LSL Property Services plc
Annual Report & Accounts 2011
www.lslps.co.uk
LSL Property Services plc is a leading provider
of residential property services to its two key
customer groups. Services to consumers include:
residential sales, 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.
O
v
e
r
v
i
e
w
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
&
B
u
s
i
n
e
s
s
R
e
v
e
w
i
Contents
Directors’ Report & Business Review:
Overview
Highlights 2011
LSL’s Markets
LSL’s Market Intelligence
LSL Today
LSL’s Strategy
Business Review
Chairman’s Statement
Surveying and Valuation Services
Estate Agency and Related Services
Financial Review
LSL Board
Governance
02
04
05
06
08
10
14
16
22
26
Financial Statements
Independent Auditors’ Report to the
Members of LSL Property Services plc 59
60
Group Income Statement
Group Statement of Comprehensive
Income
61
62
Group Balance Sheet
63
Group Statement of Cash Flows
64
Group Statement of Changes in Equity
Notes to the Group Financial Statements 65
Statement of Directors’ Responsibilities
in Relation to the Parent Company
Financial Statements
103
Independent Auditors’ Report to the
Members of LSL Property Services plc
Parent Company Balance Sheet
Notes to the Parent Company Financial
104
105
106
114
116
Statement of Directors’ Responsibilities
Statements
in Relation to the Group Financial
Statements
Report of the Directors
Corporate Governance Report
Directors’ Remuneration Report
Corporate Social Responsibility
29
30
35
42
51
Other Information
Definitions
Shareholder Information
Forward-Looking Statements
This Report may contain forward-looking statements with respect to certain plans, 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 of LSL, and they may cause the actual results or performance of LSL to
be materially different from the results or performance implied by such statements. Any forward-looking statements will be by reference to
the date of this Report only and must not be regarded as guarantees of future performance. Further, nothing in the Report should be
construed as a profit forecast. Some of the factors which may affect LSL’s actual future financial conditions, business performance and results
are contained within the Business Review in the ‘principal risks and uncertainties section’ on pages 24 and 25 together with information on the
management of the principal risks and uncertainties faced by LSL.
Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther Information
Highlights 2011
2011 was a year of investment for the future
and one of strong progress for the Group
Group
Group Revenue
Group Underlying Operating Profit
Group Underlying Operating Margin
£218.4m
£31.1m
14.3%
2011
2010
£218.4m
£206.9m
2011
2010
£31.1m
£31.9m
2011
2010
14.3%
15.5%
Adjusted Basic Earnings Per Share
Total dividend for the full year
21.0p
2011
2010
8.7p
21.0p
21.0p
2011
2010
8.7p
8.4p
Group profit before tax after exceptional costs
2011
2010
£17.6m
2011
2010
£17.6m
Financial
Group revenue increased by 6%
Group Underlying Operating Profit1
Group Underlying Operating Margin2
Group profit before tax after exceptional costs3
Adjusted Basic Earnings Per Share4
Basic earnings per share
Final dividend proposed per share
Total dividend for the year increased 4%
£36.0m
£31.1m
14.3%
£218.4m £206.6m
£31.9m
15.4%
£17.6m £36.0m
21.0p
33.6p
5.9p
8.4p
21.0p
12.9p
5.9p
8.7p
Balance Sheet
Continued strong cash generation with net debt5 increased
by £33.5m (as at 31st December 2011) after acquisition of
Marsh & Parsons for an initial cash consideration of £45.4m
£38.4m
£4.9m
1 Underlying Operating Profit is before exceptional costs, amortisation of intangible assets and share based payments.
2 Group Underlying Operating Margin was after increased revenue investment of £6.1m into the Estate Agency Division.
3 Profit before tax was after net exceptional costs of £2.4m arising principally from the acquisition of Marsh & Parsons.
(2010: exceptional gain of £10.2m arising principally from the acquisition of HEAL and a one off profit of £3.9m on the
sale of an investment).
4 The calculations of the Adjusted Basic Earnings per Share is given in note 10 of the Financial Statements.
5 Net debt excludes loan notes issued on the acquisition of Marsh & Parsons as calculated in note 30 of the Financial
Statements.
02
Surveying and
Valuation Services
Underlying Operating Profit
£23.7m
2011
2010
£23.7m
£27.3m
Estate Agency and
Related Services
Underlying Operating Profit
£10.3m
2011
2010
£10.3m
£7.2m
Surveying and Valuation Services Performance
Revenue decline of 5% primarily because of strong comparatives for
certain key lenders. Revenue fell by 1% in the second half
Underlying Operating Profit
Underlying Operating Margin6
Renewal of Barclays contract to June 2014
Revenue for provision of surveying services to private buyers
Estate Agency and Related Services Performance
Revenue increased by 13%
Underlying Operating Profit increased by 42%7
Market share increase of 0.2% (and pipeline growth of 7%)
Strong contribution from Lettings with revenue up 20%
Contribution from Financial Services up 49%
LSL acquired Marsh & Parsons in November 2011 for an enterprise
value of £50m
Marsh & Parsons is an excellent strategic fit for LSL providing
exposure to the prime Central London market and offering a
significant growth opportunity
2011
2010
£23.7m
31.0%
£27.3m
33.7%
£2.8m
£nil
£141.8m £125.7m
£7.2m
£10.3m
4.5%
4.7%
£29.6m £24.6m
£18.6m
£27.6m
6 Underlying Operating Margin was after continued investment in customer services.
7 Underlying Operating Profit was after a revenue investment of £6.1m in people and call centre.
03
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
LSL’s Markets
LSL operates across the residential property
services value chain
Market Transaction Data
Total Mortgage Approvals for House Purchases ’000
1,260
516
597
575
593
2007
2008
2009
2010
2011
Remortgage Volumes ’000
1,204
953
356
339
387
2007
2008
2009
2010
2011
Total Mortgage Approvals1 ’000
3,291
1,979
1,301
1,203
1,227
2007
2008
2009
2010
2011
Repossessions2
47,900
40,000
26,200
35,800
36,300
2007
2008
2009
2010
2011
04
Our market can be categorised into two
principal segments:
• Surveying and Valuation Services; and
• Estate Agency and Related Services.
Surveying and Valuation Services
35.1% of Group revenue in 2011 (2010: 39%)
• Valuation services for lenders for
residential mortgage purposes.
• Surveying services for private house
purchasers.
Remortgage volumes of 387,000 were up 14%
compared to 2010 (339,000). Total mortgage
approvals only increased slightly by 2% to
1,227,000 (2010: 1,203,000) and have now
been at this level for the last three years. The
historic normalised level of total transactions
for the period from 2002 to 2007 was circa
3.6m per annum.
Estate Agency and Related Services
The Estate Agency and Related Services
segment includes Residential Sales and
Lettings and the related markets of Asset
Management (including repossessions asset
management and property management for
multi property landlords) and Financial
Services – predominantly mortgage and
protection brokerage – which includes the
operation of intermediary networks.
Residential Sales and Lettings
39.6% of Group revenue in 2011 (2010: 37.3%)
• Estate Agency services for residential
property sales.
• Comprehensive Lettings service for
residential landlords and tenants.
In 2011 market transaction volumes increased
slightly but are still at an extremely low point
in the cycle compared to historic normalised
levels of 1.2m per annum. Having fallen by 4%
in the first half of the year, mortgage approvals
for house purchases rose by 10% in the
second half and at 593,000 (2010: 575,000) for
the full year were up 3% year on year overall.
Pie chart heading
Group Revenue Split
12.6%
6.4%
6.3%
39.6%
35.1%
Surveying and Valuation Services – 35.1%
Residential Sales and Lettings – 39.6%
Asset Management – 6.4%
Mortgage and Non Investment Insurance Brokerage – 12.6%
Other Income – 6.3%
Asset Management
6.4% of Group revenue in 2011 (2010: 6.8%)
• Repossessions asset management services
for lenders.
• Property management services for multi
property landlords.
Repossession volumes fell by 1% to 35,800 in
2011 (2010: 36,300) which is somewhat
surprising given the general difficulties in the
housing market and the steady stream of
disappointing economic news.
Mortgage and Non Investment
Insurance Brokerage
12.6% of Group revenue in 2011 (2010: 9.0%)
• Brokerage services for mortgages.
• Brokerage services for non investment
insurance (in particular mortgage
protection products).
Other Income
6.3% of Group revenue in 2011
This includes franchising income,
conveyancing services, EPCs, Home Reports,
utilities and other products and services to
clients of the Estate Agency branch network.
1
2
Source: Bank of England for “House Purchase
Approvals”, “Remortgage Approvals” and “Total
Mortgage Approvals” 2011.
Source: Council of Mortgage Lenders arrears and
repossessions data relating to properties taken into
possession by first-charge mortgage lenders for 2011.
LSL’s Market
Intelligence
Market Share
Surveying Valuation Services Market Share
Estate Agency Market Share
Jobs Performed ’000
Market Share
533
461
439
531
500
1.1%
1.2%
3.4%
3.5%
2.6%
2.8%
2.7%
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Original
HEAL
Surveying and
Valuation Services
Estate Agency and
Related Services
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’s final
approvals data.
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 sixteen
categories are announced. The Awards, now
in their second year, will be announced on
19th March 2012 at the Hospital Club,
Covent Garden, London.
For further information visit:
www.awards.lslps.co.uk
LSL Acadametrics House Price Index
The monthly House Price Index reports on
transaction 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.
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.
LSL Consumer Sentiment Survey
Quarterly survey to determine consumer
views on the UK property market.
LSL Landlord Sentiment Survey
A quarterly survey which determines the views
of landlords on the UK lettings market.
For further information on any of the
aforementioned reports, visit www.lslps.co.uk
05
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
LSL Today
LSL has established market leading
positions in its market segments
Milestones
MBO of Your Move and e.surv
Chartered Surveyors
2004
2005
Acquisition of Reeds Rains
Acquisition of Linear
Mortgage Network
Surveying and Valuation Services
Surveying and Valuation
• Market leader.
• 499,146 valuation jobs completed in 2011
(2010: 531,000).
• 425 employed surveyors in 2011
(2010: 412).
– 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
Residential Sales and Lettings
• 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
with 568 branches (2010: 584).
• Acquisition of Marsh & Parsons in
November 2011, providing exposure to
prime Central London property market.
• Branch services include Residential Sales,
Lettings and Financial Services.
• Technically advanced proprietary
browser based IT systems common
across most brands.
• Successful franchise model operating in
142 branches across Your Move, Reeds
Rains, and Intercounty.
• Members of The Property Ombudsman,
with a sales code of practice which is
approved by the Office of Fair Trading.
– Your Move
The largest single brand UK estate agency with 314 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: Neilsen January 2012.
– Reeds Rains
A predominantly northern based network of 199 branches
(made up of wholly owned and franchised branches).
www.reedsrains.co.uk
– LSLi
LSLi is the holding company for five estate agency brands
with a combined network of 41 branches (made up of wholly
owned and franchised branches).
www.lsli.co.uk
– Marsh & Parsons
Leading London premium brand estate agency operating in
the Central, West and South West London property markets
out of 14 branches.
www.marshandparsons.co.uk
06
IPO on main market, valuing
the business at £208m
Launch of Asset Management and
Corporate Lettings business
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
Launch of private survey initiative – RICS Home Buyers Report
2005
2006
2007
2008
2009
2010
2011
Acquisition of
Intercounty, Frost and JNP
Cheltenham & Gloucester
valuations panel management
contract acquired
Acquisition of Ekins from Barclays Bank
plc and grant of associated surveying
and Valuation services agreement
Santander
contract
expansion
Investment in Legal Marketing Services
and LMS Direct Conveyancing
Acquisition of Marsh & Parsons
and entry into the Central London
residential property market
Launch of PropertyCare+
Barclays Bank plc contract renewal
Estate Agency and Related Services Continued
Asset Management
• Market leader.
• 11,200 repossessions in 2011
(2010: 10,500).
• Utilises network of up to 3,500 estate
agency branches.
– LSL Corporate Client Department
Emerging from the Estate Agency business, LSL CCD
started in 2008 and operates a repossessions asset
management business and a property management
business for multi-property landlords.
www.lsl-ccd.co.uk
Financial Services
• Specialising in brokerage of mortgage
and protection products – LSL’s
combined appointed representative
network is the fourth largest network in
the UK.1
• Multi brand including Your Move, Reeds
Rains, Linear, First Complete and Pink
Home Loans.
• Total value of mortgage applications
arranged £6.8bn (2010: £2.6bn).
1 Source: Which Network – Network Performance Figures
for 2011 showing the combined numbers for First
Complete (6th) and Pink Home Loans (8th).
– St Trinity Asset Management
The Group’s second asset management business created
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.
www.templetonlpa.co.uk
– First Complete
Operates a mortgage brokerage business and mortgage
intermediary network. The First Complete employed
financial consultants offer financial services across LSL’s
entire Estate Agency branch network.
www.firstcomplete.co.uk
– The Mortgage Alliance
The Mortgage Alliance (which also trades as TMA) is a
mortgage club which became a division of First Complete in
June 2011. They distribute mortgages and financial services
products to directly authorised mortgage intermediaries.
www.themortgagealliance.com
– 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, remortgages
and life assurance through a network of financial consultants
based remotely and in the offices of estate agents.
www.linearfs.com
For further information on all LSL brands please visit www.lslps.co.uk
07
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
LSL’s Strategy
LSL is committed to delivering long term shareholder
value by building market leading positions in the residential
property services market through both organic growth
and selective acquisitions
The Group’s strategy is to grow long term
profitability from the provision of residential
property services by building long term
shareholder value across LSL’s two market
segments:
• Surveying and Valuation Services (retain
key lender clients and continue to develop
the provision of surveying services to
private clients); and
• Estate Agency and Related Services
(continue to grow market share and
profitability and to expand our presence
in the prime Central London residential
sales and lettings markets).
There are significant opportunities for the
Group to achieve market share growth in its
market segments.
Surveying and Valuation Services
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.
Estate Agency and Related Services
Residential Sales and Lettings
Provide a service proposition that recognises
customer needs and maximises income across
the value chain.
Drive organic growth through increasing
market share of Residential Sales transaction
volumes and investing further in Lettings
services.
Support Marsh & Parsons’ plans to grow
their share of the Central London residential
sales and lettings markets and augment with
“bolt on” acquisitions.
Asset Management
Grow market share by providing innovative
solutions and strong service delivery.
Mortgage and Non Investment Insurance
Brokerage Services
Build strong broker networks for the provision
of mortgage and protection products and
realise synergies and cost savings to make the
networks profitable even at very low
transaction volumes.
Use the networks to strengthen relationships
with key lender clients.
Deliver organic growth by continuing to
develop the market for the provision of private
surveying services delivered direct to private
house purchasers with the addition of new
products such as “PropertyCare+”.
In addition the Group will continue to consider
selective acquisitions across the residential
property services value chain in order to
enhance market positions and to grow scale.
Surveying and Valuation Services
425 (2010: 412)
surveyors
Estate Agency branch network
568 (2010: 584)
branches
Combined Financial Services Network
(including introducer appointed representatives)
721 (2010: 589)
appointed
representatives
1,178 (2010: 1,127)
advisers
08
Directors’
Report &
Business
Review
Business Review
In this section
Chairman’s Statement
Surveying and Valuation Services
Estate Agency and Related Services
Financial Review
LSL Board
10
14
16
22
26
Directors’ Report and Business Review
of the year ended 31st December 2011.
The Directors’ have pleasure in presenting
their annual report and the audited
accounts for the year ended
31st December 2011.
The Directors’ Report and Business
Review is set out on pages 02 to 57.
09
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
Chairman’s Statement
Roger Matthews
Group Revenue
£218.4m
Group Underlying Operating Profit
£31.1m
Our strong balance
sheet and cash
generation allowed us
to take the opportunity
of acquiring
Marsh & Parsons
Introduction
In a market where transaction levels remained
exceptionally low, 2011 was a year of
investment for the future and one of strong
progress for the Group. LSL delivered a 6%
increase in revenue to £218.4m (2010:
£206.6m) and Underlying Operating Profit
of £31.1m (2010: £31.9m) after increased
investment of £6.1m in Estate Agency
initiatives. We invested as planned in key
programmes in the Estate Agency businesses
to drive revenue growth and were able to
increase both market share and profitability in
this part of the Group. We were delighted to
renew the Barclays surveying and valuation
services contract and to make an encouraging
start in delivering surveying services to private
buyers. Our strong balance sheet and cash
generation allowed us to take the opportunity
of acquiring Marsh & Parsons which is an
excellent strategic fit for LSL.
Marsh & Parsons gives our Estate Agency
Division exposure to the prime Central London
market through a business that has a
consistent record of profitable growth, a
balanced business model with an equal split of
residential sales and lettings, and which is led
by a high calibre management team.
Market transaction volumes for both
Surveying and Estate Agency increased slightly
during 2011 but are still at an extremely low
point in the cycle and we are now entering
a fourth year of trading at these levels.
Repossession volumes fell slightly during the
year which was somewhat surprising given
the general difficulties in the housing market
and the steady stream of disappointing
economic news.
Financial Results
Group revenue increased by 6% to £218.4m
(2010: £206.6m) generating Group Underlying
Operating Profit of £31.1m (2010: £31.9m).
Group Underlying Operating Margin decreased
from 15.4% to 14.3%, after the planned
investment of £6.1m in initiatives to increase
Estate Agency market share over the
medium term.
The Estate Agency Division increased
Underlying Operating Profit by 42% to £10.3m
(2010: £7.2m) in a year when house purchase
approvals fell by 4% in the first half of the year
and then increased by 10% in the second half,
resulting in a full year increase of 3% to
593,000 (2010: 575,000). Repossession
volumes fell by 1% to 35,800 in the year
(2010: 36,300). The Estate Agency Division
outperformed the market through continued
profit improvement in the ex HEAL branches,
market share gains, strong growth in Lettings
and Financial Services and benefits from the
first year of integration of our mortgage
intermediary businesses which were acquired
in 2010.
The Surveying Division traded well in a difficult
market. Although total mortgage approvals
increased by 2% to 1,227,000 (2010:
1,203,000) this included a 14% increase in
remortgages to 387,000 (2010: 339,000), the
majority of which did not result in a physical
valuation. Surveying revenue decreased by 5%
and Underlying Operating Profit decreased by
13% to £23.7m (2010: £27.3m) with an
Underlying Operating Margin of 31.0% (2010:
33.7%). The revenue decline occurred mostly
in the first half – during which many of our key
lender clients were trading against particularly
challenging comparatives. In addition,
profitability and margin were impacted by
continued investment in industry leading
service levels.
10
£2.8m
revenue from
private surveys
£2.8m revenue delivered through
the provision of surveying services
for private buyers
EPS and Dividend
21.0p
21.0p
8.4p
8.7p
2010
2011
Dividend
EPS
Professional Indemnity (“PI”) claims in the
market have continued at high levels
especially relating to valuations undertaken in
the period between 2005 and 2007. There has
been a net reduction in the provision for
inaccurate valuations to £9.6m (2010: £10.9m)
as a result of the increase relating to new and
possible expected claims being offset by the
settlement of a number of existing claims.
While the income statement charge in 2011
was in line with budgeted levels, cash
payments for settlement of claims have run at
a higher rate particularly in the second half.
Profit before tax, amortisation and exceptional
costs was £28.5m (2010: £33.9m). The prior
year included a one-off gain on the sale of an
investment amounting to £3.9m. Acquisition
costs relating to Marsh & Parsons contributed
to an overall net exceptional cost of £2.4m
(2010: exceptional profit £10.2m). The 2010
net exceptional profit was mostly as a result
of the acquisition of the assets of HEAL.
Amortisation during the year was £8.5m
(2010: £8.1m) giving a profit before tax of
£17.6m (2010: £36.0m). The profit after tax
was £13.2m (2010: £34.5m). On an adjusted
basis, earnings per share benefitted from
a lower tax rate and was flat at 21.0p
(2010: 21.0p).
Cash generated from operations before
exceptional costs was £22.4m (2010: £30.7m)
after capital expenditure of £3.2m (2010:
£5.0m) and revenue investment in the Estate
Agency initiatives of £6.1m (2010: nil). Cash
flow was lower compared to the previous year
because of an increase in working capital
driven by the loss of HIPs income, an increase
in deferred marketing fees, higher PI cash
payments and investment in Asset
Management work in progress. Without the
acquisition of Marsh & Parsons, the strong
cash flow would have resulted in net debt
improving from £4.9m at 31st December 2010
to net cash of £7.1m even after the payment
of £1.1m for a number of lettings businesses,
investment in joint ventures of £0.7m and
an increase in dividends paid in the year of
£0.8m. After the payment of an initial cash
consideration of £45.4m for Marsh & Parsons,
acquisition costs paid of £0.9m and cash
acquired of £5.7m; net debt was £38.4m as at
31st December 2011 (2010: £4.9m).
Dividend
As a result of the strong underlying
profitability of the Group and the Board’s view
of future prospects for the business following
the many positive developments during 2011,
a maintained final dividend of 5.9p per share
will be proposed to shareholders at the
forthcoming AGM, bringing the total dividend
for 2011 to 8.7p per share. This represents a
4% increase on the 2010 dividend of 8.4p per
share. The proposed dividend payment is
slightly higher than our previously stated
policy of applying a dividend payout ratio of
between 30% to 40% of Group Underlying
Operating Profit after interest and tax, and
reflects our confidence in the future and
cash generative characteristics of the Group.
The ex-dividend date for the final dividend
is 28th March 2012 with a record date of
30th March 2012 and a payment date of
27th April 2012. Shareholders have the
opportunity to elect to reinvest their cash
dividend and purchase existing shares in
LSL through a dividend reinvestment plan.
Developments
In Surveying we have continued to invest in
industry leading solutions and service levels
and have secured a number of key contract
renewals during the period, most notably
extending our relationship with Barclays for
the provision of UK residential survey and
valuation services for a new 30 month term
from January 2012.
We are particularly pleased with the progress
we have made during 2011 in expanding the
provision of surveying services for private
buyers. This is a key strategic initiative for
the Group and has delivered revenue of
£2.8m in the year. This result has primarily
been achieved by accessing private buyers
through Group distribution channels. We are
now expanding our product range and
distribution channels.
11
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
Chairman’s Statement
Continued
The Estate Agency Division has performed
well in a market in which mortgage approvals
increased by 3%, although all of the increase
occurred in the final four months of the year.
The typical three month lag between a
mortgage approval and house completion
resulted in market completions falling by an
estimated 5% year on year. Our market share
has increased from 4.5% in 2010 to 4.7% in
2011 but was somewhat depressed by the
significant increase in mortgage approvals in
the final few months of the year, the benefit
of which will not be felt until early 2012.
The market share increase has been driven
by the £6.1m investment made in branch
management, “The Bridge” call centre and in
additional online activity. We are well placed
going into 2012 with the pipeline 7% higher
in December 2011 than in December 2010.
Lettings and Financial Services income
streams have grown by 20% and 49%
respectively during the year with a particularly
strong contribution from the ex HEAL
branches. More generally, the ex HEAL
business contributed an improvement in
operating profit of £3.2m in 2011 compared
to 2010.
A key development for the Estate Agency
Division was the acquisition of Marsh &
Parsons which has an excellent geographic
and strategic fit with LSL. It gives LSL exposure
to the prime Central London market where
volumes and commission rates have been
consistently strong compared to other parts
of the UK. The business represents a trusted
premium brand with consistently high
customer satisfaction levels and is led by a
high quality and experienced management
team who have an excellent track record and
have built a business model balanced equally
between residential sales and lettings. The
management team has exciting growth plans
for the future including two new openings
during 2012. In addition, LSL is prepared to
augment these plans with “bolt on” acquisition
opportunities where appropriate.
Our Asset Management business increased
its market share once again. Although Asset
Management income of £13.9m was the same
as in the prior year (2010: £13.9m) this was
against a reduction of 1% in market volumes.
When combined with Lettings income of
£29.6m (2010: £24.6m) this resulted in total
counter cyclical income of £43.5m (2010:
£38.5m) which is now a key profit driver for
LSL. Lettings income accounted for 21% of
total Estate Agency revenues in 2011 (2010:
19%) and this is expected to increase further
during 2012.
Corporate Governance and Board
The Board is committed to high levels of
corporate governance as defined by the June
2010 UK Corporate Governance Code. We
conduct an annual review of matters reserved
for the Board and we have reviewed the terms
of reference of its Committees during the
year. We will be adopting the practice of all
our Directors standing for re-election at this
year’s AGM.
The Nominations Committee have considered
at length the composition of the Board, the
balance of skills and experience required to
optimise shareholder value, and its policy on
diversity. In this context, I am delighted that
we recently announced the appointment of
Helen Buck as an additional Non Executive
Director with effect from 1st December 2011.
Helen is currently on the Board of Sainsbury’s
Supermarkets Limited as Retail Director and
previously held senior retail and marketing
positions at Marks & Spencer PLC and Safeway
PLC. I am sure Helen will make a valuable
contribution to the Board and to the growth
of the business. Amongst our Non Executive
Directors, we have experience in surveying,
financial services, residential housing building,
retail and marketing, operations, business
services, entrepreneurial private and public
companies and finance.
£6.1m
revenue
investment in
Estate Agency
Market share increase has been
driven by investment in branch
management, “The Bridge” call
centre and in additional online
activity
12
Acquisitions
during the year
We have also recognised the benefits of
gender diversity on the Board. We now have
two female Directors representing 22% of the
Board. We have also reviewed gender diversity
across the management teams within the
Group businesses through a gender diversity
survey. I am reassured by the feedback as it
confirms that the Group is sufficiently diverse
and positive to our female employees. We do
not believe in setting targets for the number
of female Directors on the Board and while we
will continue to appoint on merit, I will ensure
that our searches take into account diversity.
I also continuously review and encourage
feedback on the effectiveness of the
Board and undertake an annual evaluation.
Whilst no significant issues requiring action
arose from these evaluations, a number of
recommendations were made to further
improve the effectiveness of the Board.
People
The Group expanded further during 2011
through both investment in our existing
businesses and through acquisitions. I would
like to extend a very warm welcome to all new
colleagues and wish them well in their careers
with the Group. In total, the number of Group
employees increased by 341 (8%) to 4,831
(2010: 4,490).
This has been another particularly challenging
year and our Group revenues have been
underpinned by exceptional customer service
in the face of ever increasing competition in
a low transaction environment. Such service
is dependent on the skills and efforts of our
employees and I would like to thank them all
for the tremendous commitment they have
shown during the year.
Current trading and outlook
Housing transaction volumes remain at less
than half of normal historic levels and the
Group retains a cautious view of 2012. The
housing market is now entering a fourth year
that will be impacted by a shortage of available
mortgage finance added to which the ongoing
general economic uncertainty is adversely
impacting consumer confidence. Against this
difficult backdrop the Group will continue
to focus on growing market share and
profitability in Estate Agency and on the
retention of key lender clients for Surveying
and Valuation Services. There are also
significant opportunities to build on the
strong start made in providing surveying
services to private buyers and to expand our
presence in the prime Central London market
through Marsh & Parsons.
Activity levels to the end of February 2012 are
in line with our expectations with market
volumes still constrained. We are making
further progress as planned with our organic
growth initiatives across the Group and Marsh
& Parsons is trading well.
The Group is extremely cash generative and
has a strong balance sheet. We will retain a
prudent approach to leverage which will place
a premium on delivery of organic growth but
with scope for further acquisitions. The Group
is well placed to increase shareholder value
through the execution of this strategy.
Roger Matthews
Chairman
1st March 2012
13
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Surveying and Valuation Services
In 2011 e.surv Chartered Surveyors renewed
a major contract with a key lender client and
continued to develop services for the private
survey market
Key Performance Indicators
Income per job
£153
Profit margin
31%
Number of surveyors
425
14
Surveying Division Performance
While total mortgage approvals during 2011
increased by 2% to 1.2m, this included a 14%
increase in remortgages, not all of which result
in a physical valuation. In addition, key lender
clients were trading against challenging
comparatives, particularly in the first half of
the year. Against this backdrop the Surveying
Division has traded well. Turnover fell by 5% to
£76.6m (2010: £80.9m) with the total numbers
of jobs performed reducing by 6% to 500,000
(2010: 531,000). The Division made excellent
progress in developing surveying services for
private buyers and delivered revenue of £2.8m
in the year (2010: nil).
Underlying Operating Profit reduced by 13%
and the Underlying Operating Profit margin
decreased to 31% (2010: 34%) which reflected
both the overall revenue decline and further
investment in provision of high service levels
for all lender clients. As part of this investment
there was a switch towards the use of
employed surveyors rather than contractors
and the total number of employed surveyors
increased to 425 (2010: 412).
PI claims in the market have continued at
high levels, especially relating to valuations
undertaken in the period between 2005 and
2007. There has been a net reduction in the
provision for inaccurate valuations to £9.6m
(2010: £10.9m) as a result of the increase
relating to new and possible expected claims
being offset by the settlement of a number of
existing claims. While the income statement
cost in 2011 was in line with budgeted levels,
cash payments for settlement of claims
have run at a higher rate particularly in the
second half.
Surveying Developments
2011 saw a successful start to the delivery
of our private survey initiative and levels
of revenue and margin have exceeded
expectations. The Group has an unparalleled
potential distribution network for private
surveying services including other key lender
clients, the Group’s Estate Agency branch
network including, online activity, direct
marketing and through the e.surv Chartered
Surveyors and Barnwoods brands. We will be
accelerating the roll out of our offer through
additional distribution channels during 2012.
e.surv Chartered Surveyors successfully
renewed the Barclays’ surveying and valuation
services contract for a 30 month term
commencing from 1st January 2012. This was
an excellent achievement in what continues to
be very uncertain market conditions and is a
reflection of our market leading service levels.
The C&G contract contributed £12.5m of
turnover in 2011 compared to £13.6m in 2010
due to the impact of Lloyds Banking Group’s
mortgage strategy and is due for renewal in
July 2012.
The Surveying Division has a number of
key relationships which are managed both
on an exclusive basis and through panel
management arrangements. We continue to
remain committed to providing excellent
quality advice and service levels to all lender
clients and have underpinned this with further
investment during the year.
Feedback from both our lender clients and
private customers is consistently positive
and we particularly differentiate ourselves on
meeting demanding key service measures. For
lender clients these include turnaround time
for valuations reflecting our use of innovative
technology, the flexibility of our panel
management arrangements and assisting
lenders in the management of the risk of
mortgage fraud. Our Surveying Division’s risk
management arrangements have been widely
acknowledged by our lender clients as being
market leading and unique.
During 2011 e.surv Chartered Surveyors’ risk
management and relationship management
arrangements have received recognition
through the nomination for the Managing
Partners and European Leadership Awards and
the CCR Credit Excellence Awards. Further
details relating to these nominations are set
Financial
Revenue
Operating expenditure
Underlying Operating Profit
KPIs
Profit margin
Jobs performed (’000)
Revenue from private surveys (£m)
Income per job (£)
Professional Indemnity insurance provision (£m)
Underlying Operating Margin
Number of surveyors
2011
£m
76.6
(52.9)
23.7
2011
31%
500
2.8
153
9.6
31%
425
2010
£m
80.9
(53.6)
27.3
2010
34%
531
–
153
10.9
34%
412
out below and further details of how we
manage customer relationships is set out at
page 23 of this Report.
Looking forward, we expect the tough market
conditions combined with the ongoing cycle
of key contract renewals to increase pressure
on margins in this division, but in the medium
term we expect to be able to mitigate this
margin pressure by capitalising on what
is a major opportunity to not only claim a
significant share of the current private survey
market and also to expand the market through
the education of customers.
Managing Partners and European Leadership
Awards 2012 Best Innovation in Client Service
or Relationship Management Nominee
Having been listed as a finalist at the MPF
European Practice Management Awards for
Risk Management in 2011, e.surv Chartered
Surveyors has once again in 2012 been listed
as a finalist at the Managing Partners and
European Leadership Awards which relates to
client services and relationship management.
These awards recognise the integrated and
embedded approach and active involvement
to relationship management promoted by
e.surv Chartered Surveyors.
e.surv Chartered Surveyors Achievements/
Awards 2011 & 2012
e.surv Chartered Surveyors, LSL’s largest
surveying business, has achieved a number
of awards and accreditations:
Mortgage Strategy Awards 2011 –
Finalist for Best Surveyor/Valuer
e.surv Chartered Surveyors was a finalist and
came second in the Best Surveyor/Valuer
category.
Mortgage Strategy Awards 2012 – Winner
e.surv Chartered Surveyors received the Best
Surveyor/Valuer award on 28th February 2012.
Marketing Week Engage Awards 2011
e.surv Chartered Surveyors was a finalist in
the Design category – a great achievement
for competing against the biggest brands in
the industry.
Sunday Times – Best Companies 2012 –
One to Watch
e.surv Chartered Surveyors received this award
in February 2012, having come extremely
close to being in the top 100 in 2011.
IIP Accreditation
The Investors In People accreditation was
achieved at e.surv Chartered Surveyors’
Head Office location in Kettering.
BSi ISO 9001 Accreditation Extended
e.surv Chartered Surveyors once again
secured an extension to its ISO 9001:2008,
which was originally achieved 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). This also covers
quality management systems, maintained
by the International Organisation for
Standardisation.
CCR Credit Excellence Awards 2011
e.surv Chartered Surveyors was selected as a
finalist in the CCR Credit Excellence Awards
2011 in the category for “Credit Excellence in
Risk”. The position within this category was
awarded for continued development of risk
management and mitigation controls to
support its lender clients.
“e.surv Chartered Surveyors is objectively
recognised by our clients and professional
indemnity insurers as leading the way in the
management of risk within the Surveying
Industry. The business embraces risk
management as a tool to “de-risk” the
business, derive a unique selling point and
secure new and strengthen existing client
contractual relationships.”
15
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Estate Agency and Related Services
In 2011 LSL acquired Marsh & Parsons in line with our acquisition strategy
to expand our presence in the prime Central London residential sales and
lettings markets
Actual -– including Marsh & Parsons
Like-for-like – excluding Marsh & Parsons
2011
2010
27,643
4.7%
7.2%
25,766
4.5%
5.8%
%
change
7%
4%
26%
2011
2010
27,540
4.64%
7%
25,766
4.48%
5.8%
%
change
7%
4%
21%
The acquisition of Marsh & Parsons provides
a business with an excellent geographic and
strategic fit for LSL. It gives LSL exposure to the
prime Central London property market where
volumes and commission rates have been
consistently high and strong compared to
other parts of the UK. For the short period
between acquisition and the year-end, Marsh
& Parsons has traded in line with the Directors’
expectations. The management team at Marsh
& Parsons is very experienced, has built a
business model balanced equally between
residential sales and lettings and has an
excellent track record in delivering growth.
Estate Agency Branches
Your Move, Reeds Rains and the LSLi brands
all continued to perform well during a year in
which mortgage approvals reduced in the
first half year and then increased significantly
in the final four months. LSL has historically
measured market share by comparing
exchanges against house purchase mortgage
approvals data issued by the Bank of England.
Using this measure our market share increased
from 4.5% to 4.7% in 2011. However, taking
into account the three month time lag
between mortgage approval and house
purchase completions, market completions
fell by an estimated 5% in 2011. Our market
share of 4.7% was depressed by the significant
increase in mortgage approvals in the final
months of the year, the benefit of which can
be seen in the 7% year on year increase in the
pipeline. This increase in market share in our
Estate Agency Division has mainly been driven
by the investment in people and the new
call centre.
Estate Agency Performance
The Estate Agency Division acquired Marsh &
Parsons in November 2011 and the trading
has so far had a small impact on the overall
performance of the division but is expected to
have a significant impact in 2012. Therefore,
the results are presented on both an actual
and like-for-like basis (excluding Marsh &
Parsons). Further details about Marsh &
Parsons are set out below and in the Circular
to Shareholders dated 4th November 2011,
which is available at www.lslps.co.uk/
investors-relations/investor-communications.
The Estate Agency Division delivered a strong
performance in 2011 with excellent growth
in Lettings and Financial Services income
streams. The number of mortgage approvals
for house purchases increased by 3% to
593,000 (2010: 575,000) which compares
to historic normalised levels of 1.2m. The
increase in approvals all occurred in the final
four months of the year and the typical three
month lag between a mortgage approval and
house purchase completion actually meant
that market completions in 2011 fell by an
estimated 5% year on year.
Against this background, total Estate Agency
income increased by 13% to £141.8m (2010:
£125.7m) and on a like-for-like basis by 11%
to £139.2m (2010: £125.7m). Underlying
Operating Profit increased by 42% to £10.3m
(2010: £7.2m) and on a like-for-like basis by
34% to £9.7m (2010: £7.2m) after investment
of £6.1m in people and the new call centre.
The HEAL business which was acquired
in January 2010 delivered a break even
performance in 2011 (2010: £3.2m operating
loss) driven by significant increases in Lettings
and Financial Services income in the ex HEAL
branches. These income streams have also
increased in the original non HEAL branches
and this is discussed later in this review.
KPIs
Exchange units
Market share
Underlying Operating Margin
Key Performance Indicators
Total exchange units
+7%
Total market share
+4%
Underlying Operating Margin
+26%
16
Financial
Exchange fees
Lettings income
Asset Management income
Financial Services income
Other income*
Total income
Operating expenditure
Underlying Operating Profit
Actual – including Marsh & Parsons
Like-for-like – excluding Marsh & Parsons
2011
£m
56.8
29.6
13.9
27.6
13.9
2010
£m
52.4
24.6
13.9
18.6
16.2
141.8
(131.5)
10.3
125.7
(118.5)
7.2
%
change
9%
20%
0%
49%
–14%
13%
11%
42%
2011
£m
54.8
29.1
13.9
27.6
13.8
2010
£m
52.4
24.6
13.9
18.6
16.2
139.2
(129.5)
9.7
125.7
(118.5)
7.2
%
change
5%
18%
0%
49%
–14%
11%
9%
34%
*
“Other income” includes franchising income, conveyancing services, EPCs, Home Reports, utilities and other products and services to clients of the branch network.
Breakdown of Estate
Agency branches
YM
RR
LSLi
M&P
Totals
Owned
Franchised
Totals
229
155
28
14
426
85
44
13
0
142
314
199
41
14
568
The above branch numbers include 7 virtual branches.
Counter Cyclical Income
The counter cyclical income streams of
Lettings and Asset Management are
particularly important to LSL in depressed
market conditions. In 2011 LSL has focussed
on growing Lettings income especially in the
ex HEAL branches to minimise the impact of
the market downturn. During 2011 like-for-like
Lettings income grew by an impressive 18%.
Despite the uncertain economic conditions
impacting the housing market and the steady
stream of disappointing economic news the
repossessions volume fell by 1% to 35,800
in 2011 (2010: 36,300). We are pleased that
our market share in Asset Management has
increased during the year with revenue
remaining at £13.9m (2010: £13.9m) in a
declining market. Our Asset Management
business is well positioned to capitalise on an
increase in repossession volumes when they
eventually occur.
Financial Services
Financial services income has increased by
49% in 2011 to £27.6m (2010: £18.6m). This
was due to a combination of increase in
Financial Services income from the Residential
Sales branches and also full year revenue
benefit from the acquisition of the Home of
Choice network, (which was acquired by First
Complete in May 2010) and Pink Home Loans
(acquired in November 2010). We have now
successfully integrated the 2010 acquisitions
and simplified our regulatory operating
model with Your Move and Reeds Rains
becoming the appointed representatives of
First Complete. Total gross mortgage lending
arranged through our Financial Services
network in 2011 was £6.8 billion (2010:
£2.6 billion).
Developments
The key Estate Agency developments during
2011 were the continued focus on execution
of the market share growth initiatives
started in 2010 and also the acquisition of
Marsh & Parsons.
The market share growth initiatives have been
built on the platform of an Estate Agency
branch network which had been expanded
by the acquisition of the HEAL business
in January 2010. Following a successful
integration of HEAL, all branches have offered
a service covering Residential Sales, Lettings
and Financial Services since mid 2010. Lettings
and Financial Services growth has been
targeted with excellent results and is on track
to follow a three to five year growth maturity
curve with prospects enhanced by favourable
conditions in the lettings market. In addition,
a number of individual lettings books have
been acquired in various locations across the
country on a tactical basis.
The key element of the organic growth
initiative was to increase market share in
Residential Sales. The initiative was started in
2010 with refurbishment of all branches and
with investment in people at the branch level.
This has continued during 2011 and in January
2011 our new call centre “The Bridge”, was
opened. “The Bridge” operates to help
generate instructions for the branches and has
had a very successful first year. Overall, market
share has increased from 4.5% to 4.7% during
the year and pipelines in December 2011 were
7% higher compared to December 2010.
We have also been aiming to increase our
market share of higher value properties,
against the backdrop of Your Move and Reeds
Rains typically selling houses at the national
average house price of circa £160,000. This
has proved more difficult in the prevailing
market conditions and while we have had
some success this area remains a major
opportunity for the future.
17
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
Estate Agency and Related Services
Continued
Marsh & Parsons
In November 2011, LSL acquired Marsh &
Parsons, which is a leading London estate
agency operating a premium brand in the
mid-segment of the prime Central London
property market, where sale volumes
have been robust and commission rates
consistently strong in comparison with
other parts of the UK.
About Marsh & Parsons
Headquartered in Hammersmith, Marsh &
Parsons is a leading premium brand London
estate agency operating exclusively in the
prime London housing market of Central
and South West London from its 14 branches.
It was originally established in 1856 when its
founder, William T Marsh, established an
estate agency on Kensington High Street.
From its inception, the firm has established
itself as one of the leading residential estate
agents in Central London and it is one of the
longest established estate agents in the
Royal Borough of Chelsea and Kensington.
Marsh & Parsons’ 14 branches are based in
Balham, Barnes, Battersea, Brook Green,
Chelsea, Clapham, Fulham, Holland Park,
Kensington, Little Venice, North Kensington,
Notting Hill and Pimlico and there is also a
virtual office in Mayfair.
The customer offering is predominantly
residential sales and lettings services, but it
also includes corporate relocation services,
property management, residential
development, advisory services and
professional valuation services.
In June 2005, Marsh & Parsons was acquired
by Sherry FitzGerald (Ireland’s largest estate
agency group) under the leadership of Peter
Rollings (previously the Managing Director of
Foxtons) and Liza-Jane Kelly. Since then, Marsh
& Parsons has grown rapidly (turnover has
increased from £10.4m in 2006 to £23.3m in
2010) following the opening of new branches
and the acquisition and rebranding of
Vanstons in 2007.
In 2011, Marsh & Parsons won a number of
awards including receiving awards in four
categories at the Negotiator Awards. Details
of the awards received by Marsh & Parsons
are set out at pages 20 and 21. Marsh &
Parsons also holds memberships of both the
Association of Residential Lettings Agents
(ARLA) and The Property Ombudsman (TPO).
Marsh & Parsons had 208 full time equivalent
employees as at 31st December 2011.
The Acquisition
Marsh & Parsons was formerly a subsidiary of
Sherry FitzGerald which owned 72% of the
entire issued share capital, with the remaining
28% of the issued share capital being owned
by the Marsh & Parsons Management
Shareholders. Following LSL’s acquisition, the
Marsh & Parsons Management Shareholders
have remained with the business and, as part
of their commitment they have reinvested
50% of the net consideration that they
received (£6.5m) back into the business.
The enterprise value of the acquisition was
£50.0m. After accounting for cash and excess
working capital of approximately £3.1m, LSL
paid a total consideration of £53.4m (before
fair value adjustment to loan notes), which was
satisfied by £45.4m in cash, £7.6m in loan
notes and £0.4m in Growth Shares for the
entire issued share capital of Marsh & Parsons.
Marsh & Parsons Management Shareholders
have been incentivised to grow the
profitability of the business through the
allocation of the £0.4m of Growth Shares
which can be sold to LSL at any time between
31st March 2016 and 1st April 2020.
The transaction was funded using LSL’s
existing bank facility and is expected to
significantly enhance adjusted earnings per
share for LSL’s shareholders in 2012.
Benefits of the Acquisition
The Directors believe that the transaction
has a compelling strategic and financial
Liza-Jane Kelly
Peter Rollings
18
b. The London property market has
historically shown more robust
characteristics than the wider UK property
market, though transaction levels are still
circa 40% lower than peak levels in 2007.
The higher proportion of cash sales
and greater participation of foreign buyers
provide the London property market
with higher levels of growth during
stronger economic periods but also more
resilience against restricted mortgage
availability and general economic
weakness. More generally, limited housing
supply and strong demand for properties
from both domestic and foreign buyers
contribute to the inherent attractiveness
of the London market.
c. The Marsh & Parsons business model is to
drive revenue across both residential sales
and lettings in order to reduce exposure
to the natural cyclicality of the property
market. This has been achieved and
revenue in 2010 was broadly evenly split
between residential sales and lettings.
d. Marsh & Parsons represents a trusted
premium brand, established for over 150
years, which enjoys excellent customer
satisfaction levels, enabling Marsh &
Parsons to increase its market share by 66%
since 2005, including the period of the
recent market downturn.
e. LSL has gained a high quality, dynamic
and experienced management team
with an outstanding record of delivering
strong and profitable growth against the
backdrop of challenging market conditions.
The team is led by Chief Executive Peter
Rollings, who has over 25 years’ experience
of successfully growing estate agency
businesses in the London market with
both Foxtons and Marsh & Parsons, and
Liza-Jane Kelly, who has over 18 years in
the property market including experience
with Sherry FitzGerald, Hamptons
International and Marsh & Parsons.
The Marsh & Parsons Management
Shareholders remain committed to
and have reinvested in the business.
f. The Marsh & Parsons Management
Shareholders have exciting growth plans
for the business which builds on their
recent track record of doubling their
number of offices. The next stage of the
business plan includes increasing market
share across the existing portfolio and
further roll out of new offices across prime
areas of London together with further bolt
on acquisition opportunities.
g. While Marsh & Parsons will operate
independently within the Group, there
will be opportunities for synergies. LSL
has a strong track record of encouraging
its separately branded Estate Agency
businesses to share best practice and, in
particular, there may be opportunities for
Marsh & Parsons to further develop certain
revenue streams. In addition, it is possible
that some existing LSL Estate Agency
branches in London could be rebranded
Marsh & Parsons.
h. In a challenging London market, Marsh &
Parsons has demonstrated an excellent
track record of delivery since 2005 through
its investment in people, market, business
model and brand. During this period,
its market share has increased by 66%,
revenue has increased by 53% per annum
(compound annual average growth rate)
and the operating result has improved
from a loss of £0.6m in 2005 to a profit
before tax of £6.3m in 2010. The business
has also delivered excellent cash
conversion during this time with high
margins and relatively low levels of capital
expenditure.
19
rationale, with significant benefits for LSL’s
Shareholders. The London estate agency
market has historically proven to demonstrate
more robust features through the property
cycle. The acquisition of Marsh & Parsons
provides LSL the opportunity to significantly
increase its exposure in this key geographical
location, and provides a vehicle to capitalise
on further expansion opportunities in London
and, in the medium term, to benefit from the
market recovery.
Following the acquisition, Marsh & Parsons
continues to operate independently as a
separate business and brand within the Group,
which already operates a number of estate
agency brands and businesses.
The key benefits which flow from the
transaction can be summarised as follows:
a. The transaction provides LSL with a
presence in the mid-segment of the prime
Central London estate agency market.
Marsh & Parsons is geographically
complementary to LSL’s existing estate
agency footprint and provides the wider
Group with greater coverage of the UK
property market.
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Estate Agency and Related Services
Continued
Regulation
First Complete, Advance Mortgage Funding
and BDS Mortgage Group are all directly
authorised by the Financial Services Authority
in relation to the sale of mortgage and
non investment insurance products (which
includes pure protection and general
insurance products). Your Move and Reeds
Rains along with the LSLi subsidiaries are all
appointed representatives of First Complete,
while Linear is an appointed representative of
Advance Mortgage Funding for mortgage and
non investment insurance business and also
an appointed representative of Openwork (for
investment business). Reeds Rains is also 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.
Estate Agency and Related Services
Achievements/Awards 2011 & 2012
The Estate Agency businesses achieved the
following industry awards demonstrating LSL’s
continued commitment to customer services:
The Sunday Times Estate Agency of the Year
Awards are now a recognised benchmark for
excellence throughout the estate agency
industry. Competition is fierce from estate
agencies nationwide and an award is a great
achievement.
Your Move
Sunday Times Estate Agency of the Year
Awards 2011:
Gold – Best Marketing
Silver – Best Financial Services
Sunday Times Lettings Agency of the Year
Awards 2011:
Bronze – Best Property Management
Bronze – Best Lettings Franchise
Reeds Rains
Sunday Times Estate Agency of the Year
Awards 2011:
Shortlisted Best Financial Services Provider
Marsh & Parsons
The Negotiator Awards 2011 – Quadruple
Winners
At the 2011 Negotiator Awards Marsh &
Parsons were winners of four categories –
National Lettings Agency of the Year,
Marketing Team of the Year, Leader of the Year,
and named as overall “most admired estate
agency” earning the Supreme Agency of the
Year title.
National Lettings Agency of the Year – the
judges were particularly impressed with Marsh
& Parsons’ newly launched initiatives,
including an international desk offering 20
different languages and the 2012 Olympic
Accommodation service run by their
Corporate & Relocation Services team.
20
Marketing Team of the Year – Marsh & Parsons
were particularly commended for their 0%
campaign, designed to introduce the Marsh &
Parsons brand in areas where they were
relatively unknown.
Pink Home Loans
Mortgage Strategy Awards 2012 and 2011 –
Finalist
Pink Home Loans was a finalist in both years in
the Best Mortgage Network Category.
Leader of the Year – Peter Rollings, Chief
Executive of Marsh & Parsons was announced
as 2011’s Estate Agency ‘Leader of the Year’.
The judges were impressed with his
transformation of the Marsh & Parsons brand,
as well as his ability to get the best out of his
employees, who “praise their leader for his
energy, enthusiasm and commitment, but
above all, for his passion for the business”.
Overall Supreme Agency of the Year – this
award is judged by The Negotiator’s “special
academy” comprising 50 of the UK’s leading
property professionals, including Marsh &
Parsons’ rivals.
Sunday Times Lettings Agency of the Year
Awards 2011 – Winner
Gold – Best Medium Letting Agent in London
Intercounty
Sunday Times Estate Agency of the Year
Awards 2011 – Winner
Cecil Jackson Cole Award for Social and
Corporate Responsibility
The award recognised the work they have
been doing with Shelter during 2011 and 2012.
The award helps to raise the profile of the
issues related to homelessness and raise more
money for the cause. Part of Intercounty’s
campaign included a sponsored sleep rough
when some of the staff led by Greg Young, its
MD, undertook a 24 hour street collection
outside three of its branches in aid of Shelter.
Linear Financial Services
Mortgage Strategy Awards 2012 and 2011 –
Winner
Linear Financial Services was the winner in
both years of the Best Broker for Protection
award.
First Complete
Mortgage Strategy Awards 2012 – Winner
First Complete won the Best Mortgage
Network award.
Mortgage Strategy Awards 2011 – Finalist
First Complete was a finalist in the Best
Mortgage Network category.
LSL Corporate Client Department (LSL CCD)
LSL CCD accredited to ISO 9001:2008
In 2011 LSL Corporate Client Department
became the first corporate asset manager
to be accredited to ISO 9001:2008 leading
the way and setting standards in this field.
This was achieved when LSL CCD was
independently reviewed by the leading global
provider of standards and certification body
– the British Standards Institution (BSI). This
also covers quality management systems
maintained by the International Organisation
for Standardisation.
Mortgage Finance Gazette Award 2011 –
Winner
LSL Corporate Client Department became the
winner in the Excellence in Treating Customers
Fairly – Non Lenders category. It was noted
that: “Treating customers fairly is embedded
in the culture of the company from staff
training systems, auditing and complaint
handling.”
St Trinity Asset Management
St Trinity accredited to ISO 9001:2008
In 2011 St Trinity Asset Management became
the first part-exchange asset manager in the
UK to secure ISO 9001:2008 accreditation,
leading the way and setting standards in this
field. This was achieved when St Trinity was
independently reviewed by the leading global
providers of standard and certification body
– the BSI. This also covers quality management
systems maintained by the International
Organisation for Standardisation.
LSL – The Bridge
Sunday Times Estate Agency of the Year
Awards 2011 – Finalist
Bronze – Innovation
LSL Land & New Homes
Sunday Times Estate Agency of the Year
Awards 2011 – Finalist
Bronze – Best New Homes
21
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Financial Review
The key drivers of the financial
performance of LSL are
summarised below
Revenue
+6%
Underlying Operating Profit
£31.1m
Operating cash flow after capital expenditure
£22.4m
Net debt (excluding loan notes)
£38.4m
INCOME STATEMENT
Revenue
Revenue increased by 6% to £218.4m in the
year ended 31st December 2011 (2010:
£206.6m).
Operating Expenses Excluding Exceptional
Costs, Amortisation and Share Based
Payment
Operating expenses increased by 7% to
£189.0m (2010: £176.4m). This was mainly in
the Estate Agency and Related Services
Division and was due to higher revenue.
Average full time equivalent employees during
the year was 3,930 (2010: 3,649).
Underlying Operating Profit
Group Underlying Operating Profit decreased
by 2.6% to £31.1m (2010: £31.9m) with the
Underlying Operating Margin of 14.3% (2010:
15.4%).
Exceptional Items
Acquisition costs of £1.6m relating to Marsh &
Parsons contributed to an overall net
exceptional cost of £2.4m (2010: exceptional
profit £10.2m).
Net Financial Costs
Net financial costs (excluding exceptional
finance costs) amounted to £1.8m (2010:
£2.2m). The finance costs related principally to
interest and fees on the revolving credit
facility.
Taxation
The effective rate of corporation tax for the
year was 24.6% (2010: 4%). The effective tax
rate for the year was impacted by non-taxable
income for joint ventures and the impact of a
rate change on the deferred tax liability.
Excluding this impact the effective tax rate is
27.8%. The effective tax rate in the prior year
was lower due to the impact of non-taxable
income on profit made on the 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 (2010: 21.0p).
The Directors consider that 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 £3.2m (2010: £5.0m). The capital
expenditure predominantly comprised
expenditure on investment in Estate Agency
initiatives.
Financial Structure
As at 31st December 2011 net debt (excluding
loan notes issued on the acquisition of Marsh
& Parsons) was £38.4m (2010: £4.9m). LSL has
a £75.0m revolving credit facility in place until
March 2014 (2010: £75.0m). The net debt
increase followed the payment of an initial
consideration of £45.4m for Marsh & Parsons
and the payment of £1.1m for a number of
lettings businesses, investment in joint
ventures of £0.7m and an increase in dividend
paid in the year of £0.8m.
Cash Flow
The Group produced £22.4m (2010: £30.7m)
of operating cash flow after capital
expenditure of £3.2m (2010: £5.0m) and
revenue investment in Estate Agency
initiatives of £6.1m (2010: nil). Cash flow was
lower compared to the previous year because
of an increase in working capital driven by the
loss of HIPs income, an increase in deferred
marketing fees, higher PI cash payments and
investment in Asset Management work in
progress. Without the acquisition of Marsh &
Parsons, the strong cash flow would have
resulted in net debt improving from £4.9m in
December 2010 to net cash of £7.1m even
after the payment of £1.1m for a number of
lettings businesses, investment in joint
ventures of £0.7m and an increase in
dividends paid in the year of £0.8m. After the
payment of an initial cash consideration of
22
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. 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 51 to 57 of this
Report.
£45.4m for Marsh & Parsons, acquisition costs
paid of £0.9m and cash acquired of £5.7m,
net debt was £38.4m as at 31st December 2011.
Net Assets
The net assets as at 31st December 2011 were
£72.4m (2010: £68.1m).
Treasury & Risk Management
LSL has an active debt management policy
and due to the cash generative nature of the
business and the cash paid for the initial
consideration on the acquisition of Marsh &
Parsons of £45.4m, the Group’s net debt
position (excluding loan notes issued on
the acquisition of Marsh & Parsons) at
31st December 2011 is £38.4m (2010: £4.9m).
The Group has an interest rate swap in place
which fixes the interest on borrowings up to
£25m at an average rate of 2.93%. This provides
a degree of predictability on finance costs.
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.
RELATIONSHIPS
The Corporate Social Responsibility (CSR)
statement at pages 51 to 57 details the
arrangements for all LSL companies in
relation to:
• Employment (including Equal Opportunities);
• Health, Safety & Welfare;
• Environmental; and
• Social and Community Investments
(including social and ethical issues).
Other than our shareholders, LSL’s
performance and value are influenced by
other stakeholders, principally our customers,
suppliers, employees, Government and our
strategic partners. LSL’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 Royal Institute of Chartered
Surveyors (RICS), the Association of
Mortgage Intermediaries (AMI), the National
Association of Estate Agents (NAEA), the
Association of Residential Lettings Agents
(ARLA), National Federation of Property
Professionals (NFoPP) and The Property
Ombudsman (TPO), because these give us
genuine access to customer views and
decision makers in Government and other
regulatory bodies.
• 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.
23
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Financial Review
Continued
PRINCIPAL RISKS & UNCERTAINTIES
LSL’s risk management arrangements form an integral part of its overall
framework for the management of risks and maintaining internal
controls. Through the framework, the Board continually identifies,
evaluates and manages the principal risks and uncertainties faced by
LSL which could adversely affect its business, operating results and
financial condition.
This risk management and internal controls framework includes:
a. Ownership of the risk management and internal controls framework
by the Board, supported by the Company Secretary, Head of Risk &
Audit and the Group Financial Controller;
b. A network of Risk Owners in each of LSL’s businesses with specific
responsibilities relating to risk management and internal controls;
c. The documentation and monitoring of risks are recorded and
managed through standardised risk registers which undergo regular
reviews and scrutiny by local boards and the Head of Risk & Audit;
d. The Board regularly reviews a consolidated risk register as part of
the planning and reporting cycle to ensure that risks which impact
the Group are identified, monitored and mitigated; and
e. Reporting by the Chairman of the Audit Committee to the Board on
any matters which have arisen from the Audit Committee’s review
of the way in which the risk management and internal control
framework has been applied together with any breakdowns in, or
exceptions to, these procedures.
Listed on page 25 are the risks which the Board has identified as being
significant, and therefore the principal risks and uncertainties faced by
LSL, together with details of key mitigation initiatives, which are subject
to regular review.
LSL also faces other risks which, although important and subject to
regular review, have been assessed as less significant and are not listed
here. This includes some risks which were reported in previous years’
Annual Report & Accounts and which through changes in external
factors and careful management are no longer material to the Group
as a whole.
However, many risk factors remain beyond the direct control of LSL
and the risk management framework and procedures can only provide
reasonable but not absolute assurance that the principal risks and
uncertainties are managed to an acceptable level.
Further information relating to the management of these risks and
uncertainties is set out in the Corporate Governance Report (Internal
Controls) of this Report on page 40.
24
Principal Risks & Uncertainties
Mitigation
The continued volatility and economic uncertainty within the UK. In
particular, within the UK housing market, transaction volumes (both
house purchase and remortgage) and house prices may adversely affect
the profitability and cash flow of all our key brands and businesses.
The Board regularly focuses on counter-cyclical income streams to
ensure that the growth in income in Lettings and Asset Management
set off the impact of reduced transaction numbers.
The current economic uncertainty especially in the financial sector (both
within the Eurozone and the UK) could also impact on lender behaviour
and the availability of mortgage credit which will have a consequential
impact on the housing market by impacting mortgage availability.
The Board regularly reviews trends in market volumes and decides
whether any actions such as cost base reductions measures are
required.
Following the acquisition of Marsh & Parsons, LSL now has a new
exposure to the Central London property market. While historically
the London market has been more robust compared to the rest of
the UK, there is a risk that the London market fails to grow or that
LSL fails to maximise the potential growth.
The Group CEO, the Group Finance Director and the Executive Director for
Estate Agency are all members of the Marsh & Parsons board and their
presence ensures the close monitoring of the company’s performance.
Further, regular reviews of trends in market volumes are undertaken and
decisions made on any cost base reductions measures.
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.
There has been an increased investment in customer services to
retain existing clients and attract new ones. In addition, we are
continuing to develop our private survey proposition to provide an
alternative income stream.
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.
Monitoring arrangements include oversight by the Board (including
regular review of the PI provision) and appropriate quality controls
and Internal Audit reviews of services provided on a sample basis.
There are also specific controls implemented within the Surveying
Division which include a risk based criteria in the identification of
transactions to be audited.
Failure to effectively deliver and manage the market share initiatives for
Estate Agency.
Regular monitoring by the Board is undertaken on the Division’s
progress.
Changes in legislation, regulation or Government policy may impact on
business results or the UK housing market in general.
LSL business units are supported by the Compliance and Legal Services
teams who closely monitor any reform proposals. Where appropriate
Government departments and/or trade bodies are engaged in a dialogue.
Approved by and signed on behalf of the
Board of Directors on 1st March 2012.
Simon Embley
Group Chief
Executive Officer
Steve Cooke
Group Finance
Director
25
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
LSL Board
26
Helen Buck
Non Executive Director
Helen was appointed as a Non Executive Director on 1st December 2011. She is also a member of the operating board of
Sainsbury’s Supermarkets Ltd (retail director). Helen joined Sainsbury’s in 2005 and, after spending four years running Brand
Communications, moved to Trading as business unit director, Grocery in 2009 and then ran the Convenience division for
two years. Before joining Sainsbury’s, Helen held a number of senior positions at M&S, Woolworths and Safeway and was a
senior manager at McKinsey and Co.
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 the 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 chartered surveyor and until 2011 was Chair of the RICS
World Residential Professional Group. He continues to be a member of this board as well as a member of a number of
influential UK trade association boards.
Roger Matthews
Non Executive Chairman and Chairman of the Nominations Committee
Roger was appointed Chairman of LSL and the Nominations Committee 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 and is also a trustee of Cancer Research UK.
Mark Morris
Senior Independent Non Executive Director and Chairman of the Audit Committee
Mark was appointed as an Independent Non Executive Director of LSL and Chairman of the Audit Committee 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 12 years at PricewaterhouseCoopers. Mark is currently
non executive director and audit committee chairman at HomeServe plc and is a 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. He is also the MD of Your Move where he has 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.
Mark Pain
Independent Non Executive Director and Chairman of the Remuneration Committee
Mark was appointed as an Independent Non Executive Director and Chairman 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 is the senior
independent non executive director and chairs the audit committee. Mark is also a non executive director of Punch Taverns
plc and Spirit Pub Company plc, 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. Alison held various senior positions before
her appointment as chief operating officer of e.surv Chartered Surveyors 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 and during 2011 Alison was a finalist at the Women
in Property Awards.
Sapna B FitzGerald
Head of Legal and Company Secretary
Sapna is a solicitor (qualified in 1998) and has been in the role of Company Secretary at LSL since 2004. Prior to the
management buy-out of Your Move and e.surv Chartered Surveyors, Sapna was a member of Aviva Life Legal Services and
had since 2001 formed part of the team that supported Your Move and e.surv Chartered Surveyors.
Annual Report & Accounts 2011
27
Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Directors’
Report &
Business
Review
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
29
30
35
42
51
28
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 UK 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 IFRS, 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.
29
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
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 Residential Sales, Lettings, Asset Management and Financial Services.
Business Review & Development
The Chairman’s Statement and the Business Review set out a review of the business including details of LSL’s performance and
development.
Annual General Meet (AGM)
The AGM will be held at the London offices of LSL, 1 Sun Street, London EC2A 2EP on 19th April 2012 starting at 2.00pm.
The Notice of Meeting convening the AGM is in a separate circular to be sent to shareholders. 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.
Financial Results
The Business Review and Financial Statements set out the financial results of LSL.
Dividend
As a result of the strong underlying profitability of the Group and the Board’s view of future prospects for the business following the many
positive developments during 2011, a final dividend of 5.9p per share will be proposed to shareholders at the forthcoming AGM, bringing
the total dividend for 2011 to 8.7p per share. This represents a 41% payout ratio (based on adjusted EPS of 21.0p per share) and a 4%
increase on the 2010 dividend of 8.4p per share. The proposed dividend payment is slightly higher than our previously stated policy of
applying a dividend payout ratio of between 30% to 40% of Group Underlying Operating Profit after interest and tax, and reflects our
confidence in the future.
The ex dividend date for the final dividend is 28th March 2012 with a record date of 30th March 2012 and a payment date of 27th April 2012.
Shareholders have the opportunity to elect to reinvest their cash dividend and purchase existing shares in LSL through a “Dividend
Reinvestment Plan”.
Employees
LSL recognises that our people are a valuable asset and it is committed to providing a working environment in which employees can develop
to achieve their full potential with opportunities for both professional and personal development. By creating such an environment, LSL
believes 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 ensures that LSL, in its decision-
making, takes into account employee views.
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 details of how LSL engages with employees is detailed in the CSR statement at pages 51 to 57 of this Report. The CSR statement also
summarises 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 29 of the Financial Statements.
30
Directors
The current Directors are listed with their biographies under LSL Board at pages 26 and 27 of this Report.
During 2011 Helen Buck was appointed to the Board as an independent Non Executive Director (1st December 2011). Full details of the
Directors are also contained within the Directors’ Remuneration Report.
Re-election & Election
In accordance with the Articles of Association, all of the Directors 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 Helen Buck, having been appointed since the last AGM is standing for election. LSL may by ordinary
resolution elect or re-elect any individual as a Director.
During the 2011 Board effectiveness review, the performance of the Directors, who are all standing for re-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 page 49. Other than the acquisition
of 105 shares by the LSL BAYE/SIP Trust on behalf of Alison Traversoni (resulting in her total shareholding amounting to 616,954), during the
period between 31st December 2011 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 an anti bribery and hospitality policy to ensure compliance with section 176 of the Companies Act 2006.
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.
Directors’ Service Contracts
Details of the Executive Directors’ service agreements and the Non Executive Directors’ letters of appointment are set out in the Directors’
Remuneration Report at page 45 of this Report.
Auditors
Ernst & Young LLP, the external auditors of the Group have advised of its willingness to continue in office and resolutions 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 & 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 2011.
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.
31
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Report of the Directors
Continued
Employee Share Schemes
LSL has two employee benefit trusts. The first was established in 2006 prior to LSL’s flotation on the London Stock Exchange and LSL
appointed Capita Trustees Limited (Trustees) to operate the LSL Property Services plc Employee Share Scheme (Trust). The Trustees of this
Trust operate both the LSL Property Services plc Employee Share Incentive Plan (Buy As You Earn/BAYE) and the Save As You Earn (SAYE)
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.
The second employee benefit trust was established in November 2011 (the 2011 EBT), as part of the acquisition of Marsh & Parsons. While
the beneficiaries of the 2011 EBT are the LSL employees, the 2011 EBT acquired the Growth Shares as part of the transaction and it is
intended that in due course members of the current and future management team of Marsh & Parsons will apply for Growth Shares, as part
of a package of measures designed to incentivise all of the current and future management of Marsh & Parsons. The 2011 EBT does not
currently hold any LSL shares.
Charitable & Political Donations
LSL Group companies in total made a number of charitable donations throughout the year totalling £21,000 (2010: £7,886). Further
information about the Group’s charitable initiatives is contained within the CSR at pages 56 and 57 of this Report. Through various charitable
initiatives across the Group, employees have also raised funds directly, including £12,288 via the Workplace Giving initiative which was set
up in 2010.
Creditors & Supplier Payment Policy
LSL’s normal terms are to make payment in accordance with suppliers’ terms of trade or within 45 days (2010: 45 days) from the receipt of
services or invoices subject to satisfactory performance by the supplier. At 31st December 2011, 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 page 51 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 10 to 25. The financial position of the Group, its cash flows, liquidity position and the Group’s policy for
treasury and risk management are described in the Financial Review on page 22. Details of the Group’s borrowing facilities are set out in note
21 of the Financial Statements. Note 29 of the Financial Statements describes the Group’s objectives, policies and processes for managing
its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk
and liquidity risk. A description of the Group’s principal risks and uncertainties and arrangements to manage these risks are detailed at pages
24 and 25 of this Report.
As explained in note 29 of 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 £75.0m facility which is committed for a period up to March 2014. As
stated in note 19 of the Financial Statements as at 31st December 2011 the Group had available £40.1m of undrawn committed borrowing
facilities in respect of which all conditions precedent had been met. The Group’s forecasts and projections, taking account of reasonably
possible changes in trading performance, show that the Group should be able to operate within the terms of its current facility.
The Directors have reviewed the Group’s forecasts and budgets, which have been stress tested with various changes to the assumptions
underlying the forecasts and budgets. The Directors also examined the Group’s financial adaptability as part of that review and concluded
that, should it be necessary, the Group would be able to respond to a reasonably foreseeable deterioration in market conditions by making
further reductions to the cost base, as achieved in prior years.
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 this Report.
32
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 2011, 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.
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 Meeting which accompanies this Report specifies deadlines for appointing a proxy in relation to resolutions to be passed at the AGM.
Where the Chairman is appointed as proxy, such proxy votes are counted and the numbers for, against or withheld in relation to each
resolution are announced at the AGM and published on LSL’s website after the meeting (www.lslps.co.uk).
There are no restrictions on the transfer of Ordinary Shares in 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 1.21% (2009: 1.33%) 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 34 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 subsidiary company
following a takeover bid. The majority of the income derived through the provision of Surveying and Valuation Services and the Asset
Management income streams are driven by specific contracts. Any termination of such contracts on the change of control of the relevant
subsidiary company will have a significant impact on the revenue of those income streams.
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.
33
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Report of the Directors
Continued
Compensation for Loss of Office – Change of Control
There are no agreements between LSL and any 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.
Post Balance Sheet Event
In February 2012 the Group (through its subsidiary LSLi) acquired 51% of the share capital of Davis Tate for a cash consideration of £1.5m.
The existing senior management team of Davis Tate will continue to be with the business. The Group also has a “call option” and selling
shareholders have a “put option” on the remaining 49% which are exercisable in the future and the consideration to be paid for this will be
based on a multiple of EBITDA in future years.
Directors’ Responsibility Statement
Each of the Directors listed on page 26 and 27 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.
Substantial Shareholdings
As at 31st December 2011 and as at 28th February 2012, the shareholders set out below have notified LSL of their interest under DTR 5:
Institution
Harris L.P
Blackrock
Kames Capital
Individual (excluding Executive Directors)
Nature of holding
Beneficial
Beneficial
Beneficial
31st December 2011
28th February 2012
Number of 0.2p
Ordinary Shares
% of issued
shares
Number of 0.2p
Ordinary Shares
% of issued
shares
19,305,505
5,198,423
6,881,372
18.53%
4.99%
6.60%
20,238,460
5,212,627
7,594,672
19.43%
5.00%
7.29%
Dean Fielding (including D Fielding Limited)
Registered Holder
5,230,000
5.02%
3,130,000
3.01%
Approved by and signed on behalf of the Board of Directors
Sapna B FitzGerald
Company Secretary
1st March 2012
34
Corporate Governance Report
UK Corporate Governance Code (June 2010) (Code)
The Board is committed to the highest standards of corporate governance and 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 2011, LSL complied with the provisions of the Code in all respects.
The Board
The Board has nine members and it comprises the Chairman, four Executive Directors and four Non Executive Directors.
Three of the Non Executive Directors, Mark Morris, Mark Pain and Helen Buck are all considered to be independent. However, due to
Paul Latham’s previous role within LSL as the Deputy CEO (2004 to 2010), 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. Helen Buck was appointed to the Board as a Non Executive Director in December 2011.
The Directors are listed with their biographies under LSL Board at pages 26 and 27 of this Report.
There is a clear division of responsibilities between the Chairman and the Group Chief Executive Officer. The Chairman’s key responsibilities
are leadership of the Board and ensuring its effectiveness on all aspects of its role. The Chairman sets the Board’s agenda, ensuring that
adequate time is available for discussion of all agenda items, and in particular strategic issues. He also promotes a culture of openness and
debate by facilitating the effective contribution of the Non Executive Directors in particular, and ensuring constructive relations between
the Executive and Non Executive Directors.
The Group Chief Executive Officer’s key responsibility is the running of the business and his 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, sales and marketing, customer and employee matters, 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, a non executive director of Zetar plc and a trustee of Cancer Research UK.
During the year the Directors continuously review and are encouraged to provide feedback on the effectiveness of the Board. Further,
they undertake an annual evaluation of the performance of the Board which includes an evaluation of the Board, its Committees and of
individual Directors (including diversity and in particular gender) to ensure that the Directors remain individually and collectively effective.
The evaluation process in 2011 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.
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. As a result, the Board is spending more time on key strategic opportunities
as well as monitoring performance and governance matters.
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.
35
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Corporate Governance Report
Continued
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.
Each newly appointed Director receives 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. Further, the Chairman regularly reviews
and agrees any training and development needs with each of the Directors.
During 2011 the Board held ten scheduled meetings (including an annual strategy meeting) plus three additional meetings to consider the
acquisition of Marsh & Parsons. Each of the Directors was able to allocate sufficient time to LSL to discharge their responsibilities effectively
and the attendance of each of the Directors at the Board meetings (as a Director or a Committee member) is set out below.
During 2012 the Board is scheduled to meet ten times, including the annual strategy meeting, and additional meetings will be held
as required.
During 2011 the Non Executive Directors collectively met three times without the Executive Directors being present (including once without
the Chairman being present) and it is the intention that this will be repeated in 2012.
Board and Committee Attendance 2011
Director
Helen Buck*
Steve Cooke
Simon Embley
Paul Latham
Roger Matthews
Mark Morris
David Newnes
Mark Pain
Alison Traversoni
Board
(including
annual
strategy
meeting)
1
13
13
13
13
11
13
13
13
Audit
Committee
Remuneration
Committee
Nominations
Committee
–
–
–
–
4
4
–
3
–
–
–
–
–
2
2
–
2
–
–
–
–
–
3
3
–
3
–
* Helen Buck was appointed to the Board as a Non Executive Director on 1st December 2011.
LSL’s Articles of Association require that 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 preceeding AGMs, will retire by
rotation and may seek re-election. The Board can appoint a Director outside of the general meeting but anyone so appointed must be
elected by an ordinary resolution at the next general meeting. Notwithstanding these provisions, all of the Directors are (in accordance with
best practice) retiring at the AGM, and, being eligible, are intending to stand for re-election or election at the meeting.
The Board is primarily responsible for decisions on Group strategy, including approval of the Group’s strategy, annual business plans and
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 and any items not included within this policy (such
as responsibility for implementing the Board’s strategy and managing the business) are delegated to the management teams.
36
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 investment. 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 51 to 57 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.
These arrangements are reviewed annually as part of the Board’s evaluation process referred to above.
Under the Companies Act 2006, a director must avoid a situation where he/she has, or can have, a direct or indirect interest that conflicts, or
possibly may conflict, with the company’s interest. The Companies Act 2006 allows directors of public companies to authorise conflicts and
potential conflicts where appropriate and where the articles of association contain a provision to this effect, as LSL’s Articles do.
Accordingly, the Board has adopted procedures for the Directors to report any potential or actual conflict to the Board for their
authorisation where appropriate. Each Director is aware of the requirement to seek approval of the Board for any new conflict situations,
as they may arise. The process of reviewing conflicts disclosed, and authorisations given, is repeated annually. Any conflicts or potential
conflicts considered by the Board and any authorisations given are recorded in the Board minutes and in a register of Director’s conflicts
which is maintained by the Company Secretary.
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 2011, the Board reviewed the Terms of Reference for each of the
Committees to ensure continued compliance with the Code. In addition, the Terms of Reference of the Nominations Committee was
amended with effect from 1st January 2012 to take into account the requirements of the Financial Reporting Council Feedback Statement on
Gender Diversity and Boards, which is applicable to reporting years commencing on or after 1st October 2012. The Board considered it best
practice to adopt the changes earlier. 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 2011. 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 three times during 2010.
The duties of the Audit Committee are governed by its Terms of Reference and its role includes:
• to make recommendations to the Board (for it to put to the shareholders at a general meeting) on the appointment, re-appointment, or
removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;
• 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;
37
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Corporate Governance Report
Continued
• to review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into
consideration relevant UK professional and regulatory requirements; 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.
Areas of particular focus during the year have been: the review of goodwill and other intangibles for potential impairment; the
appropriateness of provision for PI claims; and the accounting for the acquisition of Marsh & Parsons.
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. Under the terms of the Policy the following categories of fee need pre-approval of the Audit Committee:
1. Any fee for specific non audit services which exceed £25,000;
2. Any fee which has a contingent element; and
3. Where the total of the fees for non-audit services in any particular year exceeds the audit fee for the year.
The Policy does not include a list of pre-approved categories and in developing its Policy, the Audit Committee took into account the ethical
standards and Financial Reporting Council guidance on Audit Committees.
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 2011 appears at note 9 of the Financial Statements. The non-audit fees amount to £349,000
compared with audit fees (including those covering the review of the half yearly report) of £240,000. This is outside the basic provisions of
the Policy. The non audit fees relate to the acquisition of Marsh & Parsons (tax due diligence, structure advice, and acting as the sponsor in
relation to the circular to shareholders) and taxation services. The Committee considered that Ernst & Young LLP were best placed to carry
out these services, and the potential impact of these services on the independence or objectivity of the external auditor; and approved this
work in advance of it being carried out.
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 2011.
The duties of the Nominations Committee are governed by its Terms of Reference, which were updated on 1st January 2012, 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, its
diversity, including gender, and in light of this evaluation, 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.
38
As part of its discussions, the Nominations Committee considered the composition of the Board and the balance of skills and experience
required to optimise shareholder value. These discussions included diversity, and in particular gender issues. During 2011, the Committee
nominated Helen Buck for appointment as a Non Executive Director. The recommendation for the appointment of Helen Buck took into
account her experience in retail and marketing. The Committee did not utilise the services of any external search consultancy or open
advertising in recommending the appointment of Helen Buck, as she was already known to the Group and she fully met the skills and
experience specification agreed by the Board.
Following the appointment of Helen, amongst the Non Executive Directors LSL now has expertise in surveying, financial services, the
residential housing sector, retail and marketing, operations, business services, entrepreneurial private and public companies and finance.
Further, the Board composition now includes two female Directors, making up 22% of the Board and demonstrating LSL’s continued
commitment to the promotion of equality and diversity (including gender) across the Group.
During 2011, LSL undertook a survey of female members of the management team to seek their views regarding gender diversity within LSL,
which concluded that the Group is sufficiently diverse and positive to its female employees.
Remuneration Committee
During 2011 the Remuneration Committee was chaired by Mark Pain and its other members were Roger Matthews and Mark Morris. The
Committee met twice 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.
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 42 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.
During 2011 the Remuneration Committee appointed New Bridge Street (NBS) and Deloitte LLP to provide independent advice on matters
relating to senior executive remuneration. NBS provided no other advice to LSL during the year.
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.
39
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
Corporate Governance Report
Continued
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 governance, strategy
and performance matters 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
offered the opportunity to attend and are available to meet with all shareholders and any shareholder representative groups 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.
Internal Controls
The Board has overall responsibility for LSL’s system of internal controls and for reviewing its effectiveness. The system of internal controls
is subject to an ongoing process of change and improvement and has been designed in accordance with the guidance of the Turnbull
Committee on Internal Controls to identify, evaluate and manage significant risks faced by LSL. The system aims to manage, rather than
eliminate, the risk of failure to achieve business objectives and can provide only reasonable, and not absolute, assurance against material
misstatement or loss. Internal control facilitates the effectiveness and efficiency of operations, helps ensure the reliability of internal and
external reporting and assist compliance with laws and regulations. The internal controls are also in place to safeguard shareholder
investment and LSL’s assets.
In the current difficult economic environment the Board is even more conscious of the necessity to focus on risk management and to ensure
that the internal controls are relevant and fit for purpose. In order to discharge this responsibility, the Board has established the procedures
necessary to apply the Code, including clear operating procedures, lines of responsibility and delegated authority. LSL’s risk management
and internal control procedures and framework have continually evolved and since LSL was listed on the London Stock Exchange in 2006
and are regularly reviewed by the Board and the Audit Committee and were in place up to the date of this Report.
40
LSL’s risk management and internal control framework is made up of the following parts:
1. Monitoring
2. Information and Communication
3. Control Activities
4. Risk Assessment
5. Control Environment
In particular, the Group has in place internal control and risk management systems in relation to LSL’s financial reporting process and the
process for the 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.
Further, 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.
During 2011 the Executive Directors have continually identified, evaluated and managed the principal 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 also kept under review by the Audit Committee and has been reviewed by the Board during 2011 as part of an
annual review which considered the effectiveness of the risk management arrangements and internal control systems. This review covered
all material controls, including financial, operation and compliance controls. In addition, LSL’s Internal Audit team 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.
The principal risks and uncertainties facing LSL together with details of key mitigation initiatives is set out in the Report of the Directors at
pages 24 and 25.
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 33 of this Report.
Approved by and signed on behalf of the Board of Directors
Sapna B FitzGerald
Company Secretary
1st March 2012
41
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
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. This part of 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 part of the 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 39 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.
During 2011 the Remuneration Committee appointed New Bridge Street (NBS) and Deloitte LLP to provide independent advice on matters
relating to senior executive remuneration. NBS 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 optimise shareholder value. 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.
42
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 2012, 2011, and 2010 were as follows:
Director
Steve Cooke
Simon Embley
David Newnes
Alison Traversoni
* Base salary as at appointment to the Board during 2010.
Role
Salary as at 1st
January 2012
Salary as at 1st
January 2011
Salary as at 1st
January 2010
Group Finance Director
Group Chief Executive Officer
Executive Director, Estate Agency £140,000
£140,000
Executive Director, Surveying
£220,000 £220,000 £220,000*
£250,000 £250,000 £250,000
£140,000*
£140,000
£140,000*
£140,000
Following a review of base salary levels at the end of 2011, the Committee has decided not to recommend an increase in base salary levels
for 2012. This is primarily due to the ongoing challenging conditions in the housing market and internal relativities. However, the base salary
levels for each of the Executive Directors (which were set in 2010) remains well below midmarket levels for similarly sized listed companies.
Benefits are comprised of a car allowance/company car and private healthcare and in respect of Simon Embley, a taxable relocation
allowance of £11,250.
Pension
The Executive Directors are members of a money purchase pension scheme. LSL matches Directors’ contributions of up to 5% of base
salary. Details of actual LSL contributions for 2011 are presented in the table of Directors’ Remuneration on page 47.
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.
For 2011, the structure of the annual bonus remained broadly similar to 2010 with 80% of the bonus calculated on sliding scale performance
targets based on the budgeted Underlying Group Operating Profit (after the payment of any bonuses) and the remaining 20% based on
challenging strategic targets. Details of annual bonus amounts payable to Executive Directors for the year ended 31st December 2011 are
presented in the table of Directors’ Remuneration on page 46.
For 2012, the structure of the annual bonus scheme will be the same as 2011 with the same split between performance and strategic
targets.
Long Term 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 LSL above
the share price at the date of grant. Awards comprise 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. While awards were made in 2010 and 2011, no awards are being proposed
for 2012.
2011 JSOP Awards
The vesting of JSOP awards granted in 2011 are conditional upon LSL’s adjusted earnings per share (EPS) performance meeting the following
absolute performance targets over a period of three financial years starting with the financial year in which the JSOP award is granted
together with relative total shareholder return conditions (TSR), also measured over three years.
43
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Directors’ Remuneration Report
Continued
The introduction of the TSR underpin followed a review of the EPS performance targets attached to the 2010 awards and was after
consultation with the Committee’s advisers. The Committee concluded that while the EPS targets remain appropriate, a second
performance target based on TSR should also be applied. Therefore, in addition to the following EPS growth targets, 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.
EPS growth p.a.*
10%
13%
17%
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%
* With straight line vesting between points for the Chief Executive Officer’s award.
These JSOP awards which were made in 2011 were 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 an LTIP award in any financial year cannot
together exceed 200% of base salary in normal circumstances. For 2012, the Committee has not recommended the grant of any JSOP
awards because it is recommending the grant of awards under the LTIP, which is described below.
Long Term Incentive Plan (excluding Company Share Ownership Plan) (LTIP)
For 2012, the Committee is recommending the granting of awards pursuant to the LTIP which was introduced upon flotation in 2006 and to
date has not 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.
For 2012, the Remuneration Committee has recommended the grant of LTIP awards with performance targets made up of a combination of
relative TSR and Adjusted Basic Earnings Per Share and each part subject to a tiered approach as follows:
a. 30% Relative TSR
35% of this part of an award will vest for relative TSR equal to the median of the constituents of the FTSE 250 index (excluding investment)
trusts increasing pro rata so that 100% of this part of an award will vest for relative TSR equal to the upper quartile.
b. 70% Adjusted EPS per annum
25% of this part of an award will vest for Adjusted Basic Earnings Per Share target of 8% increasing pro rata so that 100% of this part of an
award will vest for Adjusted Basic Earnings Per Share target of 12% growth. A sliding scale will operate in between.
Company Share Ownership Plan (CSOP)
The Group operates a CSOP (an equity-settled share-based remuneration scheme) for certain employees, which is operated by way of an
addendum to the rules of the LTIP. Under the CSOP, the options vest if the individual remains an employee of the Group after a three year
44
period, unless the individual has left under certain ‘good leaver’ terms in which case the options may vest earlier and providing the
performance condition of 10% growth in LSL’s Adjusted Basic EPS over a period of three financial years starting with the financial year in
which the CSOP award is granted are met. No CSOP options were granted to any Directors during 2011.
Deferred Bonus Plan (DBP)
The DBP was introduced upon flotation in 2006 although it has not, as yet, been operated.
Shareholding Guidelines
Following a review of best and market practice during 2010, the Committee introduced a set of share ownership guidelines which the Board
has adopted. Under the terms of the guidelines, all Executive Directors are 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’ Remuneration on page 47.
Executive Directors’ Service Contracts
Executive Directors’ service contracts, which do not contain expiry dates, provide that compensation provisions for termination without
notice will only extend to nine 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
David Newnes
Alison Traversoni
Date of Contract
4th June 2010
15th July 2004
1st June 2010
1st June 2010
Notice period
from LSL
(months)
9
9
9
9
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 Non Executive Directors and
Chairman are not eligible to participate in incentive arrangements or receive pension provision.
Director
Helen Buck
Paul Latham
Roger Matthews
Mark Morris
Mark Pain
Date Original Term Commenced
Date Current Term Commenced
Expected Expiry Date of Current Term
1st December 2011
1st June 2010
11th October 2006
11th October 2006
1st July 2009
21st November 2009
21st November 2009
31st November 2014
31st May 2013
20th November 2012
20th November 2012
30th June 2012
45
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Directors’ Remuneration Report
Continued
The remuneration of the Non Executive Directors is a matter for the Chairman and Executive Directors and the remuneration of the
Chairman is a matter for the Committee. Fees for both Non Executive Directors and the 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 for the Non Executive Directors is as follows:
Non Executive Director
Helen Buck
Paul Latham1
Roger Matthews
Mark Morris2
Mark Pain3
2011
2010
£40,000
£37,000
–
£37,000
£100,000 £100,000
£45,000
£45,000
£43,000
£43,000
1 Paul Latham is also paid an additional £5,000 per annum consultancy fee in respect of services provided to e.surv Chartered Surveyors.
2 Mark Morris’ fee includes additional sums for his role as Senior Independent Director (£2,000) and Chair of the Audit Committee (£5,000).
3 Mark Pain’s fee includes an additional sum for his role as Chair of the Remuneration Committee (£5,000).
Audited Information
Directors’ Remuneration
The Remuneration of the Directors for 2011 were as follows:
Director
Chairman
Roger Matthews
Executive Directors
Steve Cooke
Simon Embley
David Newnes1
Alison Traversoni2
Paul Latham3
Non Executive Directors
Paul Latham3
Mark Morris
Mark Pain
Helen Buck5
TOTAL
Directors
salaries/fees
£
Car allowance
£
Benefits in
kind4
£
Annual bonus
£
Total
2011
£
Total
2010
£
100,000
–
–
–
100,000
100,000
220,000
250,000
140,000
140,000
–
42,000
45,000
43,000
3,333
10,000
10,000
8,500
–
–
1,683
12,247
623
8,044
–
22,000
24,000
14,000
28,000
–
–
–
–
–
–
–
–
–
–
–
–
–
253,683
296,247
163,123
176,044
–
42,000
45,000
43,000
3,333
244,058
505,216
166,613
165,296
74,667
20,417
40,000
35,000
–
983,333
28,500
22,597
88,000 1,122,430 1,439,051
1 Appointed to the Board on 1st June 2010.
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. Fee includes £5,000 paid in respect of
consultancy services to e.surv Chartered Surveyors.
4 Benefits in kind, which excludes pension provision, is comprised of private medical cover and company car and in respect of Simon Embley, a taxable relocation allowance of
£11,250.
5 Appointed to the Board on 1st December 2011.
No termination payments or payments in lieu of notice were paid to those Directors who stepped down from the Board during 2010. There
were no resignations from the Board in 2011.
46
Pension Contributions
Details of LSL’s contributions to a money purchase scheme for each Executive Director during the year is as follows:
Name
Steve Cooke
Simon Embley
Paul Latham*
David Newnes
Alison Traversoni
Total
* To 1st July 2010.
2011
£
11,000
12,500
–
7,000
7,000
2010
£
5,500
12,500
3,438
4,083
4,813
37,500
30,334
Incentive Awards
As at 31st December 2011, Executive Directors’ interests under the JSOP awards were as follows:
2010 JSOP Grants
Steve Cooke
Simon Embley
David Newnes
Alison Traversoni
Date of grant
24th August 2010
1st June 2010
1st June 2010
1st June 2010
Share price on
grant (pence)
As at 1st
January 2010
Awards
As at 31st
December
granted* Awards vested
2010 Exercise/Release Period
248.75
271
271
271
–
–
–
–
70,764
167,857
39,286
39,286
–
–
–
–
70,764 24th August 2013 to 24th August 2020
167,857 1st June 2013 to 1st June 2020
39,286 1st June 2013 to 1st June 2020
39,286 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 right (SAR)
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.
2011 JSOP Grants
Steve Cooke
Simon Embley
David Newnes
Alison Traversoni
Date of grant
31st March 2011
31st March 2011
31st March 2011
31st March 2011
Share price on
grant (pence)
As at 1st
January 2011
Awards
As at 31st
December
granted* Awards vested
2011 Exercise/Release Period
2.45
2.45
2.45
2.45
–
–
–
–
89,613
203,665
57,026
57,026
–
–
–
–
89,613 31st March 2014 to 31st March 2021
203,665 31st March 2014 to 31st March 2021
57,026 31st March 2014 to 31st March 2021
57,026 31st March 2014 to 31st March 2021
* In respect of the above JSOP awards granted in 2011, 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 (an interest) and a share appreciation right (SAR) entitles
individuals to any growth in the value of LSL’s share price from £2.45 up 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 2011 are set out in the policy section of this Directors’ Remuneration Report on page 42.
The Ordinary Share mid-market price ranged from 212.50p to 307.00p and averaged 256.23p during 2010. The price on 31st December 2011
was 238.75p compared to 265.00p on 1st January 2011.
47
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Directors’ Remuneration Report
Continued
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
2011
Awards
granted
Awards
lapsed
Awards
exercised
Awards
vested
Steve Cooke
CSOP 24th August 2010 248.75p
252p
–
11,870
SAYE
5th April 2011
245p
257p
3,511
–
Simon Embley
CSOP
11th June 2010 237.5p
240p
–
12,500
SAYE
1st May 2008
110p
115p
8,311
SAYE
5th April 2011
245p
257p
3,511
–
–
David Newnes
CSOP
11th June 2010
237.5p
240p
–
12,500
SAYE
5th April 2011
245p
257p
3,511
–
Alison Traversoni CSOP
11th June 2010
237.5p
240p
–
12,500
SAYE
1st May 2008
110p
115p
8,311
SAYE
5th April 2011
245p
257p
3,511
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,311
–
–
–
–
8,311
–
–
–
–
–
–
–
–
–
–
–
As at 31st
December
2011
11,870
3,511
12,500
–
3,511
12,500
3,511
12,500
–
3,511
Exercise Period
24th August 2010
to 24th August 2020
5th April 2011
to 5th April 2014
11th June 2010
to 1st June 2020
1st May 2008
to 1st May 2011
5th April 2011
to 5th April 2014
11th June 2010
to 11th June 2020
5th April 2011
to 5th April 2014
11th June 2010
to 11th June 2020
1st May 2008
to 1st May 2011
5th April 2011
to 5th April 2014
The aggregate of gains made by Directors on the exercise of the options in the year was £27,000 (2010: £nil). At the date of exercise, the
Company’s share price was 280p.
Performance targets attached to the CSOP awards are set out in the policy section of this Directors’ Remuneration Report on page 42.
48
Unaudited Information
Directors’ 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
Helen Buck
Steve Cooke
Simon Embley
Paul Latham1
Roger Matthews2
Mark Morris
David Newnes
Mark Pain
Alison Traversoni3
Shares at 1st
January 2011
% of Issued
share capital
Shares at 31st
December
2011
% of Issued
share capital
–
–
9,930,500
3,893,750
86,882
53,972
5,569,250
–
607,827
–
–
–
40,000
9.53% 10,050,500
3.74% 3,902,061
0.08%
86,882
0.05%
53,972
5.35% 5,569,250
–
616,849
–
0.58%
–
0.04%
9.65%
3.75%
0.08%
0.05%
5.35%
–
0.59%
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’s BAYE/SIP (at 31st December 2011), this amounted to 4,391 (2010: 3,680). The shares were purchased by the Trust at the
prevailing market value and are held for up to five years.
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. Other than the acquisition of 105 shares by the LSL BAYE/SIP Trust on behalf of Alison
Traversoni amounting to a total of 616,954 shares, there have been no other changes in the interests set out above between 31st December
2011 and the date of this Report.
49
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Directors’ Remuneration Report
Continued
Performance Graph
This graph shows the value, by the end of December 2011, of £100 invested in LSL compared with the value of £100 invested in both the
FTSE Small Cap (excluding investment trusts) Index and the FTSE 250 (excluding investment trusts) Index. The FTSE 250 Index has been
chosen for consistency with prior years and the FTSE Small Cap Index because LSL is a constituent of the FTSE Small Cap Index.
The mid-market price of LSL shares in the year ranged from 212.50p to 307.00p and averaged 256.23p during 2011.
The price on 31st December 2011 was 238.75p compared to 265.00p on 1st January 2011.
Total shareholder return £
160
140
120
100
80
60
40
20
0
2006
2007
2008
2009
2010
2011
LSL Property Services plc
FTSE Small Cap
(excluding investment
trusts) Index
FTSE 250
(excluding investment
trusts) Index
Approved by and signed on behalf of the Board of Directors
Sapna B FitzGerald
Company Secretary
1st March 2012
50
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 consider 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, Environmental and Community Investment 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 Group’s 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.
1. Our People
LSL recognises 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 believes 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 ensures 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.
51
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Corporate Social Responsibility
Continued
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 continued into 2011 with e.surv Chartered Surveyors’ employees completing 31 apprenticeships
and 21 stand alone NVQ’s. There are 60 members of staff on apprenticeship programmes, many of whom are nearing completion. 2011 saw a
dedicated trainer recruited to head up e.surv Chartered Surveyors’ Training Academy which supports their Apprenticeship and NVQ programmes.
Further, during 2011, e.surv Chartered Surveyors achieved reaccreditation of the Investors In People award for its Head Office location in
Kettering, and once again successfully achieved the Sunday Times Best Companies “One to Watch” status for 2012.
3. Communication
a. Employees:
LSL ensures that employees are kept informed of Group affairs via information distributed by post, email, handbooks or the various intranet
sites. Group employees are encouraged to discuss strategic, operational and business issues within their teams and with their management.
The Board values employee feedback and employee opinion surveys now operate across all parts of the Group businesses. In addition in
2011, LSL conducted a gender diversity survey, the details of which are summarised below in section 4. Finally, on strategic matters, LSL
recognises and consults Unite.
b. Customers:
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.
4. Equal Opportunities
a. Gender Diversity:
Following the release of Lord Davies’ report on Gender Diversity, the Board commissioned an employee gender diversity survey which was
conducted in October 2011. This survey sought the views of senior female employees across the Group and in summary the survey
concluded as follows:
• respondents felt confident that they had been promoted based on their performance and achievement;
• respondents disagreed that there were barriers to encourage women’s participation in positions of authority within the Group; and
• respondents confirmed that the Group is sufficiently diverse and positive towards females.
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 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 individual suffers harassment or intimidation.
During 2011, a number of talented female LSL employees were entered into the Property Awards for Women 2011 and LSL employees
secured four of the 15 awards in the following categories:
• PA of the Year
• Outstanding Commitment to Excellence
• Property Manager of the Year (Large Agency)
• Lettings Negotiator of the Year (Large Agency)
b. Disability:
LSL’s objective is that where appropriate, upon employment, reasonable adjustments will be 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.
52
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.
5. 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 as at 31st December
Total employee turnover percentage (%)*
* Data excludes forced leavers.
Breakdown by Gender
Male
Female
2011
4,831
24.8
2010
4,490
28.5
2009
3,287
19.3
2011
2,065
2,748
2010
2009
1,838
2,652
1,389
1,898
6. 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:
a. 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 including distance learning, regional workshops and an annual conference.
b. 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.
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 2011, the Group training expenditure was:
Division
Surveying and Valuation Services
Estate Agency and Related Services
Total Expenditure
Expenditure
2011
Expenditure
2010
£133,567 £109,980
£963,531
£1,129,230
£1,262,797 £1,183,491
This includes in-house training costs of £611,127 (2010: £336,665).
7. 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.
53
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
Corporate Social Responsibility
Continued
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 Steve Cooke, the Group Finance Director, has overall
responsibility for this. 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.
8. Environmental Issues
LSL recognises that the environment has an intrinsic value, is central to quality of life and underpins economic development.
Improve energy efficiency and to reduce energy usage
LSL’s “green” priorities which were set in 2010 have been developed and are to:
•
• Reduce waste and increase recycling
• Reduce CO2 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
• Avoiding printing
• Remote meetings
During 2011 and going forward into 2012, we will continue to promote our environmental awareness campaign which was put in place in
2010. Further, environmentally sensitive disposal arrangements have been put in place for the destruction of office waste, such as paper
and toners. e.surv Chartered Surveyor participated in the “Shred-Pro” shredding and recycling programme and saved 63.9 trees in doing so.
Across the Group recycling schemes are in place with Iron Mountain, which delivered the following benefits in 2011:
• 110 cubic metre landfill reduction
• 912 trees saved
• 48,673 kilos of recycled paper produced
A significant development this year has been the launch of a waste management programme within parts of the Residential Sales and
Lettings branches through the service provided by Green Star (part of the Biffa Group). The programme aims to:
1. develop and implement a recycling strategy throughout the LSL Group to meet its CSR objectives;
2. deliver a detailed plan to divert waste away from landfill; and
3. deliver a financial cost saving.
By the end of 2011, all Your Move branches have recycling facilities in place and as at September 2011, 42% of all waste from these branches
was recycled. Roll out to the remaining branches will now occur over the next 24 months.
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.
54
Set out in the table below is a list of opportunities to support our green priorities together with progress achieved during the year:
2011 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.
Promotion of the installation of timer plugs on all
appliances where appropriate.
Continued promotion of LSL environmental logo.
Continued reduction in the use of paper by
reducing the printing of emails and promoting
double sided photocopying.
Emailing customers in preference to posting
letters.
Work flow management system developed.
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 2011 work completed at 197 branches with over 340 lamps
replaced with low energy bulbs).
Within the Surveying Division energy consumption measured in CO2
tonnes reduced by 3% in 2011. This reduction was achieved by continuing
initiatives commenced in 2010, which includes switching printers and PCs 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 customers instead of posting.
Continued development of the system introduced into the Surveying Division
in 2010 which is estimated to have saved over 1,500 reams per annum.
We encourage company car users to select energy efficient cars, and offer
a range of hybrid and efficient dynamics diesel models on the company car
list. Average CO2 emissions for the fleet fell from 148.7 g/km in 2010 to
140.3 g/km in 2011. The carbon footprint of the company continues to fall
as a result.
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.
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.
55
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Corporate Social Responsibility
Continued
9. Social and Community Investment (including Social and Ethical Issues)
LSL’s social and community investment objective is to establish a common and coherent approach among Group businesses and to support
investment in the communities in which they operate. Through LSL’s community investment objective, it encourages each Group Company
to be sensitive to the local community’s cultural, social and economic needs. This objective demonstrates LSL’s commitment to operate
responsibly wherever it operates and to engage with stakeholders to manage the social, economic and environmental impact of Group
activities.
LSL’s business has a direct impact on the local communities in which it operates and the community investment objective recognises that
good relations with local communities is fundamental to LSL’s sustained success. Working in partnership with communities over a sustained
period of time is the most effective way to achieve real results and lasting change.
LSL supports its businesses in achieving its objectives by encouraging Group businesses to:
1. make donations both to local and national charities;
2. support and organise fundraising events including supporting charities and local community initiatives selected by Group companies; and
3. support employees in their personal fundraising ambitions.
Further details of some specific charitable initiatives are set out below.
10. 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 £12,000 a year (2010: 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
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 (www.helpforheroes.org.uk)
• Emmaus (www.emmaus.org.uk)
• YMCA (www.ymca.org.uk)
• Crisis (www.crisis.org.uk)
• Cyrenians (www.cyrenians.org.uk)
• Barnardos (www.barnardos.org.uk)
• Shelter (www.shelter.org.uk)
• Centre Point (www.centrepoint.org.uk)
• St Mungos (www.mungos.org.uk)
• The Salvation Army (www.salvationarmy.org.uk)
• Broadway (www.broadwaylondon.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.
56
In addition, in December 2011 Intercounty was awarded the Cecil Jackson Cole award for Social and Corporate Responsibility at the Sunday
Times Estate Agent of the Year awards recognising the work they have been doing with Shelter during 2011 and 2012. The award helps to
raise the profile of the issues related to homelessness and raise more money for the cause. Part of Intercounty’s campaign included a
sponsored sleep rough when some of the staff led by Greg Young, its MD, undertook a 24 hour street collection outside three of its
branches in aid of Shelter.
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 (nominated in 2010). Annual national fundraising events also support initiatives such as Children in Need and Jeans for Genes. In
addition, Barnwoods has nominated Maggie’s Cancer Care Centre in Cheltenham, which is part of a national initiative.
LSL’s Estate Agency Division supports the Estate
Agency Foundation
e.surv Chartered Surveyors on a sponsored cycle
Intercounty participated in a sponsored sleep rough
for Shelter
57
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Financial
Statements
59
60
In this section
Independent Auditors’ Report to the
Members of LSL Property Services plc
Group Income Statement
Group Statement of Comprehensive
61
Income
62
Group Balance Sheet
63
Group Statement of Cash Flows
Group Statement of Changes in Equity
64
Notes to the Group Financial Statements 65
Statement of Directors’ Responsibilities
in Relation to the Parent Company
Financial Statements
Independent Auditors’ Report to the
Members of LSL Property Services plc
Parent Company Balance Sheet
Notes to the Parent Company Financial
Statements
104
105
106
103
58
Independent Auditors’ 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 2011 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 33. 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 Directors’ Responsibilities Statement set out on page 29, the directors are responsible for the preparation of
the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the group financial
statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of;
whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion the group financial statements:
• give a true and fair view of the state of the group’s affairs as at 31st December 2011 and of its profit for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion:
• the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the
financial statements; and
• the information given in the Corporate Governance Report set out on pages 35 to 41 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
2011 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
1st March 2012
59
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Group Income Statement
for the year ended 31st December 2011
Revenue
Operating expenses:
Employee and subcontractor costs
Establishment costs
Depreciation on property, plant and equipment
Other
Rental income
Group’s share of profit after tax in joint ventures
Group operating profit before exceptional costs, amortisation and share-based payments
Share-based payments
Amortisation of intangible assets
Exceptional (cost)/profit
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
Adjusted – basic
Adjusted – diluted
Note
2011
£’000
2010
£’000
3
218,381
206,607
12
15
12
14
7
4
5
6
7
8
(124,786)
(15,886)
(2,581)
(45,734)
(188,987)
1,044
679
31,117
(787)
(8,472)
(2,214)
–
(115,763)
(14,891)
(1,748)
(43,960)
(176,362)
1,690
–
31,935
(298)
(8,077)
12,189
3,923
19,644
39,672
–
4
(1,874)
(182)
(2,052)
17,592
516
5
(2,228)
(2,007)
(3,714)
35,958
570
(4,927)
4,911
(6,334)
13
(4,357)
(1,423)
13,235
34,535
13,217
18
34,500
35
10
10
10
10
12.9
12.9
21.0
21.0
33.6
33.4
21.0
20.9
60
Group Statement of Comprehensive Income
for the year ended 31st December 2011
Profit for the year
Recycling of unrealised gains reserve
Recycling of cash flow hedge
Income tax effect
Other comprehensive income 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
2011
£’000
2010
£’000
13,235
34,535
13
–
–
–
–
–
(3,900)
87
(24)
63
(3,837)
13,235
30,698
13,217
18
30,663
35
61
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Group Balance Sheet
for the year ended 31st December 2011
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Financial assets
Investments accounted for using the equity method
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
Total current liabilities
Non-current liabilities
Financial liabilities
Deferred tax liability
Provisions for liabilities
Total non-current liabilities
Net assets
Equity
Share capital
Share premium account
Share-based payment reserve
Treasury shares
Retained earnings
Equity attributable to owners of parent
Non-controlling interests
Total equity
Note
2011
£’000
2010
£’000
14
14
15
16
17
18
19
21
20
22
21
13
22
24
25
25
25
116,452
21,042
17,491
347
1,768
74,742
17,613
13,850
1,097
–
157,100
107,302
28,681
435
29,116
25,136
338
25,474
186,216
132,776
(2,246)
(46,603)
(3,372)
(706)
(92)
(45,085)
(258)
(584)
(52,927)
(46,019)
(46,782)
(4,772)
(9,352)
(5,155)
(2,183)
(11,309)
(60,906)
(18,647)
72,383
68,110
208
5,629
912
(2,747)
68,328
72,330
53
72,383
208
5,629
1,014
(3,139)
64,363
68,075
35
68,110
The Financial Statements were approved by the Board on 1st March 2012 and were signed on its behalf by:
Steve Cooke
Group Finance Director
Simon Embley
Group Chief Executive Officer
62
Group Statement of Cash Flows
for the year ended 31st December 2011
Cash generated from operating activities
Profit before tax
Adjustments to reconcile profit before tax to net cash from operating
activities
Negative goodwill
Exceptional operating costs (excluding negative goodwill and share-based
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
Share of results of joint ventures
Loss/(gain) on sale of property, plant and equipment
(Increase)/decrease in trade and other receivables
Decrease 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
Investment in joint venture
Dividends received from joint venture
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
7
14
5
6
7
12
15
8
27
5
15
Net cash generated from/(expended on) investing activities
Cash flows from financing activities
Proceeds/(repayment) of loans
Purchase of treasury shares (net of consideration received on reissue of treasury
shares)
Dividends paid
Net cash generated from (used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
19
31st December 2011
31st December 2010
Note
£’000
£’000
£’000
£’000
17,592
35,958
–
2,214
–
8,472
–
(4)
1,874
182
787
2,581
(679)
8
(2,054)
(5,359)
(1,315)
–
(1,422)
(3,235)
5,707
(46,826)
(671)
332
4
(3,243)
–
–
1,962
32,939
(804)
(8,945)
13,525
31,117
1,910
(7,413)
25,614
24,299
(4,657)
19,642
(29,825)
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
(42,735)
20,247
(23,692)
(597)
(8,146)
23,190
97
338
435
(32,435)
(520)
858
338
63
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Group Statement of Changes in Equity
for the year ended 31st December 2011
Year ended 31st December 2011
At 1st January 2011
Profit for the year
Total comprehensive income
Purchase of treasury shares
Reissuance of treasury shares
Share-based payments
Dividend payment
At 31st December 2011
Year ended 31st December 2010
Share capital
£’000
Share
premium
account
£’000
Share- based
payment
reserve
£’000
Total equity
£’000
Minority
interest
£’000
Treasury
shares
£’000
(3,139)
–
(3,139)
(1,762)
2,154
–
–
Retained
earnings
£’000
64,363
13,217
77,580
–
(307)
–
(8,945)
1,014
–
1,014
–
(889)
787
–
68,075
13,217
81,292
(1,762)
958
787
(8,945)
912
(2,747)
68,328
72,330
Total
£’000
68,110
13,235
81,345
(1,762)
958
787
(8,945)
72,383
35
18
53
–
–
–
–
53
208
–
208
–
–
–
–
208
5,629
–
5,629
–
–
–
–
5,629
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
410
–
(8,146)
298
(8,146)
–
–
–
–
(1,007)
410
298
(8,146)
64,363
68,075
35
68,110
(63)
–
63
–
–
–
–
–
–
Share
capital
£’000
208
–
Share
premium
account
£’000
5,629
–
Share-based
payment
reserve
£’000
Treasury
shares
£’000
Unrealised
gains reserve
£’000
Hedging
reserve
£’000
2,259
–
(2,805)
–
3,900
–
–
–
–
–
(3,900)
At 1st January 2010
Profit for the year
Other comprehensive
income
Total comprehensive
income
208
5,629
2,259
(2,805)
Purchase of treasury
shares
Reissuance of
treasury shares
Share-based
payments
Dividend payment
–
–
–
–
–
–
–
–
–
(1,007)
(1,543)
673
298
–
–
–
At 31st December 2010
208
5,629
1,014
(3,139)
–
–
–
–
–
–
64
Notes to the Group Financial Statements
for the year ended 31st December 2011
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 2011 were authorised for issue by the Board of
the Directors on 1st March 2012 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 International Financial Reporting Standards (IFRSs) as adopted by
the European Union and as applied in accordance with the provisions of the Companies Act 2006.
2. Accounting policies
Basis of preparation of financial information
The Group Financial Statements have been prepared on a going concern basis and 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 2011. The Group’s Financial Statements are presented in Sterling and all values are rounded to the nearest thousand pounds
(£’000) except when otherwise indicated.
New standards and interpretations
The amendments to the following standards below did not have any impact on the accounting policies, financial position or performance of
the Group:
•
•
•
•
•
•
IAS 32 Amendments to IAS 32 Classification of Rights Issue
IAS 24 Related Party Disclosures (Revised)
Improvements to International Financial Reporting Standards 2010
IFRIC 14 Amendments to IFRIC 14 – Prepayments of a minimum funding requirement
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
IAS 39 Financial Instruments: Recognition and Measurement – Eligible hedged items (Amendment)
Judgements and estimates
The preparation of financial information in conformity with IFRS as adopted by the European Union requires management to make
judgements, estimates and assumptions that affect the application of policies and reporting amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an 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.
Valuations in acquisitions
The measurement of intangible assets other than goodwill on a business combination involves the estimation of future cash flows and other
inputs relevant to the valuation model being applied.
Impairment of intangible assets
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).
Assessment of the useful life of an intangible asset
The consideration of the relevant factors when determining the useful life of an intangible asset requires judgement. Similarly there is also
judgement applied when assessing that an intangible asset has an indefinite useful life.
Professional indemnity claim
Significant judgement is required when provisioning for professional indemnity claims. Details of key assumptions in these areas are
disclosed in notes 21 and 22 of these Financial Statements.
65
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
2. Accounting policies continued
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; it (i) 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 represents 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 represents 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.
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.
Interest in joint ventures
The Group has a number of contractual arrangements with other parties which represent joint ventures. These take the form of
arrangements to share control over other entities. Where the joint venture is established through an interest in a company, the Group
recognises its interest in the entity’s assets and liabilities using the equity method of accounting. Under the equity method, the interest in
the joint venture is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of its net assets, less distributions
received and less any impairment in value of individual investments. The Group Income Statement reflects the share of the jointly controlled
entity’s results after tax.
Any goodwill arising on the acquisition of a jointly controlled entity is included in the carrying amount of the jointly controlled entity and is
not amortised. To the extent that the net fair value of the entity’s identifiable assets, liabilities and contingent liabilities is greater than the
cost of the investment, a gain is recognised and added to the Group’s share of the entity’s profit or loss in the period in which the
investment is acquired.
Financial statements of the jointly controlled entities are prepared for the same reporting period as the Group. Where necessary,
adjustments are made to bring the accounting policies used into line with those of the Group; to take into account fair values assigned at
the date of acquisition and to reflect impairment losses where appropriate. Adjustments are also made in the Group’s financial statements to
eliminate the Group’s share of unrealised gains and losses on transactions between the Group and its jointly controlled entities. The Group
ceases to use the equity method on the date from which it no longer has joint control over or significant influence in, the joint venture.
66
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. If contingent consideration is linked to a service condition then expected payments are recognised in the profit or loss over
the earn-out period.
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.
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.
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.
Goodwill
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 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 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.
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.
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.
67
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
2. Accounting policies continued
Intangible assets continued
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 are
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
Surveying customer contracts
– three to ten years
– between three and five years
Lettings contracts
Order book:
Estate Agency pipeline
Surveying pipeline
Estate Agency register
Others:
Franchise agreements
In-house software
– fifteen months
– six months
– one week
– twelve months
– ten years
– three years
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, without incurring significant
cost. All brands recognised have been in existence for a number of years, and are not considered to be at risk of obsolescence from
technical, technological or commercial change. Whilst operating in competitive markets they have demonstrated that they can continue to
operate in the face of such competition and that there is expected to remain an underlying market demand for the services offered. The
lives of these brands are not dependent on the useful lives of other assets of the entity.
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
68
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 asset’s 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 and 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
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.
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 other comprehensive income or equity, if it relates to items that are charged or credited in
the current or prior periods to other comprehensive income or equity respectively. Otherwise income tax is recognised in the
income statement.
69
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
2. Accounting policies continued
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 (including market and
non-vesting 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 (Trust) 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.
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.
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.
A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term;
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. 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.
70
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
derecognised 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 derecognised when the obligation under the liability is discharged, cancelled or expires. All regular way purchases and sales of
financial assets are recognised on the trade date, being the date that the Group commits to purchase or sell the asset. Regular way
transactions require delivery of assets within the timeframe generally established by regulation or convention in the market place. The
subsequent measurement of financial assets depends on their classification.
The Group’s accounting policy for each category of financial instruments is as follows:
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as such or are not classified as held to
maturity, loan and receivables or fair value through profit or loss. After initial recognition available-for-sale financial assets are measured at
fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the
investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income
statement. Where a reliable indicator of fair value cannot be obtained the assets are valued at cost.
Cash and short term deposits
Cash and short term deposits in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity
period of three months or less.
For the purposes of the 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.
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.
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.
71
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
2. Accounting policies continued
Assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value
cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.
Assets carried at amortised cost
In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or
significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the
invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they
are assessed as uncollectable.
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.
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 sublet 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.
Home Information Packs
Revenue from providing HIPs is recognised when they are completed and provided to the customers.
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 following new standards, new interpretations and amendments to standards and interpretations have been issued but are not effective
for the financial year beginning 1st January 2011 and have not been early adopted:
International Accounting Standards (IAS/IFRSs)
IFRS 9
Amendments to IFRS 7
Amendments to IAS 12
IFRS 10
IFRS 11
IFRS 12
IFRS 13
IAS 27 (Revised)
IAS 28 (Revised)
Amendment to IAS 1
IAS 19 (Revised)
Financial Instruments: Classification and Measurement
Disclosures – Transfers of Financial Assets
Deferred Tax: Recovery of Underlying Assets
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interests in Other Entities
Fair Value Measurement
Separate Financial Statements
Investments in Associates and Joint Ventures
Presentation of Items of Other Comprehensive Income
Employee Benefits
Effective date*
1st January 2015
1st July 2011
1st January 2012
1st January 2013
1st January 2013
1st January 2013
1st January 2013
1st January 2013
1st January 2013
1st July 2012
1st January 2013
* 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.
72
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 Services and the
provision of Surveying and Valuation Services on residential property. All the revenue arises in the United Kingdom.
Revenue disclosed in the income statement is analysed as follows:
Revenue from services
Revenue
Rental income
Dividend income
Finance income
Total revenue
2011
£’000
2010
£’000
218,381
206,607
218,381
1,044
–
4
206,607
1,690
516
5
219,429
208,818
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 segment provides services related to the sale and letting of housing. It operates 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 results of the Financial Services segment, which does not meet the quantitative criteria for separate
reporting under IFRS, have been aggregated with those of Estate Agency and Related Services.
• The Surveying and Valuation Services segment provides a professional survey service of domestic properties to various lending
corporations and individual customers.
Each segment has various products and services and the revenue from these products and services are disclosed on pages 14 and 16 under
Business Review.
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.
Operating segments
The following table presents revenue and profit information regarding the Group’s operating segments for the financial year ended
31st December 2011 and financial year ended 31st December 2010 respectively.
Year ended 31st December 2011
Income statement information
Segmental revenue
Segmental result:
– before exceptional costs, amortisation and share-based payments
– after exceptional costs, amortisation and share-based payments
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
141,811
76,570
–
218,381
10,280
6,049
23,722
16,753
(2,885)
(3,158)
31,117
19,644
4
(1,874)
(182)
17,592
(4,357)
13,235
73
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
4. Segment analysis of revenue and operating profit continued
Year ended 31st December 2011
Balance sheet information
Segment assets – intangible
Segment assets – other
Total segment assets
Total segment liabilities
Net assets/(liabilities)
Other segment items
Capital expenditure
Depreciation
Amortisation of intangible assets
Share of results of joint venture
Professional indemnity claim provision
Onerous leases provision
Share based payment
Impairment of brand
Impairment of trade receivables
Estate
Agency and
Related
Services
£’000
Surveying
and Valuation
Services
£’000
Unallocated
£’000
Total
£’000
125,327
36,212
161,539
(45,556)
115,983
12,167
9,891
–
2,619
137,494
48,722
22,058
(21,632)
2,619
(46,645)
186,216
(113,833)
426
(44,026)
72,383
2,869
(2,340)
(1,837)
679
–
500
(333)
–
(699)
374
(203)
(6,635)
–
(2,771)
–
(181)
(153)
33
–
(38)
–
–
–
–
(273)
–
–
3,243
(2,581)
(8,472)
679
(2,771)
500
(787)
(153)
(666)
Unallocated net liabilities comprise certain property, plant and equipment (£69,000), financial assets (£347,000), investments in joint
ventures (£1,768,000), cash and bank balances (£435,000), other taxes and liabilities (£393,000), other creditors (£93,000), accruals
(£1,832,000), financial liabilities (£34,918,000), deferred and current tax liabilities (£8,144,000) and interest rate swap (£1,265,000).
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
80,935
–
206,607
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
74
Year ended 31st December 2010
Balance sheet information
Segment assets – intangible
Segment assets – other
Total segment assets
Total 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
Services
£’000
Surveying
and Valuation
Services
£’000
Unallocated
£’000
Total
£’000
55,786
45,784
18,956
10,710
1,540
74,742
58,034
101,570
(35,567)
29,666
(22,333)
1,540
(6,766)
132,776
(64,666)
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)
54
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) and interest rate swap (£1,083,000).
5. Finance income
Interest receivable on funds invested
6. Finance costs
Interest on revolving credit facility
Interest on loan notes
Unwinding of discount on professional indemnity provision
Unwinding of discount on contingent consideration
HIPs financing fees
2011
£’000
4
2010
£’000
5
2011
£’000
1,422
82
266
104
–
1,874
2010
£’000
1,630
–
230
41
327
2,228
75
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
7. Exceptional items
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 business reorganisation
Other
Acquisition related costs
Others
Impairment of brand
Contingent consideration in acquisitions linked to employment
Provision for professional indemnity claims
Total operating exceptional (costs)/income
Finance costs
Banking and legal fees incurred for extension of facility
Movement in fair value of interest rate swap
Net exceptional (cost)/profit
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
Loss/(gain) on sale of property, plant and equipment
9. Auditors’ remuneration
The remuneration of the auditors is further analysed as follows:
Audit of the Financial Statements
Other fees to auditors:
– local statutory audits for subsidiaries
– taxation services
– corporate finance fees
– other services pursuant to legislation
– other services
2011
£’000
2010
£’000
–
–
–
–
29,825
(7,730)
(6,125)
15,970
(266)
(756)
(1,629)
–
(153)
(166)
–
(96)
(133)
–
–
(2,796)
(2,214)
12,189
–
(182)
(182)
(924)
(1,083)
(2,007)
(2,396)
10,182
2011
£’000
589
9,817
3,214
8
2011
£’000
40
186
94
255
14
–
589
2010
£’000
297
9,518
1,417
(17)
2010
£’000
35
125
121
–
14
2
297
Fees paid for corporate finance services relates to fees for acting as reporting accountant and sponsor for the acquisition of
Marsh & Parsons Limited.
76
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
13,217
–
13,217
Weighted
average
number of
shares
102,889,561
1,829
102,891,390
2011
Per share
amount p
12.9
–
12.9
Profit
after tax
£’000
34,500
–
34,500
Weighted
average
number of
shares
102,777,043
418,857
103,195,900
2010
Per share
amount p
33.6
–
33.4
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 non-controlling interest):
Net finance costs (excluding exceptional costs and unwinding of discount on contingent consideration)
Normalised taxation
Adjusted profit after tax* before exceptional costs, share-based payments and amortisation
2011
£’000
2010
£’000
31,099
(1,766)
(7,773)
31,900
(1,707)
(8,654)
21,560
21,539
* 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. Effective tax rate considered to calculate normalised taxation in 2011 is 26.5% (2010: 28%).
Adjusted
profit
after tax1
£’000
21,560
–
21,560
Weighted
average
number of
shares
102,889,561
1,829
102,891,390
2011
Per share
amount p
21.0
–
21.0
Adjusted
profit
after tax1
£’000
21,539
–
21,539
Weighted
average
number of
shares
102,777,043
418,857
103,195,900
2010
Per share
amount p
21.0
–
20.9
Adjusted basic and diluted EPS
Adjusted Basic EPS
Effect of dilutive share options
Adjusted diluted EPS
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
2010 final: 5.9p
2011 interim: 2.8p
Dividends on Ordinary Shares proposed (not recognised as a liability as at 31st December):
Equity dividends on Ordinary Shares:
Dividend: 5.9p per share (2010: 5.9p)
2011
£’000
2010
£’000
–
–
6,065
2,880
8,945
5,567
2,579
–
–
8,146
6,070
6,064
77
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
12. Directors and employees
Remuneration of directors
Directors’ remuneration (short term benefits)*
Contributions to money purchase pensions schemes (post-employment benefits)
Share-based payments
2011
£’000
1,122
37
208
1,367
2010
£’000
1,439
34
60
1,533
* included within this amount is accrued bonuses of £88,000 (2010: £510,000).
The number of Directors who were members of Group money purchase pension schemes during the year totalled 4 (2010: 4).
Employee numbers and costs
The Group employs staff in its branches and head offices. Aggregate payroll costs of these employees were:
Wages and salaries
Social security costs
Pension costs
Total employee costs
Subcontractor costs
Total employee and subcontractor costs*
Share-based payment expense (see below)
2011
£’000
107,598
10,885
2,111
120,594
4,192
2010
£’000
98,697
10,175
2,143
111,015
4,748
124,786
115,763
787
298
* The total employee and subcontractor costs exclude employees redundancy costs of £266,000 (2010: £8,486,000), which have been shown under Exceptional costs (note 7).
The monthly staff numbers (including Directors) during the year averaged 3,930 (2010: 3,649).
Estate Agency and Related Services
Surveying and Valuation Services
2011
3,083
847
3,930
2010
2,834
815
3,649
Share-based payments
Long Term Incentive Plan
The Group operates an 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
2011
2010
Weighted
average
exercise
price
£
–
–
–
Weighted
average
exercise
price
£
–
–
–
Number
23,101
(23,101)
–
Number
–
–
–
There were 23,101 options exercisable at the end of the year (2010: 23,101). The weighted average remaining contractual life is nil years
(2010: nil years).
Joint Share Ownership Plan (JSOP)
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 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.
78
The vesting of JSOP awards granted in 2010 is conditional upon LSL’s adjusted basic EPS performance meeting the following absolute
performance targets over a period of three financial years starting with the financial year in which the JSOP award is granted:
EPS growth p.a.*
10%
13%
17%
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%
–
–
* With straight line vesting between points for the Chief Executive Officer’s award.
The vesting of JSOP awards granted in 2011 is conditional upon both the following criteria being met:
• LSL’s adjusted EPS performance over the three financial years starting with the financial year in which the JSOP award is granted being
10% p.a. or more; and
• LSL’s total shareholders’ return must exceed that of the FTSE 250 index (excluding investment trusts) over the three year
performance period.
Outstanding at 1st January
Granted during the year
Outstanding at 31st December
There were nil options exercisable at the end of the year (2010: nil).
2011
2010
Weighted
average
exercise
price
£
Number
3.20
3.20
382,104
840,897
3.20 1,223,001
Weighted
average
exercise
price
£
–
3.20
3.20
Number
–
382,104
382,104
The weighted average fair value of options granted during the year was £0.996 (2010: £0.75). The weighted average remaining contractual
life is 2.0 years (2010: 2.5 years).
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 condition of 10% growth in LSL’s adjusted basic EPS over a period
of three financial years starting with the financial year in which the CSOP award is granted are met.
Outstanding at 1st January
Granted during the year
Outstanding at 31st December
There were nil options exercisable at the end of the year (2010: nil).
2011
2010
Weighted
average
exercise
price
£
2.40
2.50
2.44
Number
481,870
327,140
809,010
Weighted
average
exercise
price
£
–
2.40
2.40
Number
–
481,870
481,870
The weighted average fair value of options granted during the year was £1.13 (2010: £0.95). The weighted average remaining contractual life
is 1.75 years (2010: 2.5 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. In March 2011, the Group announced a new SAYE scheme effective from April 2011. All 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% for the 2007 and 2008 schemes, and at the daily average market price for the 2011 scheme. 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.
79
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
12. Directors and employees continued
2007 Scheme
Outstanding at 1st January
Lapsed during the year due to employees’ withdrawal
Exercised during the year
Outstanding at 31st December
2011
2010
Weighted
average
exercise
Price
£
–
–
–
–
Weighted
average
exercise
price
£
1.74
1.74
–
Number
268,800
(21,951)
(246,849)
–
Number
–
–
–
–
The weighted average remaining contractual life was nil years (2010: nil years). The weighted average share price of the options exercised
during the year was £nil per share. There were nil options exercisable at the end of the year (2010: nil).
2008 Scheme
Outstanding at 1st January
Granted during the year
Lapsed during the year due to employees’ withdrawal
Exercised during the year
Outstanding at 31st December
2011
2010
Weighted
average
exercise
price
£
1.155
1.155
–
1.155
–
Weighted
average
exercise
price
£
Number
1.155
800,852
1.155
1.155
(25,641)
(10,234)
Number
764,977
40,922
–
(805,899)
–
1.155
764,977
The weighted average remaining contractual life was nil years (2010: 0.23 years). There were nil options exercisable at the end of the year
(2010: nil). The weighted average share price of the options exercised during the year was £2.78 per share.
2011 Scheme
Outstanding at 1st January
Granted during the year
Vested during the year
Outstanding at 31st December
2011
Weighted
average
exercise
price
£
–
2.57
–
2.57
Number
–
680,554
–
680,554
The weighted average fair value of options granted during the year was £1.13 (2010: £nil) and the weighted average remaining contractual
life was 2.25 years. There were nil options exercisable at the end of the year (2010: nil).
80
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
2011
2010
CSOP
JSOP
Black
Scholes
2.50
2.50
3 years
80%
3.90%
3.50%
Black
Scholes
2.50
3.20
3 years
80%
3.90%
3.50%
SAYE
2011
Black
Scholes
2.50
2.57
3 years
80%
3.90%
3.50%
CSOP
JSOP
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%
SAYE
2008
Black
Scholes
1.34
1.155
3 years
42%
2.15%
5.25%
The total cost recognised for equity settled transactions is as follows:
Share-based payment charged during the year
A charge of £273,000 (2010: £61,000) relates to employees of the Company.
2011
£’000
787
2010
£’000
298
The volatility assumption, measured at the standard deviation of expected share price returns, is based on statistical analysis of historical
share price. 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
As stated in note 21, 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. In 2010, the Group
acquired the shares in the subsidiary for a total consideration of £328,000 of which £143,000 was paid in 2010. The remaining £185,000 was
outstanding at 31st December 2011 (2010: £185,000) and is payable in March 2013. There was no expense charged to the income statement
in 2011 and 2010.
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 credit
Total tax charge in the income statement
2011
£’000
5,383
160
5,543
(764)
–
(422)
(1,186)
4,357
2010
£’000
1,280
281
1,561
(966)
(80)
908
(138)
1,423
Income tax charged directly to equity is £nil (2010: credited £24,000) which relates to deferred tax on the net loss on the cash flow hedge.
In March 2011 the UK Government announced proposals to reduce the main rate of corporation tax to 23% over three years with effect from
1st April 2011. As of 31st December 2011 only the initial reduction to 25% had been enacted. Accordingly this is the rate at which deferred tax
has been provided. If the subsequent reductions in the tax rate to 23% had been substantively enacted at 31st December 2011 the deferred
tax liability would have reduced by £504,000.
81
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
13. Taxation continued
(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is lower (2010: lower) than the standard UK corporation tax rate, because of the
following factors:
Profit on ordinary activities before tax
Tax calculated at UK standard rate of corporation tax rate of 26.5% (2010: 28%)
Non taxable negative goodwill on acquisition
Non taxable income
Non taxable income from joint ventures
Non taxable profit on disposal of available-for-sale financial asset
Benefit of deferred tax asset not previously recognised
Disallowable expenses
Share-based payment relief
Temporary differences on non-qualifying properties no longer recognised
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
2011
£’000
2010
£’000
17,592
35,958
4,662
(24)
–
(180)
–
75
622
141
(380)
(390)
94
4,620
159
(422)
4,357
10,068
(8,351)
(145)
–
(1,098)
(998)
796
74
–
(80)
(32)
234
281
908
1,423
2011
£’000
2010
£’000
10
–
5,693
5,703
11
82
3,509
3,602
£nil (2010: £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 liability/(asset) at 1st January
Deferred tax recognised in other comprehensive income
Deferred tax liability arising on business combinations
Deferred tax credit in income statement for the year (note 13a)
Net deferred tax liability at 31st December
2011
£’000
2,183
–
3,775
(1,186)
4,772
2010
£’000
(621)
24
2,918
(138)
2,183
82
Analysed as:
Accelerated 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 credit in income statement relates to the following:
Intangible assets recognised on business combinations
Accelerated capital allowance
Deferred tax on share options
Movement in deferred tax recognised on losses
Other temporary differences
2011
£’000
651
4,726
(63)
(316)
(226)
4,772
2011
£’000
822
568
(259)
–
55
1,186
2010
£’000
684
2,298
(322)
(292)
(185)
2,183
2010
£’000
595
604
(49)
(886)
(126)
138
At the end of either year there was no unrecognised deferred tax liability 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
At 31st December
Carrying amount of goodwill by operating unit
Estate Agency and Related Services companies
Marsh & Parsons
Your Move
Reeds Rains
LSLi
AMF
First Complete
Templeton LPA
Others
Surveying and Valuation Services companies
e.surv Chartered Surveyors
Chancellors Associates
2011
£’000
2010
£’000
74,742
41,710
–
66,472
7,914
356
116,452
74,742
2011
£’000
2010
£’000
40,307
39,078
15,279
6,015
2,604
3,998
336
348
–
38,691
15,243
5,285
2,206
4,146
336
348
107,965
66,255
8,487
–
8,487
6,677
1,810
8,487
116,452
74,742
83
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
14. Intangible assets continued
Goodwill continued
Impairment of goodwill and other intangibles with indefinite useful lives
The carrying amount of goodwill by operating unit is given above. The carrying amount of brand by operating unit is as follows:
Estate Agency and Related Services companies
Marsh & Parsons
Your Move
Reeds Rains
LSLi
AMF
Surveying and Valuation Services companies
e.surv Chartered Surveyors
Chancellors Associates
2011
£’000
2010
£’000
11,724
2,510
1,241
596
180
16,251
1,281
–
1,281
17,532
–
2,510
1,241
596
180
4,527
1,281
153
1,434
5,961
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
• Marsh & Parsons
• Your Move (including its share of cash flows from LSL CCS)
• Reeds Rains
• LSLi, which includes
ICIEA*
•
• Zenith Properties*
• David Frost Estate Agency*
• JNP Estate Agents*
• GFEA*
• Philip Green Lettings*
• AMF
• Templeton LPA
• First Complete
• Surveying and Valuation Services companies
• e.surv Chartered Surveyors
* Management viewed these companies/operating units as part of LSLi for impairment testing purposes
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 five year plan. The discount rate applied to cash flow
projections is 10.7% (2010: 11.5%) and cash flows beyond the three year plan are extrapolated using a 0% (2010: 0%) growth rate even
though there is evidence of a gain in market share in 2011.
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 three year plan. The discount rate applied to the cash flow projections is
10.7% (2010: 11.5%). The growth rate used to extrapolate the cash flows of the Surveying and Valuation Services companies beyond the
three year plan is 0% (2010: 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:
• Discount rates
• Market share and market recovery
• Growth rate used in the budget period
84
Discount rates reflect management’s estimate of the post-tax Weighted Average Cost of Capital (WACC) of the Group and this is grossed up
to arrive at a pre-tax discount rate using a tax rate of 26.5%. 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 similar levels over the budget period. There has been growth in the market share of the
Estate Agency companies organically (due to various market share growth initiatives). For impairment test purposes, management has not
considered any further market share growth beyond 2011.
Growth rate estimates are based on external market data to the extent available, past experience and management estimates.
During the year the business of Chancellors Associates was hived up into e.surv Chartered Surveyors, and as a result the goodwill was
transferred to e.surv Chartered Surveyors and remaining brand value of £153,000 was written off. Other than this there had been no
impairment in respect of the carrying amount of goodwill or brand (indefinite useful life asset) 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 recoverable amount to be below the carrying value. Despite the unprecedented
market conditions, the principal Estate Agency and Related Services companies, Your Move and Reeds Rains have been profitable in 2011
(without considering the impact of the HEAL branches which were hived up to Your Move, Reeds Rains and ICIEA).
Other intangible assets
As at 31st December 2011
Cost
At 1st January 2011
Arising on acquisition during the year
At 31st December 2011
Aggregate amortisation and impairment
At 1st January 2011
Impairment
Charge for the year
At 31st December 2011
Carrying amount
At 31st December 2011
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
* Other relates to in-house software and franchise agreements.
Brand
Names
£’000
Customer
Contracts
£’000
Insurance
Renewals
£’000
Lettings
Contracts
£’000
5,999
11,724
17,723
38
153
–
191
47,274
–
47,274
36,542
–
7,541
44,083
5,612
–
5,612
4,841
–
771
5,612
2,044
202
2,246
2,044
–
58
2,102
Order
Book
£’000
5,323
128
5,451
5,323
–
59
5,382
Other*
£’000
Total
£’000
1,127
–
1,127
978
–
43
1,021
67,379
12,054
79,433
49,766
153
8,472
58,391
17,532
3,191
–
144
69
106
21,042
Brand
Names
£’000
Customer
Contracts
£’000
Insurance
Renewals
£’000
Lettings
Contracts
£’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
Order
Book
£’000
5,323
–
5,323
5,323
–
5,323
Other*
£’000
Total
£’000
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
85
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
14. Intangible assets continued
Other intangible assets continued
The brand value relates to the following:
• Your Move, a network of estate agencies and to e.surv Chartered Surveyors, 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;
•
• David Frost 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;
• AMF (trading as Pink Home Loans) was acquired in December 2010; and
• Marsh & Parsons, a network of estate agencies was acquired in November 2011.
ICIEA, a network of estate agencies which were acquired by the Group in February 2007;
The businesses are run as separate reporting units within the Group. There have been no fundamental changes to the manner in which the
businesses have been run since their acquisition and therefore the results of the businesses are considered to be derived from the brand
names nationally.
All amortisation charges have been treated as an expense in the income statement. Brand names are not amortised as the Directors are of
the opinion that they have an indefinite useful life. This is based on the expectation of the Directors that there is no foreseeable limit to the
period over which the asset is expected to generate net cash inflows to the businesses and the Directors are confident that trademark
registration renewals will be filed at the appropriate time and sufficient investment will be made in terms of marketing and communication
to maintain the value inherent in the brand.
£2.4m of the balance in respect of customer contracts relates to one contract, which will be fully amortised in the next financial year.
15. Property, plant and equipment
As at 31st December 2011
Cost
At 1st January 2011
Acquisitions during the year
Additions
Disposals
At 31st December 2011
Depreciation and impairment
At 1st January 2011
Charge for the year
Disposals
At 31st December 2011
Carrying amount
At 31st December 2011
Freehold land
and buildings
£’000
Leasehold
improvements
£’000
Motor
vehicles
£’000
7,878
–
–
–
7,878
150
150
–
300
3,580
2,219
8
(10)
5,797
3,415
91
(10)
3,496
33
243
5
–
281
22
18
–
40
Fixtures,
fittings and
computer
equipment
£’000
18,423
525
3,230
(529)
Total
£’000
29,914
2,987
3,243
(539)
21,649
35,605
12,477
2,322
(521)
16,064
2,581
(531)
14,278
18,114
7,578
2,301
241
7,371
17,491
86
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
16. Financial assets
Available-for-sale financial assets
Unquoted shares carried at cost
Less: Reclassified as investments (see note below)
Acquired during the year
Impairment
Freehold land
and buildings
£’000
Leasehold
improvements
£’000
Motor
vehicles
£’000
–
8,593
–
(715)
7,878
–
150
–
150
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
–
18,423
10,929
1,548
–
12,477
Total
£’000
16,422
9,260
4,982
(750)
29,914
14,345
1,748
(29)
16,064
7,728
165
11
5,946
13,850
2011
£’000
1,442
(750)
–
692
(345)
347
2010
£’000
497
–
945
1,442
(345)
1,097
In 2011 the Directors have reclassified investment in TM Group (UK) Limited which had a carrying value of £750,000 at 31st December 2010
from financial assets to investments in joint ventures as it satisfied the definition of a joint venture.
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.
17. Investments
Investment in joint ventures
2011
£’000
1,768
2010
£’000
–
The Group has a 33.33% interest in TM Group (UK) Limited, a jointly controlled entity whose principal activity is to provide property searches.
In July 2011, the Group also acquired a 33.33% interest in Cybele Solutions Holdings Limited (trading as Legal Marketing Services (LMS)) for a
total consideration of £671,000. The principal activity of LMS is to provide panel management of conveyancing services.
87
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
17. Investments continued
The share of the assets, liabilities, income and expenses of the jointly controlled entities at 31st December and for the years then ended are
as follows:
Share of the joint ventures’ balance sheets:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Share of net assets
Share of the joint ventures’ results:
Revenue
Operating expenses
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit after tax
18. Trade and other receivables
Current
Trade receivables
Prepayments and accrued income
2011
£’000
2010
£’000
978
3,189
(2,008)
(391)
1,768
–
–
–
–
–
2011
£’000
2010
£’000
13,857
(12,936)
921
12
(3)
930
(251)
679
–
–
–
–
–
–
–
2011
£’000
2010
£’000
20,492
8,189
28,681
17,337
7,799
25,136
Trade receivables are non-interest bearing and are generally on 0–90 days terms.
As at 31st December 2011, trade receivables at a nominal value of £1,394,000 (2010: £533,000) were impaired and fully provided for.
Movements in the provision for impairment of receivables were as follows:
At 1st January
Acquisitions during the year
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:
2011
£’000
533
403
666
(208)
–
1,394
2010
£’000
752
–
–
(165)
(54)
533
2011
2010
88
Neither past
due
nor impaired
£’000
Total
£’000
20,492
17,096
17,337
13,440
Past due but not impaired
0–90 days
£’000
2,784
2,603
>90 days
£’000
612
1,294
19. Cash and cash equivalents
Short term deposits
2011
£’000
435
2010
£’000
338
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 £0.4m (2010: £0.3m). At 31st December 2011, the Group had available
£40.1m of undrawn committed borrowing facilities in respect of which all conditions precedent had been met (2010: £73.5m).
20. Trade and other payables
Current
Trade payables
Other taxes and social security payable
Other payables
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.
21. Financial liabilities
Current
2% unsecured loan notes
Other unsecured loans
Deferred consideration
Non-current
Secured bank loans – Revolving Credit Facility (RCF)
Other unsecured loans
12% unsecured loan notes
Deferred consideration
Contingent consideration
Derivatives carried at fair value
2011
£’000
2010
£’000
8,112
9,491
577
28,423
46,603
8,895
8,993
1,016
26,181
45,085
2011
£’000
2010
£’000
1,496
750
–
2,246
34,918
–
8,660
724
1,215
1,265
46,782
–
–
92
92
1,509
750
–
600
1,213
1,083
5,155
2% unsecured loan notes (2% LN)
The 2% LN were issued as part satisfaction of the consideration for acquisition of Marsh & Parsons Limited in November 2011. These loan
notes carry an interest rate of 2% and are redeemable at par value at any time after 24th November 2012 at the option of either the Group or
the loan note holder.
Other unsecured loan
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.
Secured bank loans – Revolving Credit Facility
The secured bank loans totalling £34.9m (2010: £1.5m) 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 (2010: £75m). The banking facility was renewed in 2010 for a further period until
March 2014.
89
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
21. Financial liabilities continued
Interest and fees payable on the revolving credit facility amounted to £1.4m (2010: £1.6m). The interest rate applicable to the facility is LIBOR
plus a margin rate of 1.75% (2010: LIBOR plus 2.0%). The margin rate is linked to the leverage ratio of the Group and the margin rate is
reviewed at six monthly intervals.
12% unsecured loan notes (12% LN)
The 12% LN with a face value of £6,146,000 (fair value of £8,660,000) were issued as part satisfaction of the consideration for acquisition of
Marsh & Parsons Limited in November 2011. These loan notes carry a coupon of 12% which is compounded every year on 1st January and
rolled up to redemption. These loan notes are redeemable at par value plus rolled up interest at any time after 31st March 2016 at the option
of the loan note holder. However, if that option is not exercised by the loan note holder by 31st March 2020 then these are redeemable on
31st March 2020.
Deferred consideration
The total deferred consideration is as below:
Acquisition of Barnwoods shares
Deferred consideration relating to Marsh & Parsons acquisition
Templeton deferred consideration
Acquisition of AMF
2011
£’000
190
334
200
–
724
2010
£’000
190
–
–
410
600
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 £334,000 relates to the Marsh & Parsons acquisition in November 2011. This is payable at any time between
31st March 2016 and 31st March 2020 at the option of management of Marsh & Parsons Limited.
Deferred consideration of £200,000 is payable on acquisition of Templeton LPA. This is payable in January 2013 and no interest is payable
on this.
Deferred consideration of £nil (2010: £410,000) relates to consideration that is payable for the acquisition of AMF (including BDS).
Contingent consideration
£1,149,000 (2010: £1,213,000) of contingent consideration is payable to third parties in relation to the acquisition of certain subsidiaries in
2007 and 2010. This is payable between three and five years after the acquisition dates depending on the profitability of those subsidiaries
in the relevant years. In 2011, the contingent consideration has been recalculated based on the latest management’s expectation using a
discount rate of 7% (2010: 7%).
£66,000 (2010: £nil) of contingent consideration relates to the ‘Growth Shares’ issued to management of Marsh & Parsons subsequent to
acquisition as an incentive to grow the Marsh & Parsons business. Holders of Growth Shares will have the option to require LSL to buy their
Growth Shares at any time between 31st March 2016 and 1st April 2020, at their discretion, at a price determined by a multiple of EBITDA in
the previous financial year. The payment of the consideration is contingent on the holder of the Growth Share being continuously employed
by the relevant company and consequently the expected value of the Growth Shares is charged to the income statement over the
earn-out period.
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 29). These are carried at fair value.
90
22. Provisions for liabilities
Balance at 1st January
Acquisition during the year
Amount utilised
Amount released
Unwinding of discount
Provided in financial year
Balance at 31st December
Current
Non-current
Professional
indemnity
claim
provision
£’000
10,901
–
(4,031)
–
266
2,505
9,641
512
9,129
9,641
2011
Onerous
leases
£’000
992
–
(243)
(334)
–
2
417
194
223
417
Professional
indemnity
claim
provision
£’000
7,542
–
(2,735)
–
230
5,864
Total
£’000
11,893
–
(4,274)
(334)
266
2,507
10,058
10,901
706
9,352
584
10,317
10,058
10,901
2010
Onerous
leases
£’000
1,643
184
–
(835)
–
–
992
–
992
992
Total
£’000
9,185
184
(2,735)
(835)
230
5,864
11,893
584
11,309
11,893
The PI claim provision relates to ongoing and expected future legal claims relating to valuation services and is the Directors’ best estimate of
the likely outcome of such claims, taking account of the incidence of claims and the size of the loss that may be borne by the claimant after
taking account of actions that can be taken to mitigate losses. 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.
23. 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 22). 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
8,814
20,078
8,931
37,823
2011
Plant
and
machinery
£’000
2,099
2,147
–
4,246
Total
£’000
10,913
22,225
8,931
42,069
Land
and
building
£’000
8,704
21,455
7,355
37,514
2010
Plant
and
machinery
£’000
1,998
1,593
–
3,591
Total
£’000
10,702
23,048
7,355
41,105
The Group had annual committed 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
2011
Land and
buildings
£’000
946
1,002
445
2,393
2010
Land and
buildings
£’000
1,360
1,638
647
3,645
91
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
24. Share capital
Authorised:
Ordinary Shares of 0.2p each
Issued and fully paid:
At 1st January and 31st December
2011
2010
Shares
£’000
Shares
£’000
500,000,000
1,000
500,000,000
1,000
104,158,950
208
104,158,950
208
25. 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 2011 the Group held 1,269,389 (2010: 1,381,907) of its own
shares at an average cost of £2.28 (2010: £2.27). The market value of the shares at 31st December 2011 was £2,843,000 (31st December 2010:
£3,455,000). The nominal value of each share is 0.2p.
26. 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.
Total contributions to the defined contribution schemes in the year were £2.1m (2010: £2.1m). There was an outstanding amount of
£293,000 in respect of pensions as at 31st December 2011 (2010: £157,000).
27. Acquisitions during the year
Year ended 31st December 2011
The Group acquired the following businesses during the year:
a. Marsh & Parsons Limited
On 23rd November 2011, the Group, through its newly incorporated subsidiary Marsh & Parsons Holdings Limited, completed the acquisition
of the entire share capital of Marsh & Parsons Limited for the consideration of £55.9m, which after considering cash acquired of £5.7m is an
enterprise value of £50.2m. Marsh & Parsons is a leading London estate agency operating a premium brand in the mid-segment of the prime
London property market with 14 offices in Central and South West London.
92
Due to the proximity of the timing of the transaction to the year-end the fair value of the identifiable assets, except for cash and cash
equivalents, and liabilities of Marsh & Parsons as at the date of acquisition have been determined on a provisional basis as below:
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Deferred tax liabilities
Total identifiable net assets acquired
Purchase consideration
Goodwill
Purchase consideration discharged by:
Cash
Issue of 12% unsecured loan notes measured at fair value
Issue of 2% unsecured loan notes
Deferred consideration
Analysis of cash flow on acquisition
Transaction costs (included in cash flows from operating activities)
Net cash acquired with the subsidiary (included in cash flows from investing activities)
Purchase consideration discharged in cash (included in cash flows from investing activities)
Net cash outflow on acquisition
Transaction costs have been expensed and are included under exceptional costs (see note 7).
Provisional
fair value
recognised
on
acquisition
£’000
12,054
2,962
3,453
5,707
(4,014)
(806)
(3,775)
15,581
55,888
40,307
45,398
8,660
1,496
334
55,888
£’000
(1,629)
5,707
(45,398)
(41,320)
The goodwill of £40.3m for Marsh & Parsons comprises certain intangible assets that cannot be individually separated and reliably measured
from the acquiree due to their nature. These items include the high quality, dynamic and experienced management team with an
outstanding record of delivering strong and profitable growth against the backdrop of challenging market conditions, the expected value of
synergies and the potential to significantly grow the business.
In addition to the consideration of £55.9m, management of Marsh & Parsons were issued ‘Growth Shares’ which entitle them to require LSL
to buy their Growth Shares at any time between 31st March 2016 and 1st April 2020, at their discretion, at a price determined by a multiple of
EBITDA in the previous financial year. In the current year £66,000 has been expensed in the income statement.
b. Lettings acquisition by LSLi
During the year LSLi (through its subsidiaries) acquired the following lettings business:
• Assets of the lettings business of Reynolds (Wimbledon) Limited acquired on 1st March 2011 for a cash consideration of £160,000;
• Assets of the lettings business of Goddard Management Limited trading as A120 Lettings acquired on 30th September 2011 for a cash
consideration of £188,250;
• Lettings business of Front Door Property Management Limited for a cash consideration of £207,000 in September 2011; and
• Lettings business of Warners Letting Agency Limited for a cash consideration of £200,000 in December 2011.
93
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
27. Acquisitions during the year continued
The combined fair values of the indentifiable assets and liabilities as at the date of acquisition of the above acquisitions were:
Property, plant and equipment
Total identifiable net assets acquired
Purchase consideration (discharged by cash)
Goodwill arising on acquisition
Fair value
recognised
on
acquisition
£’000
25
25
755
730
The goodwill of £0.7m for the above acquisitions 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 and the potential to grow
the business.
c. Lettings acquisition by Your Move and Reeds Rains
During the year, Your Move and Reeds Rains acquired the following lettings businesses of Wilsons, Letexpress, Destination London and a
franchisee of Reeds Rains for a total cash consideration of £423,000. There were no separately identifiable net assets and all the
consideration was towards goodwill.
From the date of acquisition to 31st December 2011, the acquisitions in aggregate have contributed to £3.1m of revenue and £0.5m profit
before tax of the Group. If all of these combinations had taken place at the beginning of the year, the consolidated revenue would have
been higher by £24.6m and the consolidated profit before tax would have been higher by £6.0m.
Of the total goodwill arising on all acquisitions, an amount of £349,000 is expected to be deductible for tax purposes.
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
Transaction costs (including rebranding costs) have been expensed and are included under exceptional costs (see note 7).
94
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
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.
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 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
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 advisers, appointed representative network and an assembled workforce. Goodwill is allocated entirely to the
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:
a. the entire share capital of Templeton LPA on 8th February 2010 for a total consideration of £454,000 of which £362,000 was paid in cash
and a further £92,000 is deferred consideration payable in January 2011;
b. the assets of the estate agency, land and new home and lettings business of Goodfellows on 28th May 2010 for a cash consideration of
£1,030,000. Goodwill on this is included as part of LSLi; and
c. lettings business of Philip Green Estate Agents for a cash consideration of £360,000 in June 2010. Goodwill on this is included as part of LSLi.
95
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
27. 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.
28. Client monies
As at 31st December 2011, client monies held by subsidiaries in separate bank accounts amounted to £55,647,000 (2010: £35,007,000).
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.
29. 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 has entered into derivative transactions, relating to the purchase of interest rate swaps. The purpose is to manage the interest
cost arising from the Group’s operations and its sources of finance.
It is the Group’s policy that trading in derivatives shall not be undertaken, apart from the interest rate swap agreements mentioned above.
The Group is exposed through its operations to one or more of the following financial risks:
• cash flow interest rate risk;
•
• credit risk.
liquidity risk; and
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.
The majority of external Group borrowings are variable interest based and 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.
In 2009 the Group entered into interest rate swap agreements to fix interest rates on £25m of the Group’s bank borrowings. The interest rate
swap agreements fix the loan interest rate to approximately 2.9% until April/May 2014.
96
Although the interest rate swaps neither protect 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 2011, after taking into account the effect of interest rate swaps, approximately 72% of the Group’s revolving credit facility
is at a fixed rate of interest (2010: 100%).
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings
which is not covered by the fixed interest rate swap. 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.
2011
2010
Increase/
decrease in
basis point
Effect on
profit before
tax
£’000
+100
-100
+100
-100
(99)
99
–
–
As mentioned above the Group also has interest rate swap agreements which are accounted as ‘fair value through profit and loss’ with
changes in the fair value charged or credited in the income statement. The fair value of the swap instrument is liable to fluctuate to short
term movements in interest rate expectation.
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 has net current liabilities due to the operating model where
debtors are collected earlier than payments to creditors, allowing the cash to be used elsewhere in the business such as to reduce the
amount drawn down on the revolving credit facility and to make acquisitions. However, requirement to pay creditors is managed through
future cash generation and if required from the revolving credit facility.
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.
The table below summarises the maturity profile of the Group’s financial liabilities at 31st December 2011 based on contractual undiscounted
payments:
Year ended 31st December 2011
Interest bearing loans and borrowings
Other unsecured loan
Trade and other payables
Contingent consideration
Deferred consideration
Interest rate swap (gross outflow)
On demand
£’000
Less than 3
months
£’000
–
–
–
–
–
–
–
393
750
8,112
–
–
182
9,437
3 to 12
months
£’000
2,672
–
–
–
–
547
3,219
1 to 5 years
£’000
>5 years
£’000
Total
£’000
46,216
–
–
1,215
724
992
49,147
–
–
–
–
–
–
–
49,281
750
8,112
1,215
724
1,721
61,803
97
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
29. Financial instruments – risk management continued
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)
On demand
£’000
Less than 3
months
£’000
–
–
–
–
–
–
–
171
–
8,895
–
92
184
9,342
3 to 12
months
£’000
541
–
–
–
410
559
1,510
1 to 5 years
£’000
>5 years
£’000
2,690
750
–
1,213
190
1,690
6,533
–
–
–
–
–
–
–
Total
£’000
3,402
750
8,895
1,213
692
2,433
17,385
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 2011
Inflows
Outflows
Net
Year ended 31st December 2010
Inflows
Outflows
Net
On demand
£’000
Less than 3
months
£’000
–
–
–
48
(182)
(134)
On demand
£’000
Less than 3
months
£’000
–
–
–
40
(184)
(144)
3 to 12
months
£’000
144
(547)
(403)
3 to 12
months
£’000
140
(559)
(419)
1 to 5 years
£’000
>5 years
£’000
264
(992)
(728)
–
–
–
1 to 5 years
£’000
>5 years
£’000
1,170
(1,690)
(520)
–
–
–
Total
£’000
456
(1,721)
(1,265)
Total
£’000
1,350
(2,433)
(1,083)
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. Certain loan notes issued on acquisition of Marsh & Parsons are excluded as they are unsecured, are also not
relevant to calculating the Group’s banking covenant and £8.7m of the loan notes are due for repayment only after the expiry of the existing
banking facility.
The Group has a current ratio of net debt (excluding loan notes) to operating profit of 1.24 (2010: 0.15:1), net debt (excluding loan notes) of
£38.4m (2010: net debt of £4.9m) and operating profit before exceptional costs, amortisation and share-based payment charge of £31.1m
(2010: profit of £31.9m). 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 (including loan notes)
Less: 2% and 12% unsecured loan notes
Less: cash and short term deposit
Net debt (excluding loan notes)
2011
£’000
49,028
(10,156)
(435)
38,437
2010
£’000
5,247
–
(338)
4,909
The liquidity risk of each Group entity is managed centrally by the Group treasury function. The Group’s cash requirement is
monitored closely.
98
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 2011 is as follows:
Fixed rate
Revolving credit facility*
Floating rate
Cash and cash equivalents
Revolving credit facility
* Includes the effect of interest rate swap
Within 1 year
£’000
1–2 years
£’000
2–3
years
£’000
Total
£’000
–
–
(25,000)
(25,000)
Within 1 year
£’000
435
–
1–2
years
£’000
–
–
2–3 years
£’000
–
(9,918)
Total
£’000
435
(9,918)
The effective interest rate and the actual interest rate charged on the loans in 2011 is as follows:
Revolving credit facility
2% unsecured loan notes
12% unsecured loan notes
Effective rate
Actual rate
9.9%
2.0%
3.65%
2.7%
2.0%
12.0%
The effective interest rate on the revolving credit facility during the year is high due to commitment fees payable on undrawn amounts
earlier in the year. The effective rate on 12% unsecured loan notes is low due to the loan notes being recorded at fair value on initial issue
in 2011.
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 facility*
Floating rate
Cash and cash equivalents
* Includes the effect of interest rate swap
Within 1 year
£’000
1–2 years
£’000
2–3 years
£’000
3–4 years
£’000
4–5 years
£’000
More than
5 years
£’000
Total
£’000
–
–
–
1,509
–
–
1,509
Within 1 year
£’000
1–2 years
£’000
2–3 years
£’000
3–4 years
£’000
4–5 years
£’000
More than
5 years
£’000
328
–
–
–
–
–
Total
£’000
328
99
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
29. Financial instruments – risk management continued
The effective interest rate and the actual interest rate charged on the loans in 2010 is as follows:
Revolving credit facility
Effective rate
Actual rate
13.1%
2.7%
The effective interest rate is high due to commitment fees payable on the committed undrawn borrowing facility.
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 Statement:
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
2% unsecured loan notes
12% unsecured loan notes
2011
2010
Book Value
£’000
Fair Value
£’000
Book Value
£’000
Fair Value
£’000
435
347
435
n/a*
328
1,097
328
n/a*
(34,918)
–
(1,265)
(1,215)
(724)
(1,496)
(8,660)
(34,918)
–
(1,265)
(1,215)
(724)
(1,483)
(8,660)
(1,509)
–
(1,083)
(1,213)
(692)
–
–
(1,509)
–
(1,083)
(1,213)
(692)
–
–
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.
* It has not been possible to reliably determine the fair value of unquoted investments in available-for-sale financial assets.
Fair value hierarchy
As at 31st December 2011, 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
Interest rate swap
Liabilities measured at fair value
Interest rate swap
100
2011
£’000
1,265
Level 1
£’000
–
Level 2
£’000
1,265
Level 3
£’000
–
2010
£’000
1,083
Level 1
£’000
–
Level 2
£’000
1,083
Level 3
£’000
–
30. Analysis of net debt (excluding loan notes)
Interest bearing loans and borrowings
– Current
– Non-current
Less: 2% unsecured loan notes
Less: 12% unsecured loan notes
Less: cash and short term deposits
Net debt at the end of the year
2011
£’000
2010
£’000
2,246
46,782
49,028
(1,496)
(8,660)
(435)
38,437
92
5,155
5,247
–
–
(338)
4,909
During the year, the Group has borrowed £33.4m (2010: repaid £23.6m) 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 (2010: £75m). In 2010 the banking facility was
renewed and is repayable when funds permit or by March 2014.
31. Related party transactions
Key management personnel
In 2010, the Group acquired 4.95% shares from the employees of Barnwoods (of whom one 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 (2010: £285) 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.
Transactions with Cybele Solutions Holdings Limited and its subsidiaries
Sales
Purchases
Year-end creditor balance
32. Capital commitments
Capital expenditure contracted for but not provided
2011
£’000
438
(29)
(6)
2011
£’000
51
2010
£’000
–
–
–
2010
£’000
496
101
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Group Financial Statements continued
for the year ended 31st December 2011
33. Principal subsidiary and joint venture 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.surv Chartered Surveyors*
Marsh & Parsons
Marsh & Parsons Holdings Limited*
First Complete*
LSL Corporate Client Department*
St Trinity*
Reeds Rains*
Linear Mortgage Network
Chancellors Associates
LSLi*
ICIEA
Barnwoods*
David Frost Estate Agents
JNP Estate Agents
Albany Insurance Company (Guernsey) Limited*
AMF*
Cybele Solutions Holdings Limited#
TM Group (UK) Limited#
* Held directly by the Company.
# Joint Ventures.
ordinary shares
ordinary shares
ordinary shares
‘A’ ordinary shares
‘B’ ordinary shares
‘C’ 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
ordinary ‘A’ Shares
ordinary shares
Proportion of
nominal value
of shares held
Nature of business
100%
100%
100%
100%
0%
0%
100%
100%
100%
100%
76%
100%
75%
87.5%
100%
100%
Estate Agency and Related Services
Surveying and Valuation Services
Estate Agency
Holding Company of Marsh & Parsons
Financial Services
Asset Management
Asset Management
Estate Agency and Related Services
Financial Services
Surveying and Valuation Services
Holding Company
Estate Agency and Related Services
Surveying and Valuation Services
Estate Agency and Related Services
80%
Estate Agency and Related Activities
100%
100%
100%
33.33%
33.33%
Captive insurer
Financial Services
Conveyancing
Property searches
102
Statement of Directors’ Responsibilities
in Relation to the Parent Company
Financial Statements
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to
prepare the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing those Financial Statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the
financial statements; and
• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The Directors are responsible for keeping adequate 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.
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
&
B
u
s
i
n
e
s
s
R
e
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
&
B
u
s
i
n
e
s
s
R
e
v
e
w
i
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
&
B
u
s
i
n
e
s
s
R
e
v
e
w
i
O
v
e
r
v
e
w
i
B
u
s
i
n
e
s
s
R
e
v
e
w
i
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
O
t
h
e
r
I
n
f
o
r
m
a
t
i
o
n
Annual Report & Accounts 2011
103
Independent Auditors’ 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 2011 which
comprise the Parent 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 29, the directors are responsible for the preparation of
the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the parent
company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial
statements.
Opinion on financial statements
In our opinion the parent company financial statements:
• give a true and fair view of the state of the company’s affairs as at 31st December 2011
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the 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 2011.
Stuart Watson (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Leeds
1st March 2012
104
Parent Company Balance Sheet
as at 31st December 2011
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
The Financial Statements were approved by the Board on 1st March 2012 and were signed on its behalf by:
Steve Cooke
Group Finance Director
Simon Embley
Group Chief Executive Officer
Note
2011
£’000
2010
£’000
2
3
4
5
6
(204)
70
160,952
(3,162)
107
114,034
160,818
110,979
28,269
(79,785)
27,243
(80,288)
(51,516)
(53,045)
109,302
57,934
7
(48,378)
(18,889)
60,924
39,045
10
11
11
11
11
11
208
5,629
912
(2,747)
–
56,922
208
5,629
1,014
(3,139)
–
35,333
60,924
39,045
105
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview
Notes to the Parent Company Financial Statements
for the year ended 31st December 2011
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 2011. 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 from 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.
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.
106
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 derecognised 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 derecognised 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.
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. Further details on the interest rate swap are included in note 29 of the Group Financial Statements.
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 five years
– over three 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.
Negative goodwill
Negative goodwill relates to the excess of the fair value of assets acquired over their purchase price at the date of acquisition. The excess
negative goodwill is written back to the profit and loss account in line with the usage of the assets.
107
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Parent Company Financial Statements
continued
for the year ended 31st December 2011
2. Intangible fixed assets
As at 31st December 2011
Cost or valuation
At 1st January 2011
Additions
At 31st December 2011
Amortisation
At 1st January 2011
Credit during the year
At 31st December 2011
Carrying amount
At 31st December 2011
At 1st January 2011
Negative
goodwill
£’000
(23,453)
–
(23,453)
20,291
2,958
23,249
(204)
(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
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 2011
Cost
At 1st January 2011
Additions
At 31st December 2011
Depreciation
At 1st January 2011
Charge for the year
At 31st December 2011
Carrying amount
At 31st December 2011
At 1st January 2011
108
Leasehold
improvements
£’000
Fixtures,
fittings and
computer
equipment
£’000
49
–
49
4
10
14
35
45
91
–
91
29
28
57
35
62
£’000
750
22,703
23,453
–
(23,453)
Total
£’000
140
–
140
33
38
70
70
107
4. Investments
Subsidiary undertakings
Other investments
Investments in joint ventures
2011
£’000
2010
£’000
159,335
195
1,422
113,089
195
750
160,952
114,034
Subsidiary undertakings:
Details of the subsidiaries held directly and indirectly by the Company are shown in note 33 to the Group Financial Statements.
At 1st January
Additions
Adjustment for contingent consideration
Adjustments for share-based payment
At 31st December
2011
£’000
2010
£’000
113,089
45,733
–
513
109,157
3,700
–
232
159,335
113,089
In 2011, an adjustment of £513,000 (2010: increase of £232,000) on investment in subsidiaries for the share-based payment, representing
the financial effects of awards by the Company of options over its equity shares to employees of subsidiary undertakings.
Other investments
At cost
At 1st January
Additions
At 31st December
Other investments represent investment in equity shares of private limited companies.
Investments in joint ventures
At cost
At 1st January
Additions
At 31st December
Details of the joint ventures held by the Company are shown in note 33 to the Group Financial Statements.
5. Debtors
Deferred tax asset (note 8)
Corporation tax recoverable
Group relief receivable
Prepayments
Amounts owed by Group undertakings
2011
£’000
195
–
195
2011
£’000
750
672
1,422
2010
£’000
–
195
195
2010
£’000
–
750
750
2011
£’000
323
764
9,445
2
17,735
28,269
2010
£’000
293
764
8,081
24
18,081
27,243
109
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Parent Company Financial Statements
continued
for the year ended 31st December 2011
6. Creditors: amounts falling due within one year
Other taxes and social security payable
Accruals
Contingent consideration
Deferred consideration
Amounts owed to Group undertakings
2011
£’000
393
1,899
145
334
77,014
2010
£’000
310
1,140
125
491
78,222
79,785
80,288
Contingent consideration
£145,000 (2010: £125,000) of contingent consideration is payable to third parties in relation to the acquisition of its subsidiaries in 2007 and
2011. This is payable between three and five years after the acquisition dates depending on the profitability of those subsidiaries in the
relevant years. In 2011, the contingent consideration has been recalculated based on the latest management’s expectation using a discount
rate of 7% (2010: 7%).
Deferred consideration
Deferred consideration of £334,000 relates to the Marsh & Parsons acquisition in November 2011. This is payable at any time between 31st
March 2016 and 31st March 2020 at the option of management of Marsh & Parsons Limited. 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 to equity
Deferred tax credit in profit and loss account for the year
Deferred tax asset at 31st December
2011
£’000
47,113
1,265
–
2010
£’000
17,806
1,083
–
48,378
18,889
2011
£’000
293
–
30
323
2010
£’000
40
(24)
277
293
Deferred tax asset is in relation to a short term timing difference. This relates predominately to the interest rate swap.
In March 2011 the UK Government announced proposals to reduce the main rate of corporation tax to 23% over three years with effect from
1st April 2011. As of 31st December 2011 only the initial reduction to 25% had been enacted. Accordingly this is the rate at which deferred tax
has been provided. If the subsequent reductions in the tax rate to 23% had been substantively enacted at 31st December 2011 the deferred
tax asset would have reduced by £26,000.
9. Loans
Amounts falling due
In more than two years but not more than five years
2011
£’000
2010
£’000
47,113
17,806
Secured bank loans – Revolving Credit Facility
The secured bank loans totalling £47.1m (2010: £17.8m) are secured by a debenture over the Group’s assets excluding the following
subsidiaries: Lending Solutions, Homefast Property Services Limited, Linear Mortgage Network, Linear Financial Services, Templeton LPA,
AMF, BDS, property-careers.com Limited, 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 (2010: £75m). The banking facility was renewed in 2010 for a further period until
March 2014.
110
The interest rate applicable to the facility is LIBOR plus a margin rate of 1.75% (2010: 2%). 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
2011
2010
Shares
£’000
Shares
£’000
500,000,000
1,000
500,000,000
1,000
104,158,950
208
104,158,950
208
11. Reconciliation of movements in shareholders’ funds
Balance at 1st January 2010
Share-based payments
Purchase of treasury shares
Reassurance of treasury shares
Recycling of cash flow hedge through profit and loss
account (net of tax)
Dividend paid
Profit for the year
Balance at 1st January 2011
Share-based payments
Purchase of treasury shares
Reissuance of treasury shares
Dividend paid
Profit for the year
Balance at 31st December 2011
Share capital
£’000
Share
premium
account
£’000
Share-based
payment
reserve
£’000
208
–
–
–
–
–
–
208
–
–
–
–
–
208
5,629
–
–
–
–
–
–
5,629
–
–
–
–
–
5,629
2,019
292
–
(1,297)
–
–
–
1,014
787
–
(889)
–
–
912
Treasury
shares
£’000
(2,805)
–
(1,007)
673
–
–
–
(3,139)
–
(1,762)
2,154
–
–
(2,747)
Hedging loss
£’000
Profit and loss
account
£’000
27,957
–
–
1,071
–
(8,146)
14,451
35,333
–
–
(307)
(8,945)
30,841
(63)
–
–
–
63
–
–
–
–
–
–
–
–
–
Total
£’000
32,945
292
(1,007)
447
63
(8,146)
14,451
39,045
787
(1,762)
958
(8,945)
30,841
56,922
60,924
For a description of the reserves refer to note 25 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 a 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 £30,841,000 (2010: profit of £14,451,000).
Remuneration paid to Directors of the Company is disclosed in note 12 of the Group Financial Statements.
The Company paid £40,000 (2010: £35,000) to its auditors in respect of the audit of the financial statements of the Company.
Fees paid to the auditors and their associates for non-audit services to the Company itself are not disclosed in the individual accounts of LSL
Property Services plc because Group Financial Statements are prepared which are required to disclose such fees on a consolidated basis.
These are disclosed in note 13 of the Group Financial Statements.
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.
111
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceFinancial StatementsOther InformationDirectors’ Report & Business Review Overview Notes to the Parent Company Financial Statements
continued
for the year ended 31st December 2011
13. Pensions costs and commitments continued
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 £54,324 (2010: £32,443). There were no outstanding amounts in
respect of pensions as at 31st December 2011 (2010: £nil).
14. Capital commitments
The Company had no capital commitments as at 31st December 2011 (2010: 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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
256
310
277
272
5,785
5,655
63
17
–
–
61
231
–
–
–
–
–
–
–
–
3,410
421
–
–
Linear Mortgage Network
2011
2010
Linear Financial Services
2011
2010
LSLi
2011
2010
ICIEA
2011
2010
Barnwoods
2011
2010
JNP Estate Agents
2011
2010
112
Other
Information
In this section
Definitions
Shareholder Information
114
116
113
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceDirectors’ Report & Business Review OverviewOther InformationFinancial Statements Definitions
“2011 EBT” employee benefit trust established in November 2011 as part of the acquisition of Marsh & Parsons
“Adjusted Basic Earnings Per Share” is defined at note 10 of the Financial Statements
“AGM” Annual General Meeting
“AMF” and “Advance Mortgage Funding” are trading names of Advance Mortgage Funding Limited
“Asset Management” refers to LSL’s repossessions asset management and property management for multi property landlords services
“Barnwoods” trading name Barnwoods Limited
“BDS” and “BDS Mortgage Group” are trading names of BDS Mortgage Group Limited
“Board” the Board of Directors of LSL
“Committees” refers to LSL’s Nominations Committee, the Audit Committee and the Remuneration Committee
“Company” or “Parent Company” LSL Property Services plc
“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” and “Cheltenham & Gloucester” are trading styles of Cheltenham & Gloucester plc
“Chancellors Associates” trading name of Chancellors Associates Limited
“Chairman” Roger Matthews
“Code” UK Code of Corporate Governance by the Financial Reporting Council (June 2010)
“Company Secretary” Sapna B FitzGerald
“CSOP” company share ownership plan
“CSR” corporate social responsibility
“Davis Tate” trading name of Davis Tate Limited
“Director” an Executive Director or Non Executive Director of LSL
“DBP” deferred bonus plan
“EBITDA” earnings, before interest, taxes, depreciation and amortisation
“Ekins” surveying and valuation business previously operated by Barclays Bank plc
“EPC” energy performance certificate
“EPS” earnings per share
“ESG” environmental, social and governance
“Estate Agency Division” includes LSL’s Residential Sales, Lettings, Financial Services, LPA fixed charge receiver and Asset Management
businesses
“Estate Agency and Related Services” refers to LSL’s Estate Agency Division
“e.surv Chartered Surveyors” or “e.surv” trading names of e.surv Limited
“Executive Director” refers to Steve Cooke, Simon Embley, David Newnes and Alison Traversoni
“Executive Director, Estate Agency” David Newnes
“Executive Director, Surveying” Alison Traversoni
“First Complete” trading name of First Complete Limited
“Financial Services” refers to LSL’s financial services (including mortgage and protection brokerage and the operation of intermediary
networks
“Financial Statements” financial statements contained in this Report
“Foxtons” trading name of Foxtons Limited
“Frosts” trading name of David Frost Estate Agents Limited
“Group” LSL Property Services plc and its subsidiaries
“Group CEO” Simon Embley
“Group Finance Director” Steve Cooke
“Growth Shares” the B1, B2 and C classes of ordinary shares (each £0.001) in Marsh & Parsons (Holdings) Limited
“Goodfellows” and “Goodfellows Estate Agents” are trading names of GFEA Limited
“Hamptons International” trading name of Hamptons International Limited
“HEAL” Halifax Estate Agencies Limited
“HEAL Business” HEAL branches and St Trinity Asset Management (formerly HEAL Corporate Services)
“HIPs” Home Information Packs
“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
“IFRS” International Financial Reporting Standards
“Intercounty” trading name of ICIEA Limited
“IPO” initial public offering
“JNP” trading name of JNP Estate Agents Limited
“JSOP” joint share ownership plan
“Legal Marketing Services” and “LMS” are trading names of Legal Marketing Services Limited
“Lettings” refers to LSL’s residential property lettings and property management services
“Letsure” trading name of Letsure Limited
“Linear” and “Linear Financial Services” are trading names of Linear Mortgage Network Limited and Linear Financial Services Limited
“Lloyds Banking Group” Lloyds TSB Bank plc group of companies
“LMS Direct Conveyancing” trading name of LMS Direct Conveyancing Limited
114
“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 Department” trading name of LSL Corporate Client Services Limited
“LTIP” long term investment plan
“Marsh & Parsons” trading name of Marsh & Parsons Limited
“Marsh & Parsons Management Shareholders” Peter Rollings and Liza-Jane Kelly
“MBO” management buy-out
“NBS” New Bridge Street Limited
“Net Debt” defined as financial liabilities less cash and cash equivalents
“Non Executive Director” refers to Helen Buck, 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” trading name of Openwork Holdings Limited
“Ordinary Shares” 0.2p ordinary shares in LSL
“PI” professional indemnity
“Pink Home Loans” or “Pink” are trading names for Advance Mortgage Funding Limited and BDS Mortgage Group Limited
“Philip Green” and “Philip Green Estate Agents” are trading names of Intercounty
“PropertyCare+” e.surv’s private surveying service delivered direct to private house purchasers
“RCF” revolving credit facility
“Reeds Rains” trading name of Reeds Rains Limited
“Registered Office” Newcastle House, Albany Court, Newcastle Business Park, NE4 7YB
“Report” and “Annual Report” refer to LSL’s annual report and accounts 2011
“Residential Sales” refers to LSL’s services for residential property sales
“RICS” Royal Institution of Chartered Surveyors
“Santander” trading name of Banco Santander S.A.
“SAYE” save-as-you-earn
“Senior Independent Director” Mark Morris
“Shareholders” shareholders of LSL
“Sherry FitzGerald” is the trading name of Sherry FitzGerald Limited
“SIP” share incentive plan
“St Trinity Asset Management” and “St Trinity” are trading names of St Trinity Limited
“Surveying Division” includes LSL’s surveying and valuation businesses
“Surveying and Valuation Services” refers to LSL’s Surveying Division
“Templeton” trading name of Templeton LPA Limited
“The Bridge” LSL’s call centre operation based in Southampton
“The Mortgage Alliance” or “TMA” are trading names of First Complete’s mortgage club
“Trust” LSL Property Services plc Employee Benefit Trust established in 2006 and referred to on page 32 of this Report
“Trustees” Capita Trustee Limited who have been appointed to operate the Trust
“TSR” total shareholder return
“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
“Vanstons” trading name of Vanstons Limited
“Your Move” trading name of your-move.co.uk Limited
115
Annual Report & Accounts 2011Directors’ Report & Business Review Business ReviewDirectors’ Report & Business Review GovernanceDirectors’ Report & Business Review OverviewOther InformationFinancial Statements Shareholder 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
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Telephone: 0871 664 0300 (calls cost 10p per minute plus network extras, lines are open 8:30am-5:30pm, Monday-Friday)
Overseas Telephone: +44 20 8639 3399
Website: www.capitaregistrars.co.uk
Email: shareholder.services@capitaregistrars.com
If you move, please do not forget to let the Registrars know your new address
Calendar of events
Preliminary Results Released 1st March 2012
AGM Proxy Form Deadline 2.00pm 17th April 2012
AGM 2.00pm 19th 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 and unless a Shareholder requests otherwise, LSL communicates with its Shareholders by
publishing information (including statutory documents, such as the Annual Report & Accounts and the Notice of Meeting) (Shareholder
Communications) 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.
Any Shareholders wishing to receive paper copies of the Shareholder Communications should advise Capita Registrars (details above).
116
www.lslps.co.uk
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