committee reviews the policy annually in light of market
conditions, performance, and developments in corporate
governance best practice. The Committee also considers the level
of risk (e.g. environmental, social and governance) associated with
the remuneration policy to ensure that there are sufficient
safeguards in this regard.
There are five main elements of the remuneration package for
Executive Directors and senior management:
•
•
•
•
•
Base salary
Benefits
Pension arrangements
Annual bonus
Long-term incentives
LSL’s policy is that a substantial proportion of the remuneration of
the Executive Directors and senior management should be
performance related.
Further, consultation is undertaken with major shareholders and
major shareholders representative bodies in relation to
remuneration matters before any changes were implemented.
Pension
The Executive Directors and Paul Latham are members of a
money purchase pension scheme. LSL matches contributions of
up to 5% of base salary. Details of actual LSL contributions for
2010 are presented in the table of Director’s Emoluments on
page 36.
Base salary and benefits
Executive Directors’ base salaries are reviewed annually by the Committee taking into account the responsibilities, skills and experience
of each individual, pay and employment conditions within LSL and salary levels within listed companies of a similar size. Base salary
levels as at 1st January 2011, 2010 and 2009 were as follows:
Director
Steve Cooke
Simon Embley
David Newnes
Alison Traversoni
* Base salary as at appointment to the Board during 2010.
Role
Salary at
1st January
2011
Salary at
1st January
2010
Salary at
1st January
2009
Group Finance Director
Group Chief Executive Officer
Executive Director, Estate Agency
Executive Director, Surveying
£220,000 £220,000*
–
£250,000 £250,000 £180,000
–
£140,000 £140,000*
–
£140,000 £140,000*
The base salary increase awarded to the Group Chief Executive Officer with effect from 1st January 2010 was arrived at after careful
consideration by the Committee of internal relativities (a key issue given the changes to the Board over the past year) and salary levels
within similarly sized listed companies. This was the first such increase for three years and salary levels remain below mid-market levels
for similarly sized listed companies.
Following a review of base salary levels at the end of 2010, the Committee has decided not to recommend an increase in base salary
levels for 2011.
Benefits are comprised of a car allowance/company car and private healthcare.
3434
Directors’ Report & Corporate Governance
Annual bonus
Executive Directors participate in a performance-related bonus
scheme. The maximum bonus continues to be capped at 100% of
base salary for Executive Directors.
awards granted in 2011 therefore, in addition to the EPS targets
set out above, LSL’s TSR must exceed that of the FTSE 250 index
(excluding investment trusts) over the three year performance
period for any awards to vest.
For 2010, the sliding scale performance targets were based on the
budgeted Underlying Group Operating Profit (after the payment of
bonuses). Details of annual bonus amounts payable to Executive
Directors for the year ended 31st December 2010 are presented in
the table of Directors’ Emoluments on page 36.
For 2011, the structure of the annual bonus will remain broadly
similar to 2010 although the underlying profit targets will be
operated for 80% of the bonus potential, with the remaining 20%
of potential based on challenging strategic targets.
Long Term Joint Share Ownership Plan
The JSOP received shareholder approval at the 2010 AGM.
Awards under the JSOP participate in increases in the value of
shares in LSL above the share price at the date of grant. Awards
comprise of an interest in jointly owned shares (i.e. Ordinary
Shares held in co-ownership with the Trust) and a stock
appreciation right. A key feature of the JSOP is that individuals are
required to purchase their interest in the jointly owned shares and
have thereby put their personal capital at risk.
The vesting of JSOP awards granted in 2010 is conditional upon
LSL’s adjusted EPS performance meeting the following absolute
performance targets over a period of 3 financial years starting with
the financial year in which the JSOP award is granted:
Value of shares under the
JSOP award at date of grant
(as a percentage of salary)
Senior
Executives
(includes
Executive
Directors and
members of
the senior
management
team)
100%
–
–
Chief
Executive
Officer
100%
150%
200%
EPS growth p.a.*
10%
13%
17%
* With straight line vesting between points for the Chief Executive Officer’s award.
These awards are made to motivate the Executive Directors and
members of the senior management team to participate in the
growth of LSL as a business.
It is not the Committee’s current intention to recommend the grant
of awards under both the JSOP and LTIP to Executive Directors in
the same period. In any event, the maximum market value of
shares granted under a JSOP award and a LTIP award in any
financial year cannot together exceed 200% of base salary in
normal circumstances.
For JSOP awards granted in 2011, it is currently intended that
similar award levels and EPS performance targets will apply to
those awards granted in 2010. However, following a review of the
EPS performance targets attached to the 2010 awards, the
Committee has concluded that while the EPS targets remain
appropriate, a second performance target based on relative
shareholder return (“TSR”) should also be applied. For JSOP
Long Term Incentive Plan
(excluding Company Share Ownership Plan)
The LTIP was introduced upon flotation in 2006 although has not,
as yet, been operated for Executive Directors. Under the LTIP, the
Committee may recommend the grant of awards of free shares to
any employee (including Executive Directors) with a value not
normally exceeding 100% of base salary (although grants in
excess of 100% of base salary may be made in exceptional
circumstances) which normally vest over a period of three years
subject to continued employment and the achievement of
specified performance conditions.
The CSOP, which is operated by way of an addendum to the rules
of the LTIP is described below.
Deferred Bonus Plan
The DBP was introduced upon flotation in 2006 although has not,
as yet, been operated.
Shareholding guidelines
Following a review of best and market practice during 2010, the
Committee has introduced a set of share ownership guidelines. As
a result, Executive Directors will be required to build and maintain
a shareholding equivalent to one year’s base salary over a period
of three years from the date the guidelines were adopted (or date
of appointment to the Board if later) through the retention of vested
share awards or through open market purchase(s).
All employee share plans
LSL operates a SAYE, a SIP and a CSOP (with the latter operated
by way of an addendum to the rules of the LTIP), all of which are
approved by HM Revenue & Customs. Details of awards granted
to Executive Directors are presented in the table of Directors’
Emoluments at page 36.
Executive Directors’ service contracts
Executive Director service contracts, which do not contain expiry
dates, provide that compensation provisions for termination
without notice will only extend to 9 months of salary, fixed benefits
and pension. By excluding any entitlement to compensation for
loss of the opportunity to earn variable pay, the Committee
believes the contracts to be consistent with best practice.
Contracts do not contain change of control provisions.
Director
Steve Cooke
Simon Embley
Paul Latham1
Dean Fielding2
David Newnes
Alison Traversoni
Date of Contract
4th June 2010
15th July 2004
15th July 2004
15th July 2004
1st June 2010
1st June 2010
1 Ceased to be an Executive Director on 31st May 2010.
2 Ceased to be an Executive Director on 1st July 2010.
Notice
period from
Company
(months)
9
9
9
6
9
9
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Directors’ Report & Corporate Governance
Directors’ Remuneration Report Continued
Subject to Board approval, Executive Directors are permitted to accept outside appointments on external boards or committees as long
as these are not deemed to interfere with the business of LSL. Save for Simon Embley’s appointment to a small estate management
company for which no remuneration is paid, none of the Executive Directors hold Non Executive directorships of any other companies
other than to represent the minority interests of the Group or to participate in representative trade bodies.
Non Executive Directors’ Contracts
The Non Executive Directors, including the Chairman, have letters of appointment which set out their duties and responsibilities.
Appointment is for a fixed term of three years, terminable with three months’ notice on either side. The independent Non Executive
Directors and Chairman are not eligible to participate in incentive arrangements or receive pension provision.
Director
Paul Latham
Roger Matthews
Mark Morris
Mark Pain
Date of Original Term
Commenced
Date of Current Term
Commenced
Expected Expiry Date of
Current Term
1st June 2010
11th October 2006
11th October 2006
1st July 2009
21st November 2009
21st November 2009
31st May 2013
20th November 2012
20th November 2012
30th June 2012
The remuneration of the Non Executive Directors is a matter for the Chairman and Executive members of the Board and the remuneration
of the Chairman is a matter for the Committee. Fees for both Non Executive Directors and the Non Executive Chairman are reviewed from
time to time with regard to time commitment required and the level of fees paid by comparable companies.
Current annual fee levels are set at £100,000 for the Chairman and £37,000 for the role of Non Executive Director. An additional annual
fee of £2,000 is payable for the role of Senor Independent Director and an additional £5,000 is payable for chairing either the Audit or
Remuneration Committees. In addition, Paul Latham receives an additional £5,000 per annum in respect of consultancy services
provided to e.surv Chartered Surveyors.
Audited Information
Directors’ Emoluments
The emoluments of the Directors for 2010 were as follows:
Director
Chairman
Roger Matthews
Executive Directors
Steve Cooke1
Simon Embley
David Newnes2
Alison Traversoni2
Paul Latham3
Dean Fielding4
Non Executive Directors
Paul Latham3
Mark Morris
Mark Pain
Mark Warburton5
TOTAL
Directors
salaries/
Fees
£
100,000
110,000
250,000
81,667
81,667
68,750
82,500
20,417
40,000
35,000
0
Car Allowance
£
Benefits in kind6
£
Annual Bonus7
£
Total
2010
£
Total
2009
£
–
–
–
100,000
83,343
5,000
10,000
4,958
–
–
4,250
–
–
–
–
808
1,466
363
4,004
5,917
1,034
–
–
–
–
128,250
243,750
79,625
79,625
0
0
–
–
–
–
244,058
505,216
166,613
165,296
74,667
87,784
20,417
40,000
35,000
0
–
371,504
–
–
294,893
260,536
–
40,000
17,500
17,500
870,001
24,208
13,592
531,250
1,439,051
1,085,276
1 Appointed to the Board on 1st July 2010. £21,000 bonus paid on appointment.
2 Appointed to the Board on 1st June 2010.
3 Retired from the Board as an Executive Director 31st May 2010 and became a Non Executive Director with effect from 1st June 2010.
4 Stepped down from the Board on 1st July 2010.
5 Stepped down from the Board on 30th June 2009.
6 Benefits in kind, which excludes pension provision, is comprised of private medical cover and company car.
7 As a result of Underlying Operating Profit performance for 2010, the bonus award for 2010 was calculated as being 97.5% of base salary.
No termination payments or payments in lieu of notice were paid to those Directors who stepped down from the Board during 2010
or 2009.
36
Directors’ Report & Corporate Governance
Pension Contributions
Details of LSL’s contributions to a money purchase scheme for each Executive Director who served on the Board during the year and
Paul Latham are as follows:
Name
Steve Cooke
Simon Embley
Dean Fielding1
Paul Latham
David Newnes
Alison Traversoni
1 To 1st July 2010.
2010
£
5,500
12,500
4,125
3,438
4,083
4,813
2009
£
–
2,250
1,563
7,250
–
–
Incentive Awards
As at 31st December 2010, Executive Directors’ interests under the JSOP awards were as follows:
Steve Cooke
Simon Embley
David Newnes
Alison Traversoni
Date of grant
Share price
on grant
(pence)
As at 1st
January
2010
24th August 2010
248.75
1st June 2010
1st June 2010
1st June 2010
271
271
271
–
–
–
–
Awards
granted*
70,764
167,857
39,286
39,286
Awards
vested
–
–
–
–
As at 31st
December
2010
70,764
167,857
39,286
39,286
Exercise/Release Period
24th August 2013 to
24th August 2020
1st June 2013 to
1st June 2020
1st June 2013 to
1st June 2020
1st June 2013 to
1st June 2020
* In respect of the above JSOP awards granted in 2010, Executive Directors have entered into a co-ownership agreement with the Trustees of the Trust. Under the terms of the
agreement, the participant has the right to receive a proportion of the sale proceeds so far as the value exceeds £3.20 per share (an “Interest”) and a share appreciation (“SAR”)
right entitles individuals to any growth in the value of LSL’s share price from £2.80 (£2.68 for Steve Cooke whose awards were granted at a later date) to £3.20 to the extent that
performance targets and a continued service requirement are both met.
Performance targets attached to the JSOP awards granted in 2010 are set out in the policy section of this Directors’ Remuneration
Report at page 34.
The Ordinary Share mid-market price ranged from 212.50p to 307.00p and averaged 256.23p during 2010. The price on 31st December
2010 was 264.75p compared to 258.00p on 1st January 2010.
Options granted to Executive Directors to acquire Ordinary Shares in LSL are as follows:
Award Type
Date of grant
Share price
on grant
Exercise
price
As at 1st
January
2010
Awards
granted
Awards
lapsed
Awards
exercised
Awards
vested
Steve Cooke
CSOP 24th August 2010
248.75p
252p
–
11,870
Simon Embley
SAYE
1st May 2008
110p
115p
8,311
–
CSOP
11th June 2010
237.5p
240p
David Newnes
CSOP
11th June 2010
237.5p
240p
–
–
12,500
12,500
Alison Traversoni
SAYE
1st May 2008
110p
115p
8,311
–
CSOP
11th June 2010
237.5p
240p
–
12,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
As at 31st
December
2010
Exercise Period
11,870 24th August 2010 to
24th August 2020
8,311
12,500
12,500
8,311
12,500
1st May 2008 to
1st May 2011
11th June 2010 to
1st June 2020
11th June 2010 to
11th June 2020
1st May 2008 to
1st May 2011
11th June 2010 to
11th June 2020
The Ordinary Share mid-market price ranged from 212.50p to 307.00p and averaged 256.23p during 2010. The price on 31st December
2010 was 264.75p compared to 258.00p on 1st January 2010.
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37
Directors’ Report & Corporate Governance
Directors’ Remuneration Report Continued
Interests in shares
The interests of the Directors in the shares of LSL 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
Steve Cooke
Simon Embley
Paul Latham1
Roger Matthews2
Mark Morris
David Newnes
Mark Pain
Alison Traversoni3
Shares at
1st January
2010
–
9,930,500
6,893,750
86,882
53,972
5,569,250
–
607,155
% of Issued
share capital
Shares at
31st
December
2010
% of Issued
share capital
–
–
9.53% 9,930,500
6.63% 3,893,750
0.08%
86,882
0.05%
53,972
5.35% 5,569,250
–
0.58% 607,827
–
–
9.53%
3.74%
0.08%
0.05%
5.35%
–
0.58%
1 Paul Latham’s holding includes shares acquired by his children.
2 Roger Matthews holding includes shares held by his wife.
3 Alison Traversoni’s holding Includes shares held in LSL’ BAYE/SIP (at 31st December 2009, this amounted to 3,008 and as at 31st December 2010 it was 3,680). The shares
were purchased by the Trust at the prevailing market value and are held for up to 5 years.
In addition to the above, Simon Embley, Alison Traversoni and Paul Latham each 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 SAYE, which matures in May 2011.
All the interests detailed above are beneficial. Apart from the interests disclosed above no Directors were interested at any time in the
year in the share capital of any other Group company. There have been no other changes in the interests set out above between
31st December 2010 and the date of this Report.
Performance graph
This graph shows the value, by the end of December 2010, of £100 invested in LSL compared with the value of £100 vested in the both
the FTSE All Share Index and the FTSE 250 (excluding investment trusts). These indices have been chosen because the FTSE 250
supports the JSOP TSR (referred to above) and the All Share Index is a sufficiently broad market index which is most comparable to LSL.
The mid market price of LSL shares in the year ranged from 212.50p to 307.00p and averaged 256.23p during 2010.
The price on 31st December 2010 was 264.75p compared to 258.00p on 1st January 2010.
Total Shareholder Return – Value (£)
)
£
(
e
u
a
V
l
160
140
120
100
80
60
40
20
0
2
1
/
1
2
1
/
0
2
1
/
0
2
1
/
0
2
1
/
1
2
1
/
0
2
1
/
0
2
1
/
0
2
1
/
1
2
1
/
0
2
1
/
0
2
1
/
0
2
1
/
1
2
1
/
0
2
1
/
0
2
1
/
0
2
1
/
1
1
/
2
0
0
6
2
/
2
0
0
7
5
/
2
0
0
7
8
/
2
0
0
7
1
/
2
0
0
7
2
/
2
0
0
8
5
/
2
0
0
8
8
/
2
0
0
8
1
/
2
0
0
8
2
/
2
0
0
9
5
/
2
0
0
9
8
/
2
0
0
9
1
/
2
0
0
9
2
/
2
0
1
0
5
/
2
0
1
0
8
/
2
0
1
0
1
/
2
0
1
0
LSL Property Services plc
FTSE All Share
FTSE 250 (excluding investment trusts)
Approved by and signed on behalf of the Board of Directors
Sapna B FitzGerald
Company Secretary
2nd March 2011
38
Directors’ Report & Corporate Governance
Corporate Social Responsibility
The Board has overall responsibility for establishing the Group’s
Corporate Social Responsibility (CSR) statement and associated
policies with Alison Traversoni, Executive Director – Surveying,
taking individual responsibility for the creation, operation and
implementation of the Group’s CSR statement and strategy.
LSL believes that it is necessary to support responsibly-grounded
business decision-making, to considers the broad impact of
corporate actions on people, communities, and the environment.
The growing awareness of and attention to social responsibility
issues has many benefits for corporations such as LSL and by way
of this statement, LSL recognises that its employees are central to
the Group meeting its CSR and Environmental objectives.
Guidelines are communicated to employees at regular intervals
through bulletins, intranet sites and notice boards as appropriate.
LSL’s focus is on actions that the Group can take over and
above its legal requirements to address its competitive interests
of the wider society and underpins all other internal policies that
the Group adheres to. LSL actively ensures that its businesses
are compliant and proactive in respect of legislation, in
accordance with its employees, customers, suppliers and other
stakeholders interests.
LSL believes that the objective of providing goods and services
needed or desired by members of society while returning a
profit to shareholders can be – and should be – fully compatible
with addressing social responsibility concerns and vice versa.
For example, LSL’s environmental policy and performance
demonstrates its commitment to the reduction of energy
consumption and the positive impact that this has had both
on the environment and in terms of cost reduction to the
Groups’ businesses.
The Board recognises that it is important that Group Companies
operate in a responsible way. LSL’s stakeholders expect LSL to
take issues into account and LSL in turn has a duty to
demonstrate to them how it is living up to this expectation. This
can often mean balancing competing demands, which are placed
on LSL as a public company and as a property services group.
This section of the Report details how LSL seeks to manage
these interests.
LSL’s objectives extend to its relationships with customers and
suppliers, and all Group Companies will seek to be honest and fair
in these relationships. Further, ethics, hospitality and conflicts
policies are in place to govern these relationships.
The LSL Board takes account of the significance of environmental,
social and governance (“ESG”) matters in its decision making. 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.
By creating such an environment, LSL believe that this will enable
the retention and recruitment of the right people to work at every
level throughout the Group. An essential part of this strategy
is to encourage and promote effective communication with all
employees, which also ensure that LSL, in its decision-making,
takes into account its employees views.
2. Our 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 recognises that its market leading positions in
Surveying and Estate Agency are achieved by the quality and
service provided by our employees. 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 continuing economic challenges, the Group has
maintained its commitment to bring in, develop and invest, where
necessary, new skills. Our approach is to prioritise learning and
development to strengthen the business further and to ensure its
continued success. For example, during 2010, e.surv Chartered
Surveyors partnered with the Mitre Group, one of the UK’s leading
skills development organisations. As a result, 128 members of staff
were trained to NVQ1, 2 and 3 levels across a range of
programmes including customer service, sales, leadership and
management. The programme continues into 2011 with 87
on-going NVQs and apprenticeships underway.
Further, during 2010, e.surv Chartered Surveyors achieved
reaccreditation of the Investors In People award for its Head Office
location in Kettering.
3. 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.
Feedback is regularly encouraged from employees, with some
parts of the business operating annual Employee Opinion Surveys.
The Board values the employee feedback and it supports the
promotion of such arrangements across all Group companies. In
addition, on strategic matters, LSL recognises and consults Unite.
In 2010, e.surv Chartered Surveyors entered The Sunday Times,
“Top 100 Companies to Work For” competition for the first time
and have successfully achieved the Best Companies “One to
Watch” status for 2011.
In relation to its customers, all businesses regularly seek feedback
from customers. This feedback is obtained in a range of ways,
including relationship management meetings, formal
questionnaires and mystery shopping exercises. This feedback is
taken into account in our decision making process and in
particular in the development of our services to customers.
1. Our People
LSL recognise that our people are a valuable asset and we are
committed to providing a working environment in which our
employees can develop to achieve their full potential with
opportunities for both professional and personal development.
4. Equal Opportunities
LSL promotes equal opportunities in employment, recognising that
equality and diversity is a vital part in its success and growth. Our
recruitment, training and selection processes seek to appoint the
best candidates based on suitability for the job and to treat all
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Annual Report & Accounts 2010
39
Directors’ Report & Corporate Governance
Corporate Social Responsibility Continued
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 individuals suffers
harassment or intimidation.
LSL’s objective is that where appropriate, upon employment
reasonable adjustments are made 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 is also made to ensure that their employment
with LSL can continue on a worthwhile basis with career
opportunities available to them.
Specific employment policies exist which employees are required to
observe and over which the Group Chief Executive Officer has
overall responsibility. Compliance with legislation and Group policies
is audited by the Group’s Internal Audit team with regular reporting
to the Board, which includes indicators such as staff turnover.
Employee Key Performance Indicators
The Group uses a number of key performance indicators to
measure its progress during the year, including employee turnover
and the makeup of its workforce by gender.
Total Employees at (31/12)
Total Employee turnover
percentage (%)*
* Data excludes forced leavers.
2010
4490
2009
3287
2008
2806
28.5
19.3
24.2
Breakdown by Gender
2010
2009
2008
Male
Female
1838
2652
1389
1898
1145
1661
Employee Training:
LSL’s businesses place strong emphasis on the quality of service
they provide to customers with employees (and where appropriate
consultants) undergoing appropriate training, for example:
Surveying:
In addition to the training initiative undertaken with Mitre, and
described at paragraph 2 above, all surveyors receive
continuing professional development through a variety of
methods ranging from distance learning, regional workshops and
an annual conference.
Estate Agency and Related Services:
Within the Estate Agency branches, employees adhere to 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.
During 2010, the Group training expenditure was:
Division
Surveying and Valuation Services
Estate Agency and Related Services
Total Expenditure
Expenditure:
£109,980
£963,531
£1,183,491
This includes in house training costs of £336,665.
5. Health, Safety & Welfare
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 reasonable 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.
Separate Health & Safety policies exist which employees are
required to observe and over which Steve Cooke, the Group
Finance Director has overall responsibility. Compliance with
legislation and Group policies is audited by the Group’s Internal
Audit team with regular reporting to the Board, which includes
indicators such as accident numbers.
6. Environmental issues
LSL recognise that the environment has an intrinsic value, is
central to the quality of life and underpins economic development.
LSL’s ‘green’ priorities are to:
•
•
•
Improve energy efficiency and to reduce energy usage
Reduce waste and increase recycling
Reduce CO
2 transport generated emissions
LSL understands that its stakeholders are interested in how
it manages its impact on the environment and how it is performing.
Further, stakeholders may also provide LSL with views and
opinions which can strengthen LSL’s approach to environmental
management.
Group companies will assess and manage the environmental
impact of their operations to ensure that LSL is an active
participant in the sustainable society and the LSL Board will
receive regular reports to enable it to monitor progress.
Environmental initiatives include:
•
•
•
•
Recycling
Power saving
Avoid printing
Remote meetings
The financial services business also places strong emphasis on
the quality of service it provides to customers and all advisers
complete a specially designed comprehensive training programme
which is supplemented by effective supervision, regular monitoring
and regular refresher training sessions.
During 2010 and going forward into 2011, an environmental
awareness campaign is in place. Further, environmentally sensitive
disposal arrangements have been put in place for the destruction
of office waste, such as paper and toners. In 2010, e.surv
Chartered Surveyor participated in the ‘Shred-it’ shredding and
recycling program and saved 63.9 trees in doing so.
40
Directors’ Report & Corporate Governance
We have also continued to build on the work stated in 2009 with
The Carbon Trust to help create a sustainable future by reducing
the businesses impact on the environment in line with our green
priorities.
Across the Group recycling schemes have been put in place with
Iron Mountain, which delivered the following benefits in 2010:
•
•
•
79 cubic metre landfill reduction
654 trees saved
37,000 kilos of recycled paper produced
While LSL recognises that there are other environmental impacts,
in adopting targets consideration is given to their application to our
business. For example, in relation to water, LSL is not a major
consumer of water and our direct water consumption is small.
However, whilst we do not report on consumption, we do
recognise that it is a natural resource and we are working on
minimising its use.
Set out in the table below is a list of opportunities to support our
green priorities together with progress achieved during the year:
2010 Initiatives (Introduced and Maintained)
Status
Progress
Monitoring of Group energy consumption and the
appointment of energy champions across the Group.
Lighting initiatives, which include the replacement of
lighting with low energy efficient alternatives and the
implementation of a “switch it off” campaign.
Installation of timer plugs on drinks machines.
Introduction of LSL environmental logo.
Reduction in the use of paper by reducing the
printing of emails and promoting double sided
photocopying.
Emailing customers.
Work flow management system introduced.
Improved choice of low emission cars on company
car fleet.
Encourage recycling of paper.
✔
✔
✔
✔
✔
✔
✔
✔
✔
Benchmark data reported against which targets can be set.
As part of the Estate Agency refurbishment programme, the
branch refurbishments have incorporated low energy lighting
installations (as at 31st December 2010 work completed at
165 branches).
Energy consumption at the Surveying Divisions Head Office has
dropped by 15% saving £8,500. This reduction was achieved
by switching printers and PC’s off overnight; installing timers on
drinks machines; air conditioning turned off in favour of natural
ventilation and turned off overnight and at weekends.
PIR lighting sensors installed.
In place at Surveying Division Head Office and processing sites.
Plans in place to introduce to other Head Office sites.
The “Be Green” logo has been designed and
communicated to all Group companies for use on all
marketing material.
“Think before you print” appended to all Group email footers.
Continued investment in electronic record keeping avoiding the
need to maintain paper files.
Where facilities exist, double sided copying is promoted and used.
Estate Agency branches email property particulars and other
communications to customer instead of posting.
By communicating with customers via email, our lettings branches
estimate saving 360 reams of paper in 2010.
The introduction of the system into the Surveying Division is
estimated to have saved 1500 reams per annum.
For 2011 there are more low emission cars available to company
car drivers. For 2010 the car list had an average CO2 g/km of
152.3. In 2011 there has been a 11.2% improvement with the car
list averaging 135.3 CO2 g/km.
The car fleet in 2009 produced emissions of 155.4 CO2 g/km; in
2010 this reduced to 148.7 CO2 g/km.
Across the Group, desk based bins are being discouraged with
centrally placed bins placed for the disposal of waste. Further,
employees are encouraged to use non-sensitive scrap paper as
note paper.
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Annual Report & Accounts 2010
41
Directors’ Report & Corporate Governance
Corporate Social Responsibility Continued
The Group’s Environmental Policy is contained within the CSR
Policy, which Alison Traversoni, Executive Director – Surveying,
has overall responsibility for. Compliance with the CSR is audited
by the Group’s Internal Audit team with regular reporting to
the Board.
7. Social and Community interests (including Social and
Ethical Issues)
Each Group Company aims to be sensitive to the local
community’s cultural, social and economic needs. This includes
from time to time, making donations and supporting local and
national charities and fundraising events.
Charitable Donations:
a. Workplace Giving:
LSL has implemented the ‘Workplace Giving’ initiative and all
Group employees have been invited to participate. The initiative
was launched in October 2010 and since its launch over £3,400
a year has been donated to a range of charities from over
100 employees.
Working with professional fundraising organisations, Workplace
Giving UK makes it possible for employees to make regular
donations via the payroll system to a charity or charities of their
choice on a tax free basis. The tax free element means that the
charity benefits on receiving a higher amount.
Further information can be found at:
www.workplacegiving.co.uk/giving
www.emmaus.org.uk)
www.helpforheroes.org.uk)
b. The Estate Agency Foundation (www.eafcharity.org):
LSL’s Estate Agency Division continues to support the Estate
Agency Foundation (EAF) as its employee nominated charity. The
EAF supports several registered charities whose collective aim is
to eliminate the causes of homelessness. These include:
•
•
•
•
•
•
•
•
•
•
•
Help For Heroes (
Emmaus (
YMCA (
Crisis (
Cyrenians (
Barnardos (
Shelter (
Centre Point (
St Mungos (
The Salvation Army (
Broadway (
www.cyrenians.org.uk)
www.barnardos.org.uk)
www.ymca.org.uk)
www.crisis.org.uk)
www.broadwaylondon.org.uk)
www.salvationarmy.org.uk)
www.centrepoint.org.uk)
www.mungos.org.uk)
www.shelter.org.uk)
The EAF was chosen due to its direct connection with property
and estate agency. It brings together estate agents from all over
the country with the hope that by using their collective fundraising
skills, the EAF will make a significant contribution to communities.
c. Surveying
Within the Surveying Division, the nominated charity of e.surv
Chartered Surveyors is Cransley Hospice, a hospice for terminally
ill patients in Kettering. Annual national fundraising events also
support initiatives such as Children in Need and Jeans for Genes.
42
Financial Statements
Financial
Statements
44
45
In this section
Independent Auditors’ Report to the
Members of LSL Property
Services plc
Group Income Statement
Group Statement of Comprehensive
46
Income
47
Group Balance Sheet
48
Group Statement of Cash Flows
Group Statement of Changes in Equity 49
Notes to the Group Financial
Statements
Independent Auditors’ Report to the
Members of LSL Property
Services plc
Parent Company Balance Sheet
Notes to the Parent Company Financial
Statements
Definitions
Investor Information
88
95
96
86
87
50
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Annual Report & Accounts 2010
43
Financial Statements
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 31st December 2010 which comprise the
Group Income Statement, the Group Statement of Comprehensive Income, the Group Balance Sheet, the Group Statement of Cash Flows,
the Group Statement of Changes in Equity and the related notes 1 to 32. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards (IFRSs) 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 Statement of Directors’ Responsibilities set out on page 26, 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 and express an opinion
on 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 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
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.
st December 2010 and of its profit for the year then ended;
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
financial statements; and
the information given in the Corporate Governance Report set out on pages 30 to 33 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;
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; and
certain elements of the report to shareholders by the Board on Directors’ remuneration.
•
Other matter
We have reported separately on the Parent Company financial statements of LSL Property Services plc for the year ended 31st December
2010 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
2nd March 2011
44
Financial Statements
Group Income Statement
for the year ended 31st December 2010
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 profit/(loss)
Gain on sale of available-for-sale financial assets
Group operating profit
Dividend income
Finance income
Finance costs
Exceptional finance costs
Net financial costs
Profit before tax
Taxation
– related to exceptional costs
– others
Profit for the year
Attributable to
– Owners of the parent
– Non-controlling interest
Earnings per share expressed in pence per share:
Basic
Diluted
Note
2010
£'000
2009
£'000
3
206,607
157,703
12 (115,763)
(14,891)
(1,748)
(43,960)
15
(80,100)
(10,991)
(1,407)
(37,374)
(176,362)
1,690
(129,872)
488
12
14
7
4
5
6
7
8
13
31,935
(298)
(8,077)
12,189
3,923
28,319
(532)
(8,635)
(400)
–
39,672
18,752
516
5
(2,228)
(2,007)
(3,714)
35,958
24
54
(2,221)
–
(2,143)
16,609
4,911
(6,334)
112
(4,974)
(1,423)
(4,862)
34,535
11,747
34,500
35
11,747
–
10
10
33.6
33.4
11.4
11.4
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Annual Report & Accounts 2010
45
Financial Statements
Group Statement of Comprehensive Income
for the year ended 31st December 2010
Profit for the year
Recycling of unrealised gains reserve
Net deficit on cash flow hedge
Recycling of cash flow hedge
Income tax effect
Other comprehensive loss for the year, net of tax
Total comprehensive income for the year, net of tax
Attributable to
– Owners of the parent
– Non-controlling interest
Note
2010
£'000
2009
£’000
34,535
11,747
13
(3,900)
–
87
(24)
63
(3,837)
–
(87)
–
24
(63)
(63)
30,698
11,684
30,663
35
11,684
–
46
Financial Statements
Group Balance Sheet
as at 31st December 2010
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
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 reserve
Retained earnings
Equity attributable to owners of parent
Non-controlling interests
Total equity
Note
2010
£'000
2009
£'000
14
14
15
16
13
17
18
20
19
21
20
19
13
21
23
24
24
24
24
24
74,742
17,613
13,850
1,097
–
66,472
22,895
2,077
4,052
621
107,302
96,117
25,136
338
20,052
858
25,474
20,910
132,776
117,027
(92)
(45,085)
(258)
(584)
(993)
(33,209)
(2,183)
(748)
(46,019)
(37,133)
(5,155)
–
(2,183)
(11,309)
(25,573)
(27)
–
(8,437)
(18,647)
(34,037)
68,110
45,857
208
5,629
1,014
(3,139)
–
–
64,363
68,075
35
208
5,629
2,259
(2,805)
3,900
(63)
36,729
45,857
–
68,110
45,857
The Financial Statements were approved by the Board on 2nd March 2011 and were signed on its behalf by:
Steve Cooke
Group Finance Director
Simon Embley
Group Chief Executive Officer
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Annual Report & Accounts 2010
47
Financial Statements
Group Statement of Cash Flows
for the year ended 31st December 2010
Cash generated from operating activities
Profit before tax
Adjustments to reconcile profit before tax to net cash inflows from operating
activities
31st December 2010
31st December 2009
Note
£’000
£’000
£’000
£’000
35,958
16,609
Negative goodwill
Exceptional operating costs (excluding negative goodwill and share-based
7
(29,825)
payments)
Gain on sale of available-for-sale financial asset
Amortisation of intangible assets
Dividend income
Finance income
Finance costs
Exceptional finance costs
Share-based payments
Group operating profit before amortisation and share-based payments
Depreciation
Gain on sale of property, plant and equipment
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables and provisions
Cash generated from operations pre exceptional costs
Exceptional operating costs paid
Exceptional finance costs paid
Cash generated from operations
Interest paid
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Cash acquired on purchase of subsidiary undertaking
Purchase of subsidiary undertakings
Dividends received
Interest received
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of available-for-sale financial assets
Proceeds from sale of available-for-sale financial asset
14
5
6
7
12
15
8
26
5
15
17,636
(3,923)
8,077
(516)
(5)
2,228
2,007
298
1,748
(17)
4,679
(2,675)
(17,636)
(924)
(1,957)
(3,485)
25,946
(3,742)
516
5
(4,982)
738
(195)
1,961
(4,023)
31,935
1,731
2,004
35,670
(18,560)
17,110
(5,442)
11,668
–
358
–
8,635
(24)
(54)
2,221
–
574
1,407
6
(6,128)
7,233
(232)
–
(2,397)
(3,578)
–
(150)
54
24
(662)
13
–
–
11,710
28,319
1,413
1,105
30,837
(232)
30,605
(5,975)
24,630
Net cash generated from/(expended on) investing activities
Cash flows from financing activities
Repayment of loans
Purchase of treasury shares (net of consideration received on reissue of
treasury shares)
Dividends paid
20,247
(721)
(23,692)
(23,698)
(597)
(8,146)
–
–
Net cash used in financing activities
(32,435)
(23,698)
Net (decrease)/increase 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
(520)
858
338
211
647
858
48
Financial Statements
Group Statement of Changes in Equity
for the year ended 31st December 2010
Year ended 31st December 2010
At 1st January 2010
Profit for the year
Other comprehensive
income
Total comprehensive
income
Purchase of treasury
shares
Reissuance of treasury
shares
Share-based payments
Dividend payment
Share
capital
£’000
208
–
Share
premium
account
£’000
Share-based
payment
reserve
£’000
Treasury
shares
£’000
Unrealised
gains reserve
£’000
Hedging
reserve
£’000
5,629
–
2,259
–
(2,805)
–
3,900
–
–
–
–
–
(3,900)
208
5,629
2,259
(2,805)
–
–
–
–
–
–
–
–
–
(1,007)
(1,543)
298
–
673
–
–
–
–
–
–
–
–
Retained
earnings
£’000
36,729
34,500
Total equity
£’000
45,857
34,500
–
(3,837)
Minority
interest
£’000
–
35
–
Total
£’000
45,857
34,535
(3,837)
71,229
76,520
35
76,555
–
(1,007)
1,280
–
(8,146)
410
298
(8,146)
–
–
–
–
(1,007)
410
298
(8,146)
64,363
68,075
35
68,110
(63)
–
63
–
–
–
–
–
–
At 31st December 2010
208
5,629
1,014
(3,139)
Year ended 31st December 2009
Share
capital
£’000
Share
premium
account
£’000
Share-based
payment
reserve
£’000
Treasury
shares
£’000
Unrealised
gains reserve
£’000
Hedging
reserve
£’000
Retained
earnings
£’000
Total equity
£’000
Minority
interest
£’000
At 1st January 2009
Change in accounting
policy (note 2)
Restated balance
Profit for the year
Other comprehensive
loss
Total comprehensive
208
–
208
–
–
5,629
531
(2,934)
3,900
–
5,629
–
1,413
1,944
–
–
(2,934)
–
–
3,900
–
–
–
–
–
26,395
33,729
(1,413)
24,982
11,747
–
33,729
11,747
–
–
–
–
(63)
–
(63)
income
208
5,629
1,944
(2,934)
3,900
(63)
36,729
45,413
Reissuance of treasury
shares
Share-based payments
–
–
–
–
(109)
424
129
–
–
–
–
–
–
–
20
424
At 31st December 2009
208
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
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49
Financial Statements
Notes to the Group Financial Statements
for the year ended 31st December 2010
1. Authorisation of Financial Statements and statement of compliance with IFRSs
The Group Financial Statements of LSL and its subsidiaries for the year ended 31st December 2010 were authorised for issue by the
Board of the Directors on 2nd March 2011 and the balance sheet was signed on the Board’s behalf by Simon Embley and Steve Cooke.
LSL is a listed company incorporated and domiciled in England & Wales and the Group operates a network of estate agencies, surveying
and valuation businesses and other related businesses.
The Group’s Financial Statements have been prepared in accordance with 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 Group 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 31st December 2010. 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 1st January 2010 which are applicable to the Group, as noted below:
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. In 2009 the adoption of this amendment had the effect of increasing the
loss by £1,413,000 for the year ended 31st December 2008, with the corresponding impact on equity. There is no impact on the Financial
Statements as of 1st January 2008.
IFRS 3 (revised) Business Combinations
The amendment to IFRS 3 changes the treatment of acquisition-related costs and contingent consideration relating to acquisitions after
1st January 2010. The standard also changes the treatment of non-controlling interests (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.
Some of the key features of the revised IFRS 3 include:
•
•
acquisition-related costs to be expensed and not included in the purchase price;
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); and
changes to the accounting treatment of step acquisitions.
•
Revised IFRS 3 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after 1st July 2009.
The Group treated the acquisition-related costs in respect of acquisitions made in the year ended 31st December 2010 as exceptional
costs and these were expensed to the income statement.
IAS 27R Consolidated and Separate Financial Statements
The revision to this Standard requires the Group to attribute losses to non-controlling interests even if this results in the non-controlling
interest having a deficit balance. This change is applicable prospectively and the controlling shareholder will not be able to recover any
past losses absorbed under the old rules.
The revision of the Standard had no material effect on the results for the year ended 31st December 2010.
Financial Instruments: Recognition and Measurement – Eligible hedged items.
The amendments to the following standards below did not have any impact on the accounting policies, financial position or performance
of the Group:
•
IAS 39
•
IFRIC 12 Service Concession Arrangements.
•
IFRIC 15 Agreements for the Construction of Real Estate.
•
IFRIC 17 Distribution of Non-cash Assets to Owners.
•
IFRIC 18 Transfers of Assets from Customers.
•
Improvements to IFRSs (issued 2009).
50
Financial Statements
2. Accounting policies continued
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).
Professional indemnity claim
Other areas of significant judgement include provisioning for professional indemnity claims. Details of key assumptions in these areas are
disclosed in notes 20 and 21 to these Financial Statements.
Basis of consolidation
From 1st January 2010
Subsidiaries:
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be
consolidated until the date such control ceases. Control comprises the power to govern the financial and operating policies of the
investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of its voting rights; currently
exercisable or convertible potential voting rights; or by way of contractual agreement. The Financial Statements of subsidiaries used in
the preparation of the consolidated Financial Statements are prepared on the same reporting year as the Parent Company and are
based on consistent accounting policies. All intra-Group balances and transactions, including unrealised profits arising from them, are
eliminated in full.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group loses
control over a subsidiary: (i) it derecognises the assets (including goodwill) and the liabilities of the subsidiary; (ii) derecognises the
carrying amount of any non-controlling interest; (iii) derecognises the cumulative translation differences, recorded in equity; (iv) recognises
the fair value of the consideration received; (v) recognises the fair value of any investment retained; (vi) recognises any surplus or deficit in
profit or loss; (vii) reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or
retained earnings, as appropriate.
Non-controlling interest:
Non-controlling interest represent the equity in a subsidiary not attributable directly and indirectly, to the Parent Company and is
presented separately within equity in the consolidated balance sheet, separately from equity attributable to owners of the parent. Losses
within a subsidiary are attributed to the non-controlling interest even if it results in a deficit balance.
Basis of consolidation prior to 1st January 2010
Certain of the above-mentioned requirements were applied on a prospective basis. The following differences, however, are carried
forward in certain instances from the previous basis of consolidation:
Non-controlling interest represent the portion of profit or loss and net assets in subsidiaries that is not held by the Group and is presented
separately within equity in the consolidated balance sheet, separately from parent shareholder’s equity.
Acquisitions of non-controlling interests, prior to 1st January 2010, were accounted for using the parent entity extension method, whereby,
the difference between the consideration and the book value of the share of the net assets acquired were recognised in goodwill.
Losses incurred by the Group were attributed to the non-controlling interest until the balance was reduced to nil. Any further excess
losses were attributed to the parent, unless the non controlling interest had a binding obligation to cover these. Losses prior to 1st January
2010 were not reallocated between non-controlling interest and the parent shareholders.
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51
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
2. Accounting policies continued
Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset value at the date control was
lost. The carrying value of such investments at 1st January 2010 has not been restated.
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 and goodwill
Business combinations from 1st January 2010
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. The
choice of measurement of non-controlling interest, either at fair value or at the proportionate share of the acquiree's identifiable net assets
is determined on a transaction by transaction basis. Acquisition costs incurred are expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Any
contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to
the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39
either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it should not be
remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the acquisition-date fair value of the consideration transferred
and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-
date fair value of the acquirer's previously held equity interest in the acquiree) over the net identifiable amounts of the assets acquired and
the liabilities assumed in exchange for the business combination. Assets acquired and liabilities assumed in transactions separate to the
business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements are
accounted for separately from the business combination in accordance with their nature and applicable IFRSs. Identifiable intangible
assets, meeting either the contractual-legal or separability criterion are recognised separately from goodwill.
If the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling
interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer's previously held equity
interest in the acquiree) is lower than the fair value of the assets, liabilities and contingent liabilities and the fair value of any pre-existing
interest held in the business acquired, the difference is recognised in profit and loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing,
goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units
(or Groups of cash generating units) that are expected to benefit from the combination, irrespective of whether other assets or liabilities
of the acquiree are assigned to those units. Each unit or Group of units to which goodwill is allocated shall represent the lowest level
within the entity at which the goodwill is monitored for internal management purposes and not be larger than an operating segment
before aggregation.
Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated with
the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the
portion of the cash generating unit retained.
Business combinations prior to 1st January 2010
Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition
formed part of the acquisition costs. The minority interest is accounted for using the parent entity extension method, whereby the
difference between the consideration paid and the book value of the share in net assets acquired is recognised in goodwill. Goodwill is
initially measured at cost being the excess of the cost of business combination over the Group’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities. If the net fair value of the acquired entity’s identifiable assets, liabilities and
contingent liabilities is greater than the cost of the investment, the difference is recognised in profit and loss. Goodwill recognised as an
asset as at 31st December 2003 is recorded at its carrying amount under UKGAAP and is not amortised. Any goodwill asset arising on
the acquisition of equity accounted entities is included within the cost of those entities.
After initial recognition, goodwill is stated at cost less any accumulated impairment losses, with the carrying amount being reviewed for
impairment at least annually and whenever events of changes in circumstances indicate that the carrying value maybe impaired.
The carrying amount of goodwill allocated to cash generating units is taken into account when determining the gain or loss on disposal of
the unit, or of an operation within it.
52
Financial Statements
2. Accounting policies continued
Contingent consideration was recognised if, and only if, the Group had a present obligation, the economic outflow was more likely
than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognised as part
of goodwill.
Business combinations on or after 1st 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 1st 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 separately are measured at cost on initial recognition. Following the initial
recognition, intangible assets are carried at cost less accumulated amortisation and impairment losses.
The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The amortisation period and the amortisation method are 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.
Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level
and are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite
life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a
prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and
the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.
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 – three to ten years
Surveying customer contracts
– between three and five years
General insurance renewal:
Commission contracts
Lettings contracts
Order book:
Estate agency pipeline
Surveying pipeline
Estate agency register
Others:
Franchise agreements
In-house software
– between six and seven and a half years
– 15 months
– six months
– one week
– twelve months
– ten years
– three years
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Annual Report & Accounts 2010
53
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
2. Accounting policies 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.
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
Computer equipment
Motor vehicles
Leasehold improvements
Freehold & long leasehold property
– over three to seven years
– over three to four years
– over three to four years
– over the shorter of the lease term or ten years
– over 50 years or the lease term whichever is shorter
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.
54
Financial Statements
2. Accounting policies 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;
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 EPS.
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.
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55
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
2. Accounting policies continued
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 dependent 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 de-recognised 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 Group cash flow statement, cash and short term deposits consist of cash and short term deposits net of
outstanding bank overdrafts.
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.
56
Financial Statements
2. Accounting policies continued
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 de-recognised
when they are assessed as uncollectable.
Hedge accounting
In 2009 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.
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.
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Annual Report & Accounts 2010
57
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
2. Accounting policies continued
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 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.
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)
IAS 39
IAS 32
IAS 24
IFRS 9
Financial Instruments: Recognition and Measurement – Eligible hedged items (Amendment)
Amendments to IAS 32 Classification of Rights Issue
Related Party Disclosures (Revised)
Financial Instruments: Classification and Measurement
Annual Improvements to IFRS
International Financial Reporting Interpretations Committee (IFRIC)
New interpretations
IFRIC 14
IFRIC 19
Amendments to IFRIC 14 – Prepayments of a minimum funding requirement
Extinguishing Financial Liabilities with Equity Instruments
Effective date*
1st July 2009
1st February 2010
1st January 2011
1st January 2013
May 2010
Effective date*
1st January 2011
1st 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 Directors do not anticipate that the adoption of the above standards and interpretations will have a material impact on the Group’s
Financial Statements, other than additional disclosures, in the period of initial application.
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.
58
Financial Statements
3. Revenue continued
Revenue disclosed in the income statement is analysed as follows:
Revenue from services
Revenue
Rental income
Dividend income
Finance income
Total revenue
2010
£'000
2009
£'000
206,607
157,703
206,607
1,690
516
5
157,703
488
24
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208,818
158,269
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 services 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. It also operates as a mortgage and insurance distribution company providing products and services to financial
intermediaries.
The surveying and valuation segment provides a professional survey service of domestic properties to various lending corporations
and individual customers.
•
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 Group Financial Statements. Head office costs,
Group financing (including finance costs and finance incomes) and income taxes are managed on a Group basis and are not allocated to
operating segments.
The geographic segment has not been reported separately as all the revenue and expense arises in the United Kingdom and all assets
are situated in the United Kingdom.
Operating segments
The following table presents revenue and profit information regarding the Group’s operating segments for the financial year ended
31st December 2010 and financial year ended 31st December 2009 respectively.
Year ended 31st December 2010
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
Profit before tax
Taxation
Profit for the year
Estate
agency and
related
services
£’000
Surveying
and
valuation
services
£’000
Unallocated
£’000
Total
£’000
125,672
80,934
–
206,606
7,236
20,447
27,301
22,139
(2,602)
(2,914)
31,935
39,672
516
5
(2,228)
(2,007)
35,958
(1,423)
34,535
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Annual Report & Accounts 2010
59
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
4. Segment analysis of revenue and operating profit continued
Year ended 31st December 2010
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
Estate
agency and
related
activities
£’000
Surveying
and
valuation
services
£’000
Unallocated
£’000
Total
£’000
101,570
(35,567)
29,666
(22,333)
1,540 132,776
(64,666)
(6,766)
66,003
7,333
(5,226)
68,110
4,755
(1,474)
(2,054)
–
835
(121)
73
149
(247)
(6,023)
(6,094)
–
(112)
(19)
78
(27)
–
–
–
(65)
–
4,982
(1,748)
(8,077)
(6,094)
835
(298)
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Unallocated net liabilities comprise certain property, plant and equipment (£105,000), financial assets (£1,097,000), cash and bank
balances (£338,000), other taxes and liabilities (£91,000), other creditors (£491,000), accruals (£1,151,000) financial liabilities (£1,509,000),
deferred and current tax liabilities (£2,441,000), interest rate swap (£1,083,000).
Year ended 31st December 2009
Income statement information
Segmental revenue
Estate
agency and
related
activities
£’000
Surveying
and
valuation
services
£’000
Unallocated
£’000
Total
£’000
87,655
70,048
–
157,703
28,319
18,752
24
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(2,221)
16,609
(4,862)
11,747
Segmental result:
– before exceptional costs, amortisation and share-based payments
– after exceptional costs, amortisation and share-based payments
6,705
4,910
23,554
15,782
(1,940)
(1,940)
Dividend income
Finance income
Finance costs
Profit before tax
Taxation
Profit for the year
60
Financial Statements
4. Segment analysis of revenue and operating profit continued
Year ended 31st 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
£’000
Unallocated
£’000
Total
£’000
76,246
(25,466)
33,698
(17,410)
7,083
(28,294)
117,027
(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).
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
2010
£’000
2009
£’000
5
–
5
53
1
54
2010
£’000
2009
£’000
1,630
271
327
2,228
1,636
38
547
2,221
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Annual Report & Accounts 2010
61
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
7. Exceptional profit/(costs)
Exceptional profit arising through acquisition of HEAL:
Negative goodwill arising on acquisition
Employee costs
Redundancy costs due to branch closures and business reorganisation of the acquisition
Other
Acquisition and re-branding costs
Exceptional profit arising through acquisition of HEAL
Other exceptional costs:
Employee costs
Redundancy costs due to branch closures and business reorganisation
Accelerated share-based payments
Other
Impairment of goodwill
Others
Acquisition related costs
Provision for professional indemnity claims
Total operating exceptional profit/(costs)
Finance costs
Banking and legal fees incurred for extension of facility
Interest rate swap (see note below)
2010
£’000
2009
£’000
29,825
(7,730)
(6,125)
15,970
(756)
–
–
(133)
(96)
(2,796)
12,189
(924)
(1,083)
(2,007)
–
–
–
–
(232)
(42)
(126)
–
–
–
(400)
–
–
–
Net exceptional profit/(cost)
10,182
(400)
During April and May 2009, the Group entered into three fixed interest rate swap arrangements with their banker for a total principal
amount of £25m to hedge against potential increase in future LIBOR payable on the Revolving Credit Facility (“RCF”). In 2009 this hedge
was treated as cash flow hedge and accounted for under hedge accounting.
The terms of the interest rate swap agreements are now not expected to match the terms of the commitments due to the reduction in the
RCF utilisation during 2010. The cash flow hedge of the expected future interest payment was assessed to be ineffective and as at
31st December 2010 an unrealised loss of £1,083,000 relating to the hedging instrument that arose in the period is included in the income
statement as exceptional finance costs.
During 2009, 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.
8. Profit before tax
Profit before tax is stated after charging/(crediting):
Auditors’ remuneration (note 9)
Operating lease rentals:
Land and buildings
Plant and machinery
(Profit) on sale of property, plant and equipment
2010
£’000
297
9,518
1,417
(17)
2009
£’000
187
5,657
2,533
(6)
62
Financial Statements
9. Auditors’ remuneration
The remuneration of the auditors is further analysed as follows:
Audit of the Financial Statements1
Other fees to auditors:
– local statutory audits for subsidiaries
– taxation services
– other services2
2010
£’000
49
125
121
2
297
2009
£’000
49
136
–
2
187
1 £35,000 (2009–£35,000) of this relates to the Company.
2
Other fees to auditors in 2009 above do not include fees payable for other services of £271,000, in relation to the acquisition of Halifax Estate Agents Limited, which
completed on 15th January 2010.
10. Earnings per share
Basic EPS amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted
average number of Ordinary Shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average
number of Ordinary Shares outstanding during the 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
Profit after
tax
£'000
34,500
–
34,500
Weighted
average
number of
shares
2010
Per share
amount
Pence
102,777,043
418,857
103,195,900
33.6
–
33.4
Profit after
tax
£'000
11,747
–
11,747
Weighted
average
number of
shares
2009
Per share
amount
Pence
102,818,875
360,830
103,179,705
11.4
–
11.4
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.
The Directors consider that the adjusted earnings shown below give a better and more consistent indication of the Group’s underlying
performance:
Group operating profit before exceptional costs, share-based payments and amortisation (excluding minority
interest)
Net finance costs (excluding exceptional costs)
Normalised taxation
Adjusted Profit after tax1 before exceptional costs, share-based payments and amortisation
2010
£'000
2009
£'000
31,900
(1,707)
(8,654)
28,319
(2,143)
(7,541)
21,539
18,635
Adjusted basic and diluted EPS
Adjusted basic EPS
Effect of dilutive share options
Adjusted diluted EPS
Adjusted
profit after
tax2
£'000
21,539
–
21,539
Weighted
average
number of
shares
2010
Per share
amount
Pence
102,777,043
418,857
103,195,900
21.0
–
20.9
Adjusted
profit
after tax1
£'000
18,635
–
18,635
Weighted
average
number of
shares
2009
Per share
amount
Pence
102,818,875
360,830
103,179,705
18.1
–
18.1
1
This represents adjusted profit after tax attributable to equity holders of the parent. Tax has been adjusted to exclude the prior year tax adjustments, and the tax impact of
exceptional items, amortisation and share-based payments.
2 This represents adjusted profit after tax attributable to equity holders of the parent.
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Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
11. Dividends paid and proposed
Declared and paid during the year:
Equity dividends on Ordinary Shares:
2009 full year: 5.4p
2010 Interim: 2.5p
Dividends on Ordinary Shares proposed (not recognised as a liability as at 31st December):
Equity dividends on Ordinary Shares:
Dividend: 5.9p per share (2009: 5.4p)
12. Directors and employees
Remuneration of directors
Directors' emoluments (short-term benefits)*
Contributions to money purchase pensions schemes (post-employment benefits)
Share-based payments
* Included within this amount is accrued bonuses of £510,000 (2009: £443,000).
2010
£’000
2009
£’000
5,567
2,579
8,146
–
–
–
6,064
5,555
2010
£’000
1,439
34
60
1,533
2009
£’000
1,085
11
(1)
1,095
The number of Directors who were members of Group money purchase pension schemes during the year totalled 4 (2009: 3).
The remuneration of the highest paid Director amounted to £505,216 (2009: £371,504) excluding pension costs. Group contributions to
money purchase pension schemes for that Director amounted to £12,500 (2009: £2,250) in the year.
From August 2007 the Group’s contributions to Directors’ money purchase pension schemes amounted to 5% of pensionable salaries
where members contribute, and the cost of the death-in-service benefits. However, the Group had suspended contributions to the
pension schemes in 2009 and this was recommenced in 2010.
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 costs1
Share-based payment expense (see below)2
2010
£’000
2009
£’000
98,697
10,175
2,143
111,015
4,748
68,654
6,832
1,232
76,718
3,382
115,763
80,100
298
532
1 The total employee and subcontractor costs exclude employees redundancy costs of £8,486,000 (2009: £232,000), which have been shown under Exceptional costs (note 7).
2 The share-based payment expense in 2009 excludes the charge of £42,000 which has been shown under Exceptional costs (note 7).
The monthly staff numbers (including Directors) during the year averaged 3,649 (2009: 2,534).
Estate Agency and Related Services
Surveying and Valuation Services
64
2010
2009
2,834
815
3,649
1,766
768
2,534
Financial Statements
12. Directors and employees continued
Share-based payments
Long Term Incentive Plan
The Group operates a LTIP (an equity-settled share-based remuneration scheme) for certain employees. Under the LTIP, 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 1st January
Vested during the year
Outstanding at 31st December
2010
2009
Weighted
average
exercise
price
£
–
–
–
Number
23,101
(23,101)
–
Weighted
average
exercise
price
£
–
–
–
Number
195,615
(172,514)
23,101
There were 23,101 options exercisable at the end of the year (2009: 113,255). The weighted average remaining contractual life is nil years
(2009: 0.63 years). The weighted average share price of the options exercised during the year was £2.37 per share.
Joint Share Ownership Plan (JSOP)
The JSOP received shareholder approval at the 2010 AGM. Awards under the JSOP participate in increases in the value of shares in the
Company above the share price at the date of grant. Awards comprise of an interest in jointly owned shares (i.e. Ordinary Shares held in
co-ownership with the Trust) and a stock appreciation right. A key feature of the JSOP is that individuals are required to purchase their
interest in the jointly owned shares and have thereby put their personal capital at risk.
The vesting of JSOP awards granted in 2010 is conditional upon LSL’s adjusted EPS performance meeting the following absolute
performance targets over a period of 3 financial years starting with the financial year in which the JSOP award is granted:
EPS growth p.a.*
10%
13%
17%
* With straight line vesting between points for the Chief Executive Officer’s award.
Outstanding at 1st January
Granted during the year
Outstanding at 31st December
There were nil options exercisable at the end of the year (2009: nil).
Value of shares under the JSOP
award at date of grant
(as a percentage of salary)
Chief
Executive
Officer
100%
150%
200%
Senior
Executives
100%
–
–
2010
2009
Weighted
average
exercise
price
£
Number
–
3.20
–
382,104
3.20
382,104
Weighted
average
exercise
price
£
–
–
–
Number
–
–
–
The weighted average fair value of options granted during the year was £0.75 (2009: £nil). The weighted average remaining contractual life
is 2.5 years (2009: nil years).
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Annual Report & Accounts 2010
65
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
12. Directors and employees continued
Company Stock Option Plan (“CSOP”)
The Group operates a CSOP (an equity-settled share-based remuneration scheme) for certain employees. Under the CSOP, 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 1st January
Granted during the year
Outstanding at 31st December
2010
2009
Weighted
average
exercise
price
£
Number
–
2.40
–
481,870
2.40
481,870
Weighted
average
exercise
price
£
–
–
–
Number
–
–
–
There were nil options exercisable at the end of the year (2009: nil).
The weighted average fair value of options granted during the year was £0.95 (2009: £nil). The weighted average remaining contractual
life is 2.5 years (2009: nil years).
Save-As-You-Earn scheme
In December 2006, the Group announced an employee SAYE scheme effective from January 2007 and in March 2008 the Group
announced a new SAYE 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 1st January
Lapsed during the year due to employees withdrawal
Vested during the year
Outstanding at 31st December
2010
2009
Weighted
average
exercise
price
£
Number
Weighted
average
exercise
price
£
Number
1.74
268,800
(21,951)
1.74 (246,849)
1.74
1.74
401,421
(132,621)
–
–
1.74
268,800
The weighted average of the fair value of the options was £nil (2009: £0.63) and the weighted average remaining contractual life was nil
years (2009: 0.01 years). The weighted average share price of the options exercised during the year was £2.80 per share.
There were no options exercisable at the end of the year (2009: none).
2008 Scheme
Outstanding at 1st January
Lapsed during the year due to employees withdrawal
Vested during the year
Outstanding at 31st December
2010
2009
Weighted
average
exercise
price
£
1.155
1.155
1.155
Number
800,852
(25,641)
(10,234)
Weighted
average
exercise
price
£
Number
1.155 1,120,177
(319,325)
1.155
1.155
764,977
1.155
800,852
The weighted average of the fair value of the options was £0.47 (2009: £0.47) and the weighted average remaining contractual life was
0.23 years (2009: 1.23 years). There were no options exercisable at the end of the year (2009: none). The weighted average share price of
the options exercised during the year was £2.33 per share.
66
Financial Statements
12. Directors and employees continued
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
2010
CSOP
JSOP
SAYE
2008
SAYE
2008
Black
Scholes
2.71
2.40
3 years
80%
2.15%
3.35%
Black
Scholes
2.71
3.20
3 years
80%
2.15%
3.35%
Black
Scholes
1.34
1.155
3 years
42%
2.15%
5.25%
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%
The total cost recognised for equity settled transactions is as follows:
Share-based payment charged during the year
A charge of £61,000 (2009: £1,000) relates to employees of the Company.
2010
£’000
298
2009
£’000
382
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.
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 had 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 £nil (2009: £150,000) using a discount factor rate of 7%. None of this cost relates to the Company. In 2010, the Group acquired
the shares in the subsidiary for a total consideration of £328,000 of which £138,000 was paid in 2010 and the remaining £190,000 is
payable in March 2013.
13. Taxation
(a) Tax on profit on ordinary activities
The major components of income tax charge in the Group income statements are:
UK corporation tax – current year
– adjustment in respect of prior years
Deferred tax:
Origination and reversal of temporary differences
Impact of rate change on deferred tax
Adjustment in respect of prior year
Total deferred tax
Total tax charge in the income statement
2010
£’000
1,280
281
1,561
(966)
(80)
908
(138)
2009
£’000
5,615
401
6,016
(603)
(551)
(1,154)
1,423
4,862
Income tax credited directly to equity is £24,000 (2009: charged £24,000) which relates to deferred tax on the net loss on the cash
flow hedge.
On 22nd June 2010 the UK Government announced proposals to reduce the main rate of corporation tax from 28% to 24% over four years
with effect from 1st April 2011. As of 31st December 2010 only the reduction to 27% has been enacted. In addition changes to the capital
allowances regime were proposed including a reduction in the rate of capital allowances on plant and machinery additions from 20% to
18% with effect from 1st April 2012. If these proposals had been substantially enacted, the deferred tax liability at 31st December 2010
would have reduced by £217,000.
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Annual Report & Accounts 2010
67
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
13. Taxation continued
(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is lower (2009: higher) than the standard UK corporation tax rate, because of the
following factors:
Profit on ordinary activities before tax
Tax charge on ordinary activities multiplied by rate of corporation tax rate in the UK of 28% (2009: 28%)
Non taxable negative goodwill on acquisition
Non taxable income
Non taxable profit on disposal of available for sale financial asset
Benefit of deferred tax asset not previously recognised
Disallowable expenses
Impact of rate change on deferred tax
Others
Prior period adjustments – current tax
Prior period adjustment – deferred tax
Total taxation charge
(c) Factors that may affect future tax charges (unrecognised)
Unrecognised deferred tax asset relating to:
Property, plant and equipment temporary differences
Other temporary differences
Losses
2010
£’000
2009
£’000
35,958
16,609
10,068
(8,351)
(145)
(1,098)
(998)
796
(80)
42
234
281
908
1,423
4,651
–
(26)
–
–
387
–
–
5,012
401
(551)
4,862
2010
£’000
2009
£’000
11
82
3,509
3,602
11
85
–
96
£2,733,000 of unrecognised deferred tax on losses carried forward relates to acquisitions during the year. 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 subsidiary companies generating taxable profits sufficient to allow the utilisation of these amounts. These
deferred tax assets cannot be offset against profits elsewhere in the Group as they relate to losses brought forward which can only be
offset against taxable profits arising from the same trade in which the losses arose. 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 (asset)/liability at 1st January
Deferred tax recognised in equity
Deferred tax liabilities arising on business combinations
Deferred tax credit in income statement for the year (note 13a)
Net deferred tax liability/(asset) at 31st December
Analysed as:
Accelerated/(decelerated) capital allowances
Deferred tax liability on separately identifiable intangible assets on business combinations
Deferred tax on share options
Deferred tax on interest rate swap
Other short-term temporary differences
Deferred tax recognised on losses
68
2010
£’000
(621)
24
2,918
(138)
2,183
2010
£’000
684
2,298
(322)
(292)
(185)
–
2,183
2009
£’000
557
(24)
–
(1,154)
(621)
2009
£’000
(1,060)
2,223
(371)
–
(527)
(886)
(621)
Financial Statements
13. Taxation continued
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
Movement in deferred tax recognised on losses
Other temporary differences
2010
£’000
595
604
(49)
(886)
(126)
138
2009
£’000
736
(67)
158
–
327
1,154
At 31st December 2010, there was no unrecognised deferred tax liability (2009: £nil) for taxes that would be payable on the unremitted
earnings of the Group’s subsidiaries.
14. Intangible assets
Goodwill
Cost
At 1st January
Arising on acquisitions during the year
Adjustment in respect of change in contingent consideration
Impairment of goodwill (note 7)
At 31st December
Carrying amount of goodwill by operating unit
Estate Agency and Related Services companies
Your Move
Reeds Rains
LSLi
AMF
Home of Choice (now part of First Complete)
Templeton LPA
Others
Surveying and Valuation Services companies
e.surv
Chancellors Associates
2010
£’000
2009
£’000
66,472
7,914
356
–
66,422
33
143
(126)
74,742
66,472
2010
£’000
2009
£’000
38,691
15,243
5,285
2,206
4,146
336
348
38,691
15,243
3,703
–
–
–
348
66,255
57,985
6,677
1,810
8,487
6,677
1,810
8,487
74,742
66,472
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 and Related Services companies
Your Move
Reeds Rains
LSLi
AMF
Surveying and Valuation Services companies
e.surv
Chancellors Associates
2010
£’000
2009
£’000
2,510
1,241
596
180
4,527
1,281
153
1,434
5,961
2,510
1,241
481
–
4,232
1,281
153
1,434
5,666
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Annual Report & Accounts 2010
69
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
14. Intangible assets continued
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 and Related Services companies
o Your Move
o Reeds Rains
o LSLi, which includes:
ICIEA1
•
• Zenith Properties1
• David Frost Estate Agency1
• JNP Estate Agents1
• GFEA1
• Phillip Green Lettings1
o AMF
o Templeton LPA
o First Complete
o Others include Martin Stewart partnership and 4 Thornton Hill estate agency branches
Surveying and Valuation Services companies
o e.surv
o Chancellors Associates
•
These represent the lowest level within the Group at which goodwill is monitored for internal management purposes.
Estate Agency and Related Services companies
The recoverable amount of the Estate Agency and Related Services companies has been determined based on a value-in-use calculation
using cash flow projections based on financial budgets approved by the Board and 5 year plan. The discount rate applied to cash flow
projections is 11.5% (2009: 14%) and cash flows beyond the 5 year plan are extrapolated using a 0% (2009: 0%) growth rate even though
there is evidence of gain in market share in 2010.
Surveying and Valuation Services companies
The recoverable amount of the Surveying and Valuation Services companies is also determined on a value-in-use basis using cash flow
projections based on financial budgets approved by the Board and 5 year plan. The discount rate applied to the cash flow projections is
11.5% (2009: 12%). The growth rate used to extrapolate the cash flows of the Surveying and Valuation Services companies beyond the
five-year plan is 0% (2009: 0%).
Key assumptions used in value-in-use calculations
The calculation of value-in-use for each of the Estate Agency and Related Services and Surveying and Valuation Services 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 and Related
Services and Surveying and Valuation Services 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 Weighted Average Cost of Capital (WACC) of the Group. This is the benchmark used by
management to assess operating performance and to evaluate future acquisition proposals.
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 remain at the same levels over the budget period. There has been a significant growth in the
market share of the Estate Agency companies both organically (due to various market share growth initiatives) and following the
acquisition of HEAL in January 2010. For impairment test purposes, management have not considered any further market share growth
beyond 2011. 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 five years.
1 Management viewed these companies/operating units as part of LSLi for impairment testing purposes.
70
Financial Statements
14. Intangible assets continued
Growth rate estimates are based on management estimates.
The results of the impairment tests in 2010 confirmed that there had been no impairment in respect of the carrying amount of goodwill
held on the balance sheet.
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 principal Estate Agency and Related Services companies, Your Move and Reeds Rains have
been profitable in 2010 (without considering the impact of the HEAL Branches which were hived up to Your Move, Reeds Rains and
ICIEA). Underpinning the carrying amount of goodwill is the assumption that more normal market conditions will resume in the future.
Other intangible assets
As at 31st December 2010
Cost
At 1st January 2010
Arising on acquisition during the year
At 31st December 2010
Aggregate amortisation and impairment
At 1st January 2010
Charge for the year
At 31st December 2010
Carrying amount
At 31st December 2010
As at 31st December 2009
Cost
At 1st January 2009
Additions
At 31st December 2009
Aggregate amortisation and impairment
At 1st January 2009
Charge for the year
At 31st December 2009
Carrying amount
At 31st December 2009
* Other relates to in-house software and franchise agreements.
Brand
Names
£’000
Customer
Contracts
£’000
Insurance
Renewals
£’000
Lettings
Contracts
£’000
Order
Book
£’000
Other*
£’000
Total
£’000
5,704
295
5,999
38
–
38
44,774
2,500
47,274
29,395
7,147
36,542
5,612
–
5,612
3,953
888
4,841
2,044
–
2,044
2,044
–
2,044
5,323
–
5,323
5,323
–
5,323
1,127
–
1,127
936
42
978
64,584
2,795
67,379
41,689
8,077
49,766
5,961
10,732
771
–
–
149
17,613
Brand
Names
£’000
Customer
Contracts
£’000
Insurance
Renewals
£’000
Lettings
Contracts
£’000
Order
Book
£’000
Other*
£’000
Total
£’000
5,704
–
5,704
38
–
38
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
5,206
117
5,323
5,206
117
5,323
1,127
–
1,127
893
43
936
64,467
117
64,584
33,054
8,635
41,689
5,666
15,379
1,659
–
–
191
22,895
The brand value relates to the following:
•
•
•
•
•
•
•
•
Your Move, 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 Frosts Estate Agents, a network of estate agencies which were acquired by the Group in July 2007;
JNP Estate Agents, a network of estate agencies which were acquired by the Group in September 2007;
Goodfellows Estate Agents, a network of estate agencies which were acquired in May 2010; and
AMF (trading as Pink Home Loans) acquired in December 2010.
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.
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Annual Report & Accounts 2010
71
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
14. Intangible assets continued
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.
15. Property, plant and equipment
As at 31st December 2010
Cost
At 1st January 2010
Acquisitions during the year
Additions
Disposals
At 31st December 2010
Depreciation and impairment
At 1st January 2010
Charge for the year
Disposals
At 31st December 2010
Carrying amount
At 31st December 2010
As at 31st December 2009
Cost
At 1st January 2009
Additions
Disposals
At 31st December 2009
Depreciation and impairment
At 1st January 2009
Charge for the year
Disposals
At 31st December 2009
Carrying amount
At 31st December 2009
16. Financial assets
Available-for-sale financial assets
Unquoted shares carried at cost
Acquired during the year
Impairment
Unquoted shares carried at fair value
Carrying value
72
Freehold
land and
buildings
£’000
–
8,593
–
(715)
7,878
–
150
–
150
Leasehold
improvements
£’000
Motor
vehicles
£’000
3,487
44
49
–
3,580
3,384
31
–
3,415
49
19
–
(35)
33
32
19
(29)
22
Fixtures,
fittings and
computer
equipment
£’000
12,886
604
4,933
–
Total
£’000
16,422
9,260
4,982
(750)
18,423
29,914
10,929
1,548
–
14,345
1,748
(29)
12,477
16,064
7,728
165
11
5,946
13,850
Leasehold
improvements
£’000
Motor
vehicles
£’000
Fixtures,
fittings and
computer
equipment
£’000
Total
£’000
3,427
60
–
3,487
3,299
85
–
3,384
103
43
6
–
49
16
16
–
32
17
13,614
596
(1,324)
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
2010
£’000
497
945
(345)
1,097
–
1,097
2009
£’000
497
–
(345)
152
3,900
4,052
Financial Statements
16. Financial assets continued
Unquoted shares carried at cost
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 2009 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%. These shares were
sold in 2010 for a total consideration of £3,923,000.
17. Trade and other receivables
Current
Trade receivables
Prepayments and accrued income
2010
£’000
2009
£’000
17,337
7,799
13,079
6,973
25,136
20,052
Trade receivables are non-interest bearing and are generally on 0-90 days’ terms.
As at 31st December 2010, trade receivables at nominal value of £533,000 (2009 – £751,982) were impaired and fully provided for.
Movements in the provision for impairment of receivables were as follows:
At 1st January
Charge for the year
Amounts written off
Unused amounts reversed
At 31st December
As at 31st December, the analysis of trade receivables that were past due but not impaired is as follows:
2010
£’000
752
–
(165)
(54)
533
2009
£’000
1,154
289
(455)
(236)
752
2010
2009
18. Cash and cash equivalents
Short-term deposits
Past due but not impaired
Neither past
due nor
impaired
£’000
Total
£’000
0-90 days
£’000
>90 days
£’000
17,337
13,440
13,079
7,766
2,603
5,171
1,294
142
2010
£’000
338
2009
£’000
858
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 £0.3m (2009: £0.9m). At 31st December 2010, the
Group had available £73.5m of undrawn committed borrowing facilities in respect of which all conditions precedent had been met
(2009: £50.8m).
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Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
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.
20. Financial liabilities
Current
Unsecured bank loan
Unsecured loan notes
Other unsecured loans
Deferred consideration
Cash-settled share based payment
Contingent consideration
Non-current
Secured bank loans – RCF
Other unsecured loans
Cash-settled share based payment
Deferred consideration
Contingent consideration
Derivatives carried at fair value
Derivatives designated as hedges – interest rate swap
2010
£’000
2009
£’000
8,895
8,993
1,016
26,181
6,675
5,631
277
20,626
45,085
33,209
–
27
2010
£’000
2009
£’000
–
–
–
92
–
–
92
1,509
750
–
600
1,213
1,083
–
5,155
13
322
24
–
313
321
993
25,071
–
90
–
325
–
87
25,573
Secured bank loans – revolving credit facility
The secured bank loans totalling £1.5m (2009: £25.1m) are secured by a debenture over the Group’s assets excluding the following
subsidiaries, Lending Solutions, Homefast Property Services, Linear Mortgage Network, Linear Financial Services, Templeton LPA, AMF,
BDS, property-careers.com, Chancellors Associates and LSLi 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 (2009: £75m). The banking facility was renewed in 2010 for a further period until
March 2014.
Interest and fees payable on the revolving credit facility amounted to £1.6m (2009: £1.6m). The interest rate applicable to the facility is
LIBOR plus a margin rate of 2.0% (2009: LIBOR plus 1.5%). 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
The unsecured bank loan of £13,000 was repaid during the year.
Unsecured loan notes
Unsecured loan notes of £322,000 were repaid during the year.
74
Financial Statements
20. Financial liabilities continued
Other unsecured loan
Unsecured loans of £24,000 were repaid during the year. The £750,000 outstanding at year-end represents amounts payable to a
customer of the Group and is repayable on 31st March 2012 and does not carry any interest.
Cash-settled share-based payment/deferred consideration
An explanation is given in detail in note 12. During 2010 the Group acquired the shares in Barnwoods for a total consideration of £328,000
of which £138,000 was paid in 2010 and the remaining £190,000 is payable in March 2013 and has been included under deferred
consideration at the year-end. No interest is payable on the deferred consideration.
Deferred consideration of £410,000 relates to consideration that is payable for acquisition of AMF (including BDS) over a 18-month period
ending June 2012. No interest is payable on this.
Deferred consideration of £92,000 is payable on acquisition of Templeton LPA. This is payable in January 2011 and no interest is payable
on this.
Contingent consideration
£1,213,000 (2009: £646,000) 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. In 2010, the contingent consideration has been recalculated based on the latest management’s expectation using a discount rate
of 7% (2009: 7%).
Derivatives carried at fair value – interest rate swap
During 2009 the Group entered into three interest rate swaps to hedge its interest rate risks (see note 28). These are carried at fair value.
21. Provisions for liabilities and charges
Balance at 1st January
Acquisition during the year
Amount utilised
Amount released
Provided in financial year
Balance at 31st December
Current
Non-current
Professional
indemnity
claim
provision
£’000
7,542
–
(2,735)
–
6,094
10,901
584
10,317
10,901
2010
Onerous
leases
£’000
1,643
184
–
(835)
–
992
–
992
992
Professional
indemnity
claim
provision
£’000
5,638
–
(1,663)
–
3,567
7,542
122
7,420
7,542
Total
£’000
9,185
184
(2,735)
(835)
6,094
11,893
584
11,309
11,893
2009
Onerous
leases
£’000
2,143
–
(445)
(747)
692
1,643
626
1,017
1,643
Total
£’000
7,781
–
(2,108)
(747)
4,259
9,185
748
8,437
9,185
The PI 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.
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Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
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:
No later than one year
After one year but not more than five years
After five years
Land
and
building
£’000
8,704
21,455
7,355
2010
Plant
and
machinery
£’000
1,998
1,593
–
Total
£’000
10,702
23,048
7,355
Land
and
building
£’000
6,073
17,516
10,442
37,514
3,591
41,105
34,031
2009
Plant
and
machinery
£’000
1,765
1,596
–
3,361
Total
£’000
7,838
19,112
10,442
37,392
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:
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 1st January and 31st December
2010
Land
and
buildings
£’000
1,360
1,638
647
3,645
2009
Land
and
buildings
£’000
374
914
588
1,876
2010
2009
Shares
£’000
Shares
£’000
500,000,000
1,000
500,000,000
1,000
104,158,950
208
104,158,950
208
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
Treasury shares represent the cost of LSL Property Services plc shares purchased in the market and held by the Trust to satisfy future
exercise of options under the Group’s share options schemes. At 31st December 2010 the Group held 1,381,907 (2009: 1,287,960) of its
own shares at an average cost of £2.27 (2009: £2.18). The market value of the shares at 31st December 2010 was £3,455,000
(20th February 2010: £3,465,000). 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 reserve
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.
76
Financial Statements
25. Pension 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 but were recommenced in 2010.
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 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.
This was recommenced in 2010.
Total contributions to the defined contribution schemes in the year were £2.1m (2009: £1.2m). There was an outstanding amount of
£157,000 in respect of pensions as at 31st December 2010 (2009: £159,000).
26. Acquisitions during the year
Year ended 31st December 2010
The Group acquired the following businesses during the year:
a. HEAL
On 15th January 2010, the Group completed the acquisition of the entire share capital of HEAL for the consideration of £1 (one pound).
The HEAL network, comprising 206 estate agency branches, were absorbed into the main brands within LSL, namely Your Move, Reeds
Rains and Intercounty. The acquisition also brought HEAL’s asset management business into the LSL Group.
The fair value of the identifiable assets and liabilities of HEAL as at the date of acquisition were:
Customer relationships
Property, plant and equipment
Financial assets (investments)
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities
Total identifiable net assets acquired
Purchase consideration
Negative goodwill
Analysis of cash flow on acquisition
Transaction costs (including rebranding) (included in cash flows from operating activities)
Net cash acquired with the subsidiary (included in cash flows from investing activities)
Net cash flow on acquisition
Fair value
recognised
on acquisition
£’000
2,500
8,928
750
5,623
25,946
(10,816)
(3,106)
29,825
–
(29,825)
£'000
(6,125)
25,946
19,821
Transaction costs (including rebranding costs) have been expensed and are included under exceptional costs (see note 7).
From the date of acquisition to 31st December 2010, HEAL assets have contributed to £24.2m of revenue and £3.2m loss before tax of
the Group. If the combination had taken place at the beginning of the year, the consolidated Group operating profit (before exceptional
costs, amortisation and share-based payments) would have been lower by £1.1m and revenue would have been higher by £0.8m.
b. Home of Choice and AMF
On 7th May 2010, the Group completed the acquisition of the trade and assets of Home of Choice Limited (HoC) from administrators for a
total consideration of £0.4m. HoC is a multi-tied specialist mortgage network provider to approximately 500 self employed mortgage
advisers with extensive financial services expertise and knowledge of the mortgage market. Subsequent to acquisition, the trade and
assets of HoC were integrated into First Complete.
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Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
26. Acquisitions during the year continued
On 30th November 2010, the Group completed the acquisition of 100% of the issued capital of AMF and its subsidiary BDS (together
trading as Pink Home Loans). AMF operates as a mortgage and insurance distribution company providing products and services to
financial intermediaries, while BDS operates as a mortgage and insurance network and packager.
The provisional fair value of the identifiable assets and liabilities of Home of Choice and Pink Home Loans as at the dates of acquisition were:
Intangible assets (brand)
Property, plant and equipment
Deferred tax asset
Trade and other receivables
Trade and other payables
Financial liabilities
Total identifiable net liabilities acquired
Purchase consideration
Goodwill arising on acquisition
Purchase consideration discharged by:
Cash
Deferred consideration
Total
Provisional
fair value
recognised
on acquisition
£’000
180
112
206
1,931
(5,631)
(750)
(3,952)
2,400
6,352
1,990
410
2,400
The goodwill of £4,146,000 for Home of Choice and £2,386,000 for Pink Home Loans comprises certain intangible assets that cannot be
individually separated and reliably measured from the acquiree due to their nature. These items include the expected value of synergies,
self employed mortgage advisors, appointed representative network and an assembled workforce. Goodwill is allocated entirely to Estate
Agency and Related Services segment. Goodwill relating to Home of Choice is expected to be deductible for income tax purposes as this
is a trade and asset acquisition and this does not represent goodwill arising on consolidation.
From the date of acquisition to 31st December 2010, Home of Choice and Pink Home Loans have together contributed to £2,842,000 of
revenue and £12,000 to profit after tax of the Group. If the combination had taken place at the beginning of the year, the consolidated
Group operating profit (before exceptional costs, amortisation and share-based payments) would have been lower by £954,000 and
revenue would have been higher by £4,653,000.
c. Other acquisitions
During 2010 the Group also acquired:
•
the entire share capital of Templeton LPA on 8
cash and a further £92,000 is deferred consideration payable in January 2011;
the assets of the estate agency, land and new home and lettings business of Goodfellows on 28
of £1,030,000. Goodwill on this is included as part of LSLi; and
lettings business of Phillip Green Estate Agents for a cash consideration of £360,000 in June 2010 (referred to as “PG Lettings” on
page 79). Goodwill on this is included as part of LSLi.
th February 2010 for a total consideration of £454,000 of which £362,000 was paid in
th May 2010 for a cash consideration
•
•
78
Financial Statements
26. Acquisitions during the year continued
The combined fair values of the identifiable assets and liabilities as at the date of acquisition of the above three acquisitions were:
Intangible assets (brand)
Property, plant and equipment
Trade and other receivables
Trade and other payables
Deferred tax liability
Total identifiable net assets acquired
Purchase consideration
Goodwill arising on acquisition
Purchase consideration discharged by:
Cash
Deferred consideration
Total
Analysis of cash flow on acquisition
Transaction costs (included in cash flows from operating activities)
Cash consideration
£’000
115
220
246
(283)
(16)
282
1,844
1,562
1,752
92
1,844
(55)
(1,752)
(1,807)
From the dates of acquisition to 31st December 2010, Templeton, Goodfellows and PG Lettings have together contributed to £3,120,000
of revenue and £182,000 to profit after tax of the Group. If the combination had taken place at the beginning of the year, the consolidated
Group operating profit (before exceptional costs, amortisation and share-based payments) would have been higher by £165,000 and
revenue would have been higher by £1,326,000.
Year ended 31st December 2009
On 24th April 2009, the Group acquired certain assets of an Estate Agency business for a cash consideration of £135,000. On 11th 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.
Book value
£’000
Fair value
adjustments
£’000
Fair value
£’000
Other intangible assets – order book
–
33
Goodwill arising on acquisition
Discharged by:
Cash
33
33
117
150
150
Other disclosure required by IFRS 3 were not given in 2009 as it is not practical on the basis that these acquisitions were considered
insignificant to the Group.
27. Client monies
As at 31st December 2010, client monies held by subsidiaries in approved bank financial statements amounted to £35,007,000
(2009: £25,576,000). 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.
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Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
28. Financial instruments – risk management continued
It is, and has been throughout 2010 and 2009 the Group’s policy that trading in derivatives shall not be undertaken, apart from the
interest rate swap agreements mentioned on previous page.
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.
The subsidiaries are not permitted to borrow from external sources directly without approval from the Head Office team. Where the
Group wishes to fix the amount of external variable rate debt, it considers the use of interest rate swap agreements available to achieve
the desired interest rate profile.
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 17th April 2014. On 13th 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
13th May 2014. On 15th 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 15th May 2014. In the prior year the Group had applied hedge
accounting (using cash flow hedge) on these interest rate swap agreements as these swaps are designated to hedge underling debt
obligations. However, since these hedges are not considered effective, the change in the fair value of the interest rate swap agreements
has been included in the Income Statement (as exceptional finance costs). In view of the low level of net debt of the Group at
31st December 2010, the Group is currently reviewing the exit options available to cancel the interest rate swap. However, no decision has
been made in this regard as at the date of approval of the Financial Statements.
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. The impact of interest rate risk to cash is considered minimal as the cash balance is not significant.
At 31st December 2010, after taking into account the effect of interest rate swaps, approximately 100% of the Group’s borrowings are at a
fixed rate of interest (2009: 100%).
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 before tax is affected through the impact
on floating rate borrowings as follows. There is no material impact on the Group’s equity.
2010
2009
Increase/
decrease in
basis point
Effect on
profit/(loss)
before tax
£’000
+100
-100
+100
-100
–
–
(1)
1
Liquidity risk
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 is
also very cash generative as demonstrated by the cash from operations.
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool and daily cash flow reporting. This tool
considers the maturity of both its financial investments and financial assets (e.g. accounts receivable, 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.
80
Financial Statements
28. Financial instruments – risk management continued
The table below summarises the maturity profile of the Group’s financial liabilities at 31st December 2010 based on contractual
undiscounted payments:
Year ended 31st December 2010
Interest bearing loans and borrowings
Other unsecured loan
Trade and other payables
Contingent consideration
Deferred consideration
Interest rate swap (gross outflow)
Year ended 31st December 2009
Interest bearing loans and borrowings
Trade and other payables
Contingent consideration
Interest rate swap
On
demand
£’000
Less than
3 months
£’000
3 to 12
months
£’000
1 to 5 years
£’000
> 5 years
£’000
–
–
–
–
–
–
–
171
–
8,895
–
92
184
9,342
On
demand
£’000
Less than
3 months
£’000
–
–
–
–
–
116
6,675
–
280
7,071
541
–
–
–
410
559
1,510
3 to 12
months
£’000
1,647
–
–
486
2,133
2,690
750
–
1,213
190
1,690
6,533
–
–
–
–
–
–
–
Total
£’000
3,402
750
8,895
1,213
692
2,433
17,385
1 to 5 years
£’000
> 5 years
£’000
Total
£’000
25,782
–
325
2,291
28,398
–
–
–
–
–
27,545
6,675
325
3,057
37,602
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 31st December 2010
Inflows
Outflows
Net
Year ended 31st December 2009
Inflows
Outflows
Net
On
demand
£’000
Less than
3 months
£’000
–
–
–
40
(184)
(144)
On
demand
£’000
Less than
3 months
£’000
–
–
–
50
(280)
(230)
3 to 12
months
£’000
140
(559)
(419)
3 to 12
months
£’000
175
(486)
(311)
1 to 5 years
£’000
> 5 years
£’000
1,170
(1,690)
(520)
–
–
–
Total
£’000
1,350
(2,433)
(1,083)
1 to 5 years
£’000
> 5 years
£’000
2,745
(2,291)
454
–
–
–
Total
£’000
2,970
(3,057)
(87)
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 (i.e. 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.
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Annual Report & Accounts 2010
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Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
28. Financial instruments – risk management continued
The Group has a current ratio of net debt to operating profit of 0.15:1 (2009: 0.90:1), net debt of £4.9m (2009: debt of £25.7m) and
operating profit before exceptional costs, amortisation and share-based payment charge of £31.9m (2009: profit of £28.3m). The
business is cash generative with a low capital expenditure requirement. The Group remains committed to its stated dividend policy of
30% to 40% of Underlying Operating Profit after interest and tax. 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
2010
£’000
5,247
(338)
2009
£’000
26,566
(858)
4,909
25,708
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
syndicate of major banking corporations 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 (i.e. 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. 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 31st December 2010 is as follows:
Fixed rate
Revolving credit facility1
Floating rate
Cash and cash equivalents
1
Includes the effect of interest rate swap.
Within
1 year
£’000
Within
1 year
£’000
328
1-2 years
£’000
2-3 years
£’000
3-4 years
£’000
4-5 years
£’000
1,509
1-2 years
£’000
2-3 years
£’000
3-4 years
£’000
4-5 years
£’000
The effective interest rate and the actual interest rate charged on the loans is as follows:
Revolving credit facility
The effective interest rate is high due to commitment fees payable on committed undrawn borrowing facility.
The interest rate profile of the financial assets and liabilities of the Group as at 31st December 2009 is as follows:
More than
5 years
£’000
More than
5 years
£’000
Total
£’000
1,509
Total
£’000
328
Effective rate
Actual rate
13.1%
2.7%
Fixed rate
Unsecured loans
Revolving credit facility*
82
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
Total
£’000
–
–
-
(25,000)
–
–
–
–
–
–
(359)
(25,000)
Financial Statements
28. Financial instruments – risk management 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
–
–
–
(71)
–
–
–
–
More than
5 years
£’000
–
–
Total
£’000
858
(71)
The effective interest rate and the actual interest rate charged on the loans were 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%
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
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
Deferred consideration
2010
2009
Book Value
£’000
Fair Value
£’000
Book Value
£’000
Fair Value
£’000
328
1,097
328
n/a1
858
4,052
858
4,052
(1,509)
–
(1,083)
(1,213)
(692)
(1,509)
–
(1,083)
(1,213)
(692)
(25,071)
(359)
(87)
(646)
–
(25,071)
(359)
(87)
(509)
–
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 31st December 2010, 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.
Liabilities measured at fair value
Derivatives designated as hedges
Interest rate swap
2010
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
1,083
–
1,083
–
1
It has not been possible to reliably determine the fair value of unquoted investments in available-for-sale financial assets.
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Annual Report & Accounts 2010
83
Financial Statements
Notes to the Group Financial Statements Continued
for the year ended 31st December 2010
28. Financial instruments – risk management continued
Available-for-sale financial assets
Unquoted shares
Liabilities measured at fair value
Derivatives designated as hedges
Interest rate swap
29. Analysis of net debt
Interest bearing loans and borrowings
– Current
– Non-current
Less: cash and short-term deposits
Net debt at the end of the year
2009
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
3,900
–
–
3,900
2009
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
87
–
87
–
2010
£’000
2009
£’000
92
5,155
5,247
(338)
993
25,573
26,566
(858)
4,909
25,708
During the year, the Group has repaid £23.6m (2009: repaid £22.7m) of the revolving credit facility. The utilisation of this revolving credit
facility may vary each month as long as this does not exceed the maximum £75m facility. The banking facility was renewed for a period
until March 2014. The revolving credit facility is repayable when funds permit.
The interest rate applicable to the facility in 2010 was LIBOR plus a margin rate of 2% (2009: 1.5%). 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
During the year, the Group acquired the remaining 4.95% of shares in its subsidiary Barnwoods. Barnwoods was fully consolidated in the
Group’s consolidated Financial Statements as there were restrictions on transferability of the 4.95% shares in Barnwoods if the
concerned employees were not in continuous employment in the Group. The Group also had a “call option” on these shares and the
exercise price for the call option was based on future profitability of the subsidiary. The Group had accounted for this as a “cash-settled”
share-based payment and had consolidated 100% of Barnwoods’ results in prior years. In 2010, the Group acquired this 4.95% shares
from the employees (of whom one of them was also a director of Barnwoods) for a total consideration of £328,000 of which £143,000
was paid in 2010 and the remaining £185,000 is payable in March 2013.
One of the Executive Directors Alison Traversoni benefitted from a reduction of £285 (two hundred and eighty five pounds) in Your Move
fees being staff discount.
Other than the above and the Directors’ Remuneration as disclosed in note 12, there were no related party transactions with key
management personnel.
31. Capital commitments
Capital expenditure contracted for but not provided
2010
£’000
496
2009
£’000
34
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Financial Statements
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
e.surv1
Homefast Property Services
First Complete1
LSL Corporate Client Services1
St Trinity1
Reeds Rains1
Linear Mortgage Network
Linear Financial Services
Chancellors Associates
LSLi1
ICIEA
Barnwoods1
David Frost Estate Agents
JNP Estate Agents
Albany Insurance Company (Guernsey)1
AMF1
1 Held directly by the Company.
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 Shares
Ordinary ‘A’ Shares
Ordinary ‘B’ Shares
Non cumulative redeemable
preference shares
Ordinary Shares
Ordinary ‘B’ Shares
Ordinary ‘C’ Shares
Ordinary Shares
Ordinary Shares
Preference Shares
Proportion of
nominal value
of shares held
Nature of business
100%
100%
77.5%
100%
100%
100%
100%
76%
86%
100%
75%
87.5%
100%
100%
Estate Agency and Related Activities
Surveying and Valuation Services
Dormant
Financial Services
Asset Management
Asset Management
Estate Agency and Related Activities
Financial Services
Dormant
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
100%
100%
Captive insurer
Financial Services
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.
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Annual Report & Accounts 2010
85
Financial Statements
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 31st December 2010 which
comprise the Company Balance Sheet and the related notes 1 to 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 set out on page 26, 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 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
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.
st December 2010;
Opinion on other matters prescribed by 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 plc for the year ended 31st December 2010.
Stuart Watson (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Leeds
2nd March 2011
86
Financial Statements
Parent Company Balance Sheet
as at 31st December 2010
Fixed assets
Intangible 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
Shareholders’ funds
Note
2010
£'000
2009
£'000
2
3
4
5
6
(3,162)
107
114,034
–
56
109,157
110,979
109,213
27,243
(80,288)
37,374
(73,936)
(53,045)
(36,562)
57,934
72,651
7
(18,889)
(39,706)
39,045
32,945
10
11
11
11
11
11
208
5,629
1,014
(3,139)
–
35,333
208
5,629
2,019
(2,805)
(63)
27,957
39,045
32,945
The Financial Statements were approved by the Board on 2nd March 2011 and were signed on its behalf by:
Steve Cooke
Group Finance Director
Simon Embley
Group Chief Executive Officer
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Annual Report & Accounts 2010
87
Financial Statements
Notes to the Parent Company Financial Statements
for the year ended 31st December 2010
1. Accounting policies
Basis of preparation of financial statements
The Financial Statements of the Company have been prepared under the historical cost convention modified to include the fair value of
derivative financial liabilities and are prepared 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
31st December 2010. 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 group financial statements, in which the Company is included, provide
equivalent disclosures for the Group under IFRS 7 Financial Instruments: Disclosures.
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.
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.
88
Financial Statements
1. Accounting policies continued
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 Executive Directors and senior employees.
Shares in the Company held by the ESOT are treated as treasury shares and presented in the balance sheet as a deduction from equity.
Dividends earned on shares held in the ESOT 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 Group financial statements of the Group.
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
Leasehold improvements
–
–
–
over 5 years
over 3 years
over the life of the lease period
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.
Intangible fixed assets
Intangible assets other than goodwill that are acquired separately are measured at cost on initial recognition. Following the initial
recognition, intangible assets are carried at cost less accumulated amortisation and impairment losses.
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Annual Report & Accounts 2010
89
Financial Statements
Notes to the Parent Company Financial Statements Continued
for the year ended 31st December 2010
2. Intangible fixed assets
As at 31st December 2010
Cost or valuation
At 1st January 2010
Additions
At 31st December 2010
Amortisation
At 1st January 2010
Credit during the year
At 31st December 2010
Carrying amount
At 31st December 2010
At 1st January 2010
Negative
goodwill
£’000
–
(23,453)
(23,453)
–
20,291
–
(3,162)
–
Negative goodwill
On 15th January 2010 the Company completed the acquisition of 100% of the share capital of New Daffodil Limited (“NDL”) (formerly
HEAL). Subsequent to acquisition, the business of NDL was reorganised within the Group and the business of NDL together with certain
assets were transferred to the Company for a total consideration of £1 (“one pound”). The Company then transferred most of the trade
and assets to its subsidiaries Your Move, Reeds Rains, LSLi and St Trinity for a consideration of £1 (“one pound”) each. However, the
following assets were acquired by the Company but not transferred further to Your Move, Reeds Rains, LSLi or St Trinity and this has
resulted in the creation of negative goodwill:
Assets acquired
Investment in a private company
Cash
Net assets
Consideration paid
Negative goodwill
£’000
750
22,703
23,453
–
(23,453)
The negative goodwill at acquisition differs from that of £29,825,000 as disclosed in note 26(a) of the Financial Statements as a result of
those assets transferred to subsidiaries noted above, and intergroup reorganisation costs incurred post acquisition.
The negative goodwill is being amortised to match the usage of the assets acquired (mainly cash outflow).
3. Tangible fixed assets
As at 31st December 2010
Cost
At 1st January 2010
Additions
At 31st December 2010
Depreciation
At 1st January 2010
Charge for the year
At 31st December 2010
Carrying amount
At 31st December 2010
At 1st January 2010
90
Leasehold
improvements
£’000
Fixtures,
fittings and
computer
equipment
£’000
–
49
49
–
4
4
45
–
62
29
91
6
23
29
62
56
Total
£’000
62
78
140
6
27
33
107
56
Financial Statements
4. Investments
Subsidiary undertakings
Other investments
2010
£’000
2009
£’000
113,089
945
109,157
–
114,034
109,157
Subsidiary undertakings:
Details of the subsidiaries held directly and indirectly by the Company are shown in note 32 to the Financial Statements.
At 1st January
Additions
Adjustment for contingent consideration
Adjustments for share-based payment
At 31st December
2010
£’000
2009
£’000
109,157
3,700
–
232
108,507
250
89
311
113,089
109,157
In 2010, an adjustment of £232,000 (2009: increase of £311,000) on investment in subsidiaries for the share-based payment, representing
the financial effects of awards by LSL of options over its equity shares to employees of subsidiary undertakings.
In August 2007, LSL set up LSLi (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. In 2007, LSL estimated the payout under the “call option” to be £754,003 and included the
same as a cost of investment. In 2008, LSL 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.
Other investments
At Cost
At 1st January
Additions
At 31st December
Other investments represent investment in equity shares of private limited companies.
5. Debtors
Deferred tax asset (note 8)
Corporation tax recoverable
Group relief receivable
Prepayments
Amounts owed by Group undertakings
2010
£’000
–
945
945
2009
£’000
–
–
–
2010
£’000
293
764
8,081
24
18,081
2009
£’000
40
–
8,277
1,643
27,414
27,243
37,374
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Annual Report & Accounts 2010
91
Financial Statements
Notes to the Parent Company Financial Statements Continued
for the year ended 31st December 2010
6. Creditors: amounts falling due within one year
Other taxes and social security payable
Accruals
Contingent consideration
Deferred consideration
Amounts owed to Group undertakings
2010
£’000
310
1,140
125
491
78,222
2009
£’000
90
811
125
–
72,910
80,288
73,936
Contingent consideration
£125,000 (2009: £125,000) 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. In 2010, the contingent consideration has been recalculated based on the latest management’s expectation using a discount rate
of 7% (2009: 7%).
Deferred consideration
Deferred consideration of £491,000 relates to consideration that is payable for acquisition of AMF (including BDS) over a 18 month period
ending June 2012. No interest is payable on this.
7. Creditors: amounts falling due after one year
Loans (note 9)
Derivative financial liability – interest rate swap
Accruals
8. Deferred tax asset
Deferred tax asset at 1st January
Deferred tax (debited)/credited to equity
Deferred tax credit in profit and loss account for the year
Deferred tax asset at 31st December
Deferred tax asset is in relation to a short term timing difference.
2010
£’000
17,806
1,083
–
2009
£’000
39,592
87
27
18,889
39,706
2010
£’000
40
(24)
277
293
2009
£’000
16
24
–
40
On 22nd June 2010 the UK government announced proposals to reduce the main rate of corporation tax from 28% to 24% over four years
with effect from 1st April 2011. As of 31st December 2010 only the reduction to 27% has been enacted. In addition changes to the capital
allowances regime were proposed including a reduction in the rate of capital allowances on plant and machinery additions from 20% to
18% with effect from 1st April 2012. If these proposals had been substantially enacted, the deferred tax asset at 31st December 2010
would have reduced by £33,000.
9. Loans
Amounts falling due
In one year or less
In more than one year but not more than two years
92
2010
£’000
2009
£’000
–
17,806
–
39,592
17,806
39,592
Financial Statements
9. Loans continued
Secured bank loans – Revolving credit facility
The secured bank loans totalling £17.8m (2009: £39.6m) are secured by a debenture over the Group’s assets excluding the following
subsidiaries, Lending Solutions, Homefast Property Services, Linear Mortgage Network, Linear Financial Services, Templeton LPA, AMF,
BDS, property-careers.com, Chancellors Associates and LSLi 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 (2009: £75m). The banking facility was renewed in 2010 for a further period until
March 2014.
The interest rate applicable to the facility is LIBOR plus a margin rate of 2% (2009: 1.5%). 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 1st January and 31st December
11. Reconciliation of movements in shareholders’ funds
2010
2009
Shares
£’000
Shares
£’000
500,000,000
1,000
500,000,000
1,000
104,158,950
208
104,158,950
208
Balance at 1st January 2009
Share-based payments
Reassurance of treasury shares
Net loss on cash flow hedge (net of tax)
Loss for the year
Balance at 1st January 2010
Share-based payments
Purchase of treasury shares
Reissuance of treasury shares
Recycling of cash flow hedge through profit & loss
account (net of tax)
Dividend paid
Profit for the year
Share
capital
£’000
208
–
–
–
–
208
–
–
–
–
–
–
Share
premium
account
£’000
Share-based
payment
reserve
£’000
5,629
–
–
–
–
5,629
–
–
–
–
–
–
1,742
277
–
–
–
2,019
292
–
(1,297)
–
–
–
Treasury
shares
£’000
(2,934)
–
129
–
–
(2,805)
–
(1,007)
673
–
–
–
Balance at 31st December 2010
208
5,629
1,014
(3,139)
Hedging
loss
£’000
Profit and
loss account
£’000
29,470
–
–
–
(1,513)
27,957
–
–
1,071
–
(8,146)
14,451
–
–
–
(63)
–
(63)
–
–
–
63
–
–
–
Total
£’000
34,115
277
129
(63)
(1,513)
32,945
292
(1,007)
447
63
(8,146)
14,451
35,333
39,045
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.
Share-based payment reserve
This represents the amount provided in the year in respect of share awards. The Company operates Long Term Incentive Plan (including
JSOP and CSOP) and a number of SAYE schemes for the employees in the Company and the Group. See note 12 of the Financial
Statements for details of the LTIP, JSOP, CSOP and the SAYE schemes.
12. Company profit/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 profit after
tax for the year was £14,451,000 (2009: loss of £1,513,000).
Remuneration paid to Directors of the Company is disclosed in note 12 of the Financial Statements.
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Annual Report & Accounts 2010
93
Financial Statements
Notes to the Parent Company Financial Statements Continued
for the year ended 31st December 2010
13. 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 and recommenced in 2010.
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) was 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 and recommenced in 2010.
Total contributions to the defined contribution schemes in the year were £32,443 (2009: £5,745). There were no outstanding amounts in
respect of pensions as at 31st December 2010 (2009: £nil).
14. Capital commitments
The Company had no capital commitments as at 31st December 2010 (2009: none).
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
310
231
272
117
5,655
5,308
17
80
–
10,679
231
–
–
–
–
–
–
–
–
–
421
–
–
136
Linear Mortgage Network
2010
2009
Linear Financial Services
2010
2009
LSLi
2010
2009
ICIEA
2010
2009
Barnwoods
2010
2009
JNP Estate Agents
2010
2009
94
Definitions
“Adjusted Basic earnings Per Share” is defined at note 10 of
the Financial Statements
“JNP” trading name of JNP Estate Agents Limited
“JSOP” joint share ownership plan
“AGM” Annual General Meeting
“AMF” Advance Mortgage Funding Limited
“Barnwoods” Barnwoods Limited
“BDS” BDS Mortgage Group Limited
“Board” the Board of Directors of LSL
“Corporate Client Services” comprising LSL Corporate Client
Services Limited, Templeton LPA Limited and St Trinity Limited
providing repossession, asset management and corporate letting
services
“C&G” Cheltenham & Gloucester
“Chancellors Associates” Chancellors Associates Limited
“Code” UK Code of Corporate Governance by the Financial
Reporting Council in (2010)
“CSOP” company share ownership plan
“CSR” corporate social responsibility
“Director” an Executive Director or Non Executive Director of LSL
“DBP” deferred bonus plan
“EPC” Energy performance certificate
“EPS” earnings per share
“ESG” environmental, social and governance
“Estate Agency Divisions” includes LSL’s core estate agency,
lettings, financial services, LPA fixed charge receiver and
repossessions asset management businesses
“e.surv Chartered Surveyors” or “esurv” esurv Limited
“Executive Director” refers to Simon Embley, Steve Cooke,
Alison Traversoni and David Newnes
“First Complete” trading name of First Complete Limited
“Financial Statements” financial statements contained in this
Report
“Linear” and “Linear Financial Services” are trading names of
Linear Mortgage Network Limited and Linear Financial Services
Limited
“LPA” the Law of Property Act 1925
“LSLi” LSLi Limited and its subsidiaries JNP, Intercounty, Frosts
and Goodfellows.
“LSL” LSL Property Services plc and its subsidiaries
“LSL Corporate Client Services” LSL Corporate Client
Services Limited
“LTIP” long term investment plan
“Net Debt” defined as financial liabilities less cash and cash
equivalents
“Non Executive Director” refers to Roger Matthews, Mark
Morris, Mark Pain and Paul Latham
“Notice of Meeting” the circular made available to shareholders
setting out details of the AGM
“Openwork” Openwork Holdings Limited
“Ordinary Shares” 0.2p ordinary shares in LSL
“PI” professional indemnity
“Pink Home Loans” includes Advance Mortgage Funding
Limited and BDS Mortgage Group Limited
“Phillip Green” trading name of Intercounty and JNP
“RCF” Revolving credit facility
“Reeds Rains” Reeds Rains Limited
“Report” LSL’s annual report and accounts 2010
“RICS” Royal Institution of Chartered Surveyors
“SAYE” save-as-you-earn
“Senior Independent Director” Mark Morris
“Frosts” trading name of David Frost Estate Agents Limited
“SIP” share incentive plan
“Group” LSL Property Services plc and its subsidiaries
“St Trinity Asset Management” St Trinity Limited
“Goodfellows” trading name of GFEA Limited
“HEAL” Halifax Estate Agencies Limited
“HEAL Business” HEAL branches and St Trinity Asset
Management
“HIPS” Home Information Packs
“Surveying Division” includes LSL’s surveying and valuation
businesses
“Templeton” Templeton LPA Limited
“Trust” LSL Property Services plc Employee Benefit Trust
“Trustees” Capita Trustee Limited
“Home of Choice” or “HoC” division within First Complete
“Home Report” a report which includes a single survey, energy
report and property questionnaire and which must accompany all
residential property marketing in Scotland
“HNBS” Hewitt New Bridge Street
“Underlying Operating Profit/Loss” before exceptional costs,
amortisation of intangible assets and share based payments
“Underlying Operating Margin” Group Operating Profit before
exceptional costs, amortisation and share based payments shown
as a percentage of turnover
“Intercounty” trading name of ICIEA Limited
“Your Move” your-move.co.uk Limited
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Annual Report & Accounts 2010
95
Financial Statements
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 0203 215 1015
Facsimile 0207 920 9443
E-mail enquiries@lslps.co.uk
Website www.lslps.co.uk
Share listing
LSL Property Services plc 0.2p Ordinary Shares are listed on the London Stock Exchange under ISIN GB00BIG5HX72
Registrar
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 0LA
United Kingdom
Telephone 0871664 0300 (calls cost 10p per minute plus network extras)
Facsimile 01484 600911
Website www.capitaregistrars.com
E-mail 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
2nd March 2011
2.30pm 18th April 2011
2.30pm 20th April 2011
The AGM will be held at LSL’s offices at 1 Sun Street, London EC2A 2EP. The Notice of Meeting 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).
96
LSL Property Services plc is a leading
provider of residential property
services to its two key customer
groups. Services to consumers
include: estate agency, lettings,
surveying, and advice on mortgages
and non-investment insurance
products. Services to mortgage
lenders include: valuations and
panel management services,
asset management and property
management services.
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 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 on page 21
Contents
Overview
LSL at a Glance
Highlights
Our Markets
Our Strategy
LSL Today
Chairman’s Statement
Business review
Surveying and Valuation Services
Estate Agency and Related Services
Financial Review
Director Profiles
Directors’ Report &
Corporate Governance
Statement of Directors’ Responsibilities in
relation to the Group Financial Statements
Report of the Directors
Corporate Governance Report
Directors’ Remuneration Report
Corporate Social Responsibility
01
02
03
05
06
08
14
16
20
22
26
27
30
34
39
Financial Statements
Independent Auditors’ Report to the
Members of LSL Property Services plc
Group Income Statement
Group Statement of Comprehensive Income
Group Balance Sheet
Group Statement of Cash Flows
Group Statement of Changes in Equity
Notes to the Group Financial Statements
Independent Auditors’ Report to the
Members of LSL Property Services plc
Parent Company Balance Sheet
Notes to the Parent Company Financial
Statements
Definitions
Investor Information
44
45
46
47
48
49
50
86
87
88
95
96
www.lslps.co.uk
LSL Property Services plc
Annual Report & Accounts 2010
Registered in England
(Company Number 5114014)
Registered Office:
Newcastle House
Albany Court
Newcastle Business Park
Newcastle upon Tyne
NE4 7YB
Tel: 020 3215 1015
Fax: 020 7920 9443
email: enquiries@lslps.co.uk
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