Annual Report and Accounts
Year ended 31st December 2014
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
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www.lslps.co.uk
LSL Property Services plc (LSL)
is a leading provider of residential
property services to two key
customer groups. Services to
consumers include residential sales,
lettings, surveying, conveyancing
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.
Your Move
Reeds Rains
Marsh & Parsons
LSLi
Davis Tate
Frost’s
Goodfellows
Hawes & Co
Intercounty
Lauristons
Lawlors
The JNP Partnership
LSL Corporate Client Department
St Trinity Asset Management
Templeton LPA
First Complete
Pink Home Loans
The Mortgage Alliance
Embrance Mortgage Services
First2Protect
e.surv Chartered Surveyors
Walker Fraser Steele Chartered Surveyors
Annual Report and Accounts 2014
•••LSL AR 2014•••.indd 2
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Overview
LSL Property Services plc
Annual Report and Accounts 2014
01
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Contents
Overview, Strategic Report and Directors’ Report
Overview
2 Highlights 2014
LSL Today
4
6 Milestones
7 Chairman’s Statement
Strategic Report
14 Strategy
15 Business Model
16 Markets
18 Business Review – Estate Agency Division
24 Business Review – Surveying Division
26 Financial Review
29 Principal Risks and Uncertainties
32 Corporate Social Responsibility
40 Board
Directors’ Report (including Corporate
Governance Reports)
Statement of Directors’ Responsibilities in
Relation to the Group Financial Statements
43
44 Report of the Directors
49 Corporate Governance Report
55 Audit Committee Report
62 Directors’ Remuneration Report
Financial Statements
81
Independent Auditors’ Report to the
Members of LSL Property Services plc
86 Group Income Statement
87 Group Statement of Comprehensive Income
88 Group Balance Sheet
89 Group Statement of Cash Flows
91 Group Statement of Changes in Equity
92 Notes to the Group Financial Statements
137 Statement of Directors’ Responsibilities in Relation
to the Parent Company Financial Statements
138 Parent Company Balance Sheet
139 Notes to the Parent Company Financial Statements
Other Information
149 Defi nitions
153 Shareholder Information
Forward Looking Statements
This Report may contain forward looking statements with respect
to certain plans and current goals and expectations relating to the
future fi nancial 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 including, amongst other things,
UK domestic and global economic and business conditions, market
related risks such as fl uctuations in interest rates, infl ation, defl ation,
the impact of competition, changes in customer preferences, delays
in implementing proposals, the timing, impact and other uncertainties
of future acquisitions or other combinations within relevant industries,
the policies and actions of regulatory authorities, the impact of tax
or other legislation and other regulations in the UK. As a result LSL’s
actual future condition, business performance and results may differ
materially from the plans, goals and expectations expressed or
implied in these forward looking statements. Nothing in this Report
should be construed as a profi t forecast. Information about the
management of the Principal Risks and Uncertainties facing LSL is
set out within the Strategic Report on pages 30 and 31
Annual Report and Accounts 2014
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•••LSL AR 2014•••.indd 3
27/03/2015 11:39
Overview
LSL Property Services plc
Annual Report and Accounts 2014
02
Highlights 2014
Good progress in a changing market
Group
£ 287.5m
£ 42.0m
14.6%
Group Revenue up 11%
2013: £258.6m
Group Underlying
Operating Profi t up 13%
2013: £37.1m
Group Underlying
Operating Margin
2013: 14.3%
£ 31.9m
Profi t Before Tax
up 87%
2013: £17.1m
30.5p
Adjusted Basic
Earnings Per Share
up 21%
2013: 25.3p
12.3p
Full Year Ordinary Dividend
Per Share (excluding
Special Dividend) up 17%
2013: 10.5p
Estate Agency and
Related Services
Surveying and
Valuation Services
16.5p
2014 Special Dividend
Relating to Zoopla Share
Disposal Per Share
2013: nil
£ 33.9m
Underlying
Operating Profi t
up 16%
2013: £29.1m
£ 13.3m
Operating
profi t up 2%
2013: £13.1m
•••LSL AR 2014•••.indd 4
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Overview
LSL Property Services plc
Annual Report and Accounts 2014
03
Group revenue £m
Group Underlying Operating Profi t1 £m
Group Underlying Operating Margin %
Profi t before tax £m
Underlying profi t before tax
Basic Earnings Per Share – pence
Adjusted Basic Earnings Per Share – pence2
Net Bank Debt3 at 31st December £m
Final proposed ordinary dividend per share
(excluding special dividend) – pence
Full year ordinary dividend per share – pence
Special dividend per share – pence
2014
2013 % Change
287.5
258.6
42.0
14.6
31.9
39.8
24.5
30.5
34.7
8.3
12.3
16.5
37.1
14.3
17.1
33.9
13.6
25.3
26.3
7.2
10.5
-
11
13
87
17
80
21
17
-
Underlying Operating Profi t of £42.0m is a record result for the Group.
Excellent progress in the Estate Agency Division.
Strong market growth in the fi rst half followed by slowing activity in the second half.
Major contracts secured in the Surveying Division and on-going investment in capacity
management.
Excellent value creation from investment in Zoopla – total value created of £42.2m (as at IPO),
£19.8m exceptional profi t, special dividend of 16.5 pence per share and retention of 51% of
original shareholding valued at £21.3m as at 31st December 2014.
Exceptional charge of £24.6m related to PI provisions relating to the 2004 to 2008 high risk
lending period. Balance sheet provision of £38.7m (2013: £25.9m).
Strong operational cash fl ow, balance sheet and dividend growth.
Acquisition of Hawes & Co and 10 lettings books during 2014 and the acquisition of Thomas
Morris and six lettings books since the start of 2015.
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1 Underlying Operating Profi t and underlying profi t before tax is before exceptional gains and exceptional costs, contingent consideration,
amortisation of intangible assets and share-based payments
2 Refer to Note 10 for the calculation
3 Refer to Note 30 for the calculation
•••LSL AR 2014•••.indd 5
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Overview
LSL Property Services plc
Annual Report and Accounts 2014
04
LSL Today
LSL has established leading positions in its market segments
Information included in this section of the Report is provided as at 31st December 2014.
Estate Agency Division – Estate Agency and Related Services
Residential Sales and Lettings
• Second largest estate agency network in the UK1.
• Strong established high street brands with 539 branches (2013: 533) (including 4 virtual
branches).
• Exposure to prime Central London property market with Marsh & Parsons.
• 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 123 branches across Your Move, Reeds Rains,
Davis Tate and Intercounty (2013: 133).
• Members of The Property Ombudsman (TPO) Redress Scheme, which operates a residential
sales and lettings code of practice which is approved by the Trading Standards Institute (TSI)
under its Consumer Codes Approval Scheme (CCAS).
The largest single brand UK estate agency with 290 branches operating throughout the UK (2013:
293). Your Move has the most visited UK estate agency website2.
www.your-move.co.uk
A predominantly northern based network of 169 branches (2013: 171).
www.reedsrains.co.uk
Asset Management
• Market leader.
• 5,815 repossessions in 2014 (2013: 9,800).
• Utilises network of up to 2,095 estate agency
branches (2013: 4,244).
LSL Corporate Client Department
LSL CCD operates a repossessions asset
management business and a property
management business for multi-property
landlords.
www.lsl-ccd.co.uk
St Trinity Asset Management
The Group’s second asset management
business was created in 2010 following the
acquisition of HEAL Corporate Services (as
part of the Halifax business acquisition).
www.sttrinityassetmanagement.co.uk
Leading London premium brand estate agency operating in the prime Central, North West, West
and South West London property markets out of 22 branches (2013: 18).
www.marshandparsons.co.uk
Templeton LPA
Law of Property Act fi xed charge receiver,
joined the Group in 2010.
www.templetonlpa.co.uk
LSLi
LSLi is the holding company for eight estate agency brands with a combined network of
58 branches (2013: 51).
www.lsli.co.uk
•••LSL AR 2014•••.indd 6
27/03/2015 11:39
Estate Agency Division – Estate Agency and Related Services
Overview
LSL Property Services plc
Annual Report and Accounts 2014
05
LSL is one of the UK’s leading residential property services groups operating throughout
the residential property services value chain – Residential Sales, Lettings, Asset
Management, Financial Services and Surveying and Valuation Services. It provides a broad
range of services to a range of customers including lenders, buyers and sellers of residential
properties, tenants and landlords.
Financial Services
• Specialising in brokerage of mortgage
and protection products.
• Multi-brand including First Complete, Pink
Home Loans, The Mortgage Alliance, Your
Move, Reeds Rains, Embrace Mortgage
Services, First2Protect and Linear Financial
Solutions.
• LSL’s combined appointed representative
network is the fourth largest in the UK.3
Across the various brands the Group has
688 appointed representatives (2013: 682)
and 1,382 advisors (2013: 1,311).
• Total value of mortgage completions
arranged in 2014 was £11.6bn (2013: £7.6bn).
First
Complete
Directly authorised by the
FCA, operating a mortgage
brokerage business and
mortgage intermediary network. First
Complete acts as principal for most of the
estate agency businesses within LSL’s
Estate Agency Division, enabling their
employed fi nancial consultants to offer
Financial Services to customers of the
branch networks.
www.fi rstcomplete.co.uk
Pink Home Loans
Directly authorised by the FCA, operating a
mortgage network, providing products and
services to fi nancial intermediaries since 1990,
joining the LSL Group in 2010.
www.think-pink.co.uk
The Mortgage
Alliance
The Mortgage Alliance (which also trades as
TMA) is a trading style for a mortgage club
which distributes mortgages and fi nancial
services products to directly authorised
mortgage intermediaries.
www.themortgagealliance.com
Your Move
An appointed representative of First Complete,
Your Move provides fi nancial services, including
arranging mortgages, remortgages and
life assurance products through employed
fi nancial consultants based in its estate agency
branches and call centres.
Linear Financial Solutions
An appointed representative of Pink Home
Loans and Openwork, Linear Financial
Solutions, provides fi nancial services including
arranging mortgages, remortgages and life
assurance products through a network of
fi nancial consultants based remotely and in
the branches of estate agents.
www.your-move.co.uk
www.linearfs.com
Reeds Rains
An appointed
representative of First
Complete, Reeds
Rains provides fi nancial services, including
arranging mortgages, remortgages and
life assurance products through employed
fi nancial consultants based in its estate agency
branches and call centres.
www.reedsrains.co.uk
Embrace
Mortgage Services
An appointed representative
of First Complete, Embrace Mortgage Services
is a trading name of LSLi and provides fi nancial
services, including arranging mortgages,
remortgages and life assurance products
through a network of fi nancial consultants
based in estate agency branches included
within the LSLi group of companies.
Surveying Division
Surveying and Valuation Services
• Market leading provider.
• 372,000 jobs completed in 2014 (2013:
396,000).
• 361 employed qualifi ed surveyors at 31st
December 2014 (2013: 386).
e.surv Chartered Surveyors
One of the leading fi rms of Chartered
Surveyors in the UK, providing services to
a broad range of lenders and private house
purchasers.
www.embracemortgageservices.co.uk
www.esurv.co.uk
First2Protect
Specialist call centre business arranging
household insurance for customers of LSL’s
Estate Agency businesses and third party
introducers.
Walker Fraser Steele
Chartered Surveyors
Division of e.surv operating in Scotland,
providing Home Reports and professional
inspections for home movers.
www.walkerfrasersteele.co.uk
1 The LSL Estate Agency Network is made up of wholly owned and franchised branches. The market position is
based on LSL’s own calculations and assessment of branch numbers using publicly available data.
2 Source: Nielsen January 2015
3 Source: Which Network – Network Performance Figures for 2014 showing the combined numbers for First
Complete and Pink.
For further information on all LSL brands please visit www.lslps.co.uk
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•••LSL AR 2014•••.indd 7
27/03/2015 11:39
Overview
LSL Property Services plc
LSL Property Services plc
Annual Report and Accounts 2014
Annual Report and Accounts 2014
06
Milestones
2012
Commencement of
renewed Barclays Bank
plc contract for valuation
services.
Acquisition of Davis Tate.
Acquisition of Lauristons.
LSL increased its
shareholding in Zoopla
which merged with
DMGT property portal
businesses during 2012.
2011
Investment in Legal
Marketing Services and
LMS Direct Conveyancing.
Acquisition of Marsh &
Parsons and entry into
the prime Central London
residential property
market.
Launch of PropertyCare+.
2014
Commencement of a
new contract with Lloyds
Banking Group for
valuation services.
Commencement of
renewed contract with
Barclays Bank PLC for
valuation services.
Zoopla IPO and Special
Dividend of 16.5 pence
per share paid to
Shareholders.
Acquisition of Hawes & Co.
Completed 10 lettings
book acquisitions.
2010
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 (business and
assets acquired by First
Complete), Goodfellows
and Pink Home Loans.
Launch of private survey
initiatives with RICS
HomeBuyers Report.
2013
Acquisition of Lawlors
Property Services.
Completed 5 lettings
book acquisitions.
•••LSL AR 2014•••.indd 8
27/03/2015 11:39
Overview
LSL Property Services plc
Annual Report and Accounts 2014
07
Chairman’s Statement
Introduction
“I am very pleased to report that 2014
was a record year for the Group with
underlying Operating Profi t higher than
LSL achieved in the property market
peak of 2007. The year saw the orderly
transition of senior management with Ian
Crabb’s fi rst full year as Group CEO and
Adrian Gill assuming responsibility for
the Estate Agency Division. The year also
saw the achievement of our profi tability
per branch target that we set in 2011
whilst Marsh & Parsons expanded its
branch footprint in a diffi cult market.
The Surveying division secured new
contracts on improved margins.
I was also delighted that our investment
in Zoopla delivered an exceptional return
to shareholders.
The Group has a robust balance sheet
with relatively low levels of gearing and
is extremely cash generative at the
operational level. The business is well
positioned to capitalise on the changing
market condition”.
Simon Embley
Chairman
£ 287.5m
Group Revenue up 11%
2013: £258.6m
£ 42.0m
Group Underlying
Operating Profi t up 13%
2013: £37.1m
30.5p
Adjusted Basic Earnings
Per Share up 21%
2013: 25.3p
12.3p
Full Year Dividend Per
Share (excluding special
dividend) up 17%
2013: 10.5p
I am pleased to report that against a rapidly
changing market backdrop the Group
has continued to make good progress,
reporting Group Underlying Operating Profi t
of £42.0m (2013: £37.1m) for the year. This
Group Underlying Operating Profi t is higher
than LSL achieved in the property market
peak of 2007. Group Revenue increased
by 11% whilst Group Underlying Operating
Profi t increased by 13% compared to 2013.
On a statutory basis, operating profi t was
£33.9m (2013: £19.6m), an increase of
73%. The fi rst half of the year saw Group
Underlying Operating Profi t growth of
31% against the same period in 2013 with
the second half showing a more muted
performance against strong comparatives.
The Estate Agency Division, in particular,
has delivered a strong performance.
Residential Sales income increased by
15%, Financial Services income grew
by 22% and Lettings income increased
largely organically by 12%. In line with our
stated strategy, we saw profi tability per
owned branch increase by 44% to £46,000
achieving our medium term target for profi t
per branch set in 2011. We acquired Hawes
& Co within LSLi and added a further ten
small lettings acquisitions across our Estate
Agency businesses. The Surveying Division
delivered a solid performance during
2014 with a number of effi ciency initiatives
signifi cantly improving profi tability in the
second half of the year.
The UK residential property services
market in 2014 was very much a story of
two halves. The year started very strongly
continuing the trend we saw in the second
half of 2013 with house purchase approvals,
as measured by the Bank of England, up
35% year on year in the fi rst quarter of 2014
and by 19% in the fi rst half for the year.
Year on year growth then moderated in the
second quarter before contracting by 16%
in the fi nal quarter of the year. April
also saw the implementation
of changes to mortgage
application processing
by lenders following the
Mortgage Market Review
(MMR). These changes
impacted the market
from the second quarter
onwards. Changes to
stamp duty introduced at
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•••LSL AR 2014•••.indd 9
27/03/2015 11:39
Overview
LSL Property Services plc
Annual Report and Accounts 2014
08
Chairman’s Statement continued.
Full Year 2014 Operating Profi t
28%
28%
£42.0m
72%
n Estate Agency
n Surveying
Profi t per branch (£’000s)
46
32
20
5
2011 2012 2013 2014
good progress in a prime Central London
market where market conditions were
challenging in the second half of the year.
In line with previous trends, repossession
volumes fell by a further 27% to 21,0002
in the year (2013: 28,900) which impacted
revenue and profi t in our asset management
activities.
The Surveying Division faced a broadly fl at
market for mortgage approval transactions.
Total mortgage approvals were 1,280,0001
(2013: 1,286,000), including a 2% decrease
in remortgages to 385,000 (2013: 393,000).
Although the number of jobs completed
reduced by 6% to 372,000, the revenue per
job increased resulting in a 3% increase in
total revenue to £62.2m. During the year, we
were delighted to secure multi-year valuation
services contracts with Barclays Bank PLC
and Lloyds Banking Group. Subsequent
to the year end, we secured a multi-year
contract as lead valuer, this time with the
mortgage division of Santander UK. These
non-exclusive contracts are all on contract
terms refl ecting improved conditions in the
mortgage valuation market.
the start of December 2014 also had an
impact, particularly in prime Central London,
but overall there was a general slowing of
activity as consumer sentiment weakened in
the second half of the year.
The business remains extremely cash
generative at the operational level and has
a strong balance sheet. I am delighted to
report an increase in our proposed fi nal
dividend of 15% to 8.3 pence per share
(2013: 7.2 pence). This will result in the
total dividend for the year, excluding the
special dividend of 16.5 pence relating to
our disposal of Zoopla shares, increasing
by 17% to 12.3 pence per share (2013: 10.5
pence), recognising our confi dence in the
future earnings prospects of the business.
Financial Results
Group revenue increased by 11% to
£287.5m (2013: £258.6m) and Group
Underlying Operating Profi t increased
by 13% to £42.0m (2013: £37.1m) with
the Group Underlying Operating Margin
improving to 14.6% (2013: 14.3%).
The Estate Agency Division increased
operating profi t by 16% to £33.9m (2013:
£29.1m). This performance was delivered in
a market where house purchase approvals
for the whole year increased by 5% to
769,0001 (2013: 736,000). This moderate
full year growth masked a changing market
during the year with volume growth of
19% in fi rst half of the year followed by a
7% contraction in the second half of 2014
against the prior year. Sequentially, the
market in the fi rst half of the year was 1%
down on the second half of 2013 whilst the
second half in 2014 was 6% lower than the
fi rst half. There was strong revenue growth
in Residential Sales income, Financial
Services and Lettings income. Marsh &
Parsons continued its expansion strategy
with four new branch openings and made
1 Source: Bank of England for “House Price Approvals 2014”.
2 Source: Council of Mortgage Lenders arrears and
repossessions data relating to properties taken into
possession by fi rst-charge mortgage lenders for 2014.
Ian Crabb
Group Chief Executive Offi cer
•••LSL AR 2014•••.indd 10
27/03/2015 11:39
Overview
LSL Property Services plc
Annual Report and Accounts 2014
09
income includes a £19.8m exceptional
profit on the part disposal of the Group’s
investment in Zoopla. There was also a
non-cash credit of £0.4m (2013: £2.8m
charge) relating to employment related
contingent consideration in acquisitions and
amortisation of intangible assets during the
year was £0.6m (2013: £0.4m). Profit before
tax increased to £31.9m (2013: £17.1m) and
profit after tax was £25.2m (2013: £14.0m).
On an adjusted basis, earnings per share
increased by 21% to 30.5 pence (2013:
25.3 pence). Unadjusted undiluted basic
earnings per share were 24.5 pence (2013:
13.6 pence).
Cash generated from operations was
£25.7m (2013: £26.9m). Operating cash
flow included PI cash settlements of
£13.3m (2013: £14.4m). Capital expenditure
increased to £9.2m (2013: £7.9m) including
investment in new IT systems, including
a common platform for our Financial
Services businesses and the development
of enhanced lettings systems in Marsh &
Parsons, Your Move and Reeds Rains.
Net Bank Debt at 31st December 2014
was £34.7m compared to £26.3m at 31st
December 2013 after investing £9.7m
in acquisitions, joint ventures and the
settlement of deferred consideration (2013:
£5.4m) and the purchase of LSL shares by
LSL’s Employee Benefit Trust. Net Bank
Debt increased in the year primarily because
of the increase in PI cash settlement costs.
The Group has a £100m committed bank
facility until August 2017.
Net assets decreased by £16.2m to £83.1m
at 31st December 2014 (2013: £99.3m), as a
result of the special dividend paid following
the realisation of the investment in Zoopla on
its initial public offering (IPO).
Dividend
As a result of the growth in underlying
Group profitability and the Board’s positive
view of future prospects for the business,
an increase in the final dividend of 15%
to 8.3 pence per share (2013: 7.2 pence)
will be proposed to Shareholders at the
forthcoming AGM, increasing the total
dividend for 2014, excluding the one off
special dividend related to Zoopla of 16.5
pence, by 17% to 12.3 pence per share
(2013: 10.5 pence per share). The proposed
Marsh & Parsons, Notting Hill.
Towards the end of the year, the Surveying
Division concluded a project to improve
operational performance and productivity
whilst improving working practices,
which includes the consolidation of all
administrative functions at its Kettering
location. The associated one off costs of
this exercise of £0.7m will be recovered in
savings during the first half of 2015. The
one off costs are included as an exceptional
item in 2014. Operating profit was marginally
ahead at £13.3m (2013: £13.1m) with
operating margin of 21.4% (2013: 21.7%).
As previously announced in December
2014, we have needed to further increase
our PI provisions relating to the 2004
to 2008 high risk lending period. The
announcement indicated a range of
between £20.0m and £25.0m and following
further work, we have provided an additional
reserve of £24.6m which is included in
2014 as an exceptional item. Whilst the
cause is a historic market issue relating to
historic periods, it remains disappointing.
The additional provision reflects a number
of factors. Although we have seen the
reduction in the rate of notification that
we had expected during the year, and
assumed in setting the previous level
of provision, a greater proportion of the
notifications are deteriorating into claims.
Claims are also hardening with the more
difficult and complex claims now being
progressed. This is resulting in an increase
in the average cost per claim, particularly
in respect of legal costs reflecting the
complexity of the arguments. The additional
provision represents the Group’s current
best estimate of likely claims costs but
the process of resolving open claims and
estimating future claims is on-going. The
review was conducted with the overall aim
of ensuring a high degree of confidence
that the total PI provision will be adequate to
cover the remaining risk relating to the 2004
to 2008 high lending period. The provision
required is highly sensitive to the run rates
of new claims and the costs per claim
for both new and existing claims. Claims
experience since the high risk lending period
has significantly improved as a result of both
structural changes in the market place and
the overhaul of internal procedures.
Profit before tax, amortisation, share based
payments, contingent consideration and
exceptional costs increased by 17% to
£39.8m (2013: £33.9m). Net exceptional
operating costs of £6.2m (2013: £13.0m)
included PI costs of £24.6m (2013: £12.0m)
noted above. Exceptional operating
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•••LSL AR 2014•••.indd 11
27/03/2015 11:39
Overview
LSL Property Services plc
Annual Report and Accounts 2014
10
Chairman’s Statement continued.
dividend payment is at the upper end of
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 26th March 2015
with a record date of 27th March 2015 and a
payment date of 7th May 2015. Shareholders
have the opportunity to elect to reinvest their
cash dividend and purchase existing shares
in LSL through a dividend reinvestment plan.
Divisional performance
Estate Agency Division
2014 has been another year of excellent
progress combined with major investment
in the Estate Agency Division. Profit
per owned branch, excluding Marsh &
Parsons, increased by 44% to £46,000
(2013: £32,000) compared to the medium
term target of £30,000 to £50,000 which
the Board set in 2011 when profit per
owned branch was £5,000. The Board has
accordingly reviewed the target for branch
profitability and has increased the target to
£80,000 to £100,000 per owned branch
in the medium term on the expectation of
longer term stability in the UK residential
property sector. All key income streams
in the Estate Agency Division other than
our countercyclical Asset Management
business have grown strongly and operating
margin increased to 15.0% (2013: 14.7%).
Residential Sales exchange income,
excluding Marsh & Parsons, increased
by 20% to £76.8m (2013: £64.1m) driven
mainly by improved mix and good
progress increasing the average Estate
Agency fee. The rate of income growth
varied during the year in line with the
fluctuations in the market. Our Lettings
business has continued to perform well
with Lettings income, excluding Marsh &
Parsons, increasing by 10% to £43.3m
(2013: £39.2m). We continue to invest
in our Financial Services, Lettings and
conveyancing activities as well as looking for
ways to improve back office efficiency.
Marsh & Parsons made good progress in
the volatile prime Central London market
where stock levels remained challenging all
year driving increased price expectations
in the first half of the year which then
ameliorated in the second half. Total
revenue increased by 9% to £32.5m (2013:
£29.9m) with Residential Sales broadly flat
but with excellent Lettings growth of 18%.
Operating profit was £6.5m (2013: £6.7m),
impacted by the investment in opening
four new branches and of putting in place
infrastructure to support the on-going
branch opening programme.
Financial Services income delivered through
our Estate Agency Division branches and
Financial Services intermediary networks
increased by 22% during 2014 to £43.7m
(2013: £35.8m). Activity levels are growing
ahead of the market reflecting the breadth
and depth of the Group’s Financial Services
offerings. The Group arranged total
mortgage lending completions of £11.6bn in
2014 (2013: £7.6bn).
Asset Management delivered another
solid result in a countercyclical market.
Revenue declined by 18% to £11.7m (2013:
£14.3m) in a market where repossession
volumes reduced by 27% to 21,000 (2013:
28,900). Repossessions have now fallen
for five years running by a total of 57%.
The business is continuing to target new
property management contracts.
Surveying Division
The underlying profit performance was
maintained during the year as a result of
contract wins and efficiency improvements
offset by a decline in volumes. After a strong
first half of the year, our Surveying Division’s
Ian Crabb, Group Chief Executive Officer and Simon Embley, Chairman.
•••LSL AR 2014•••.indd 12
27/03/2015 11:39
Overview
LSL Property Services plc
Annual Report and Accounts 2014
11
volumes declined in the second half of year
resulting in a 6% reduction in our volumes
year on year. Total mortgage approvals
remained broadly flat year on year at 1.280m
(2013: 1.286m).
The operating profit margin in the second
half year was 24.5% (2013: 24.1%) and was
achieved through improved efficiency and
tight cost control. The operating profit of
£7.6m (2013: £7.7m) in the second half of
the year represented a 33% increase on the
first half of the year. As reported last year,
the Surveying Division reduced its focus on
developing surveying services for private
buyers to focus on higher margin valuation
services for corporate clients. As a result
the full year revenue from surveying services
for private buyers reduced by 18% to £4.0m
(2013: £4.9m).
Despite incurring the costs of recruiting
graduates into the new surveyor training
scheme, operating profit levels were
maintained. Full year operating margin
was maintained at 21.4% against a 2013
comparative of 21.7%.
Developments
During 2014, we have continued to invest
in the business with the acquisition in
March 2014 of Hawes & Co which is a
South West London based agent with six
branches offering Residential Sales and
Lettings services. We have also purchased
a further 10 small lettings books during
2014 for a total consideration of £1.8m. We
will continue to look to acquire attractive
businesses. Subsequent to the year end,
we acquired Thomas Morris a multi award
winning estate agency and lettings business
with seven branches in Cambridgeshire,
Bedfordshire and Hertfordshire together
with a further six lettings books. In the
Surveying business our graduate surveyor
recruitment and training programme
continues to be a success. In 2013 and
2014 we hired 43 and 60 new graduates
respectively with the expectation that the
graduates would take 12 months to train.
The 2013 intake became productive midway
through 2014.
During the year, Marsh & Parsons opened
four branches in Shepherd’s Bush,
Camden, East Sheen and Richmond which
are performing in line with management’s
expectations. The business remains
David Newnes winning the “Outstanding Contribution to Estate Agency” award.
committed to an opening programme of
new branches which will result in doubling
the number of branches which were
acquired with the business in 2011 over the
next four to five years.
We were extremely pleased to announce
in our interim statement that the IPO of
Zoopla was successful and represented
significant value creation for the Group. The
cost of the investment was £1.9m and this
had increased to a value of £44.1m on IPO.
We took the decision to sell 48.9% of our
shareholding in Zoopla at IPO. As a result,
we have generated an £19.8m exceptional
profit on disposal while still retaining a 2.6%
shareholding which has been revalued in
the balance sheet at £21.3m. In addition,
we received a total dividend of £1.1m from
Zoopla during the year (2013: £0.5m).
Board and Corporate Governance
In January 2014, we appointed Bill Shannon
as an independent Non Executive Director
and Chairman of the Remuneration
Committee, and on the same date Mark
Pain stepped down from the Board as an
independent Non Executive Director. Bill has
significant PLC board experience in strategy,
operations, finance and governance in
consumer, financial services, residential and
commercial property sectors. We would like
to thank Mark for his significant contribution
to LSL. Bill was subsequently appointed
Non Executive Deputy Chairman and Senior
Independent Director on 1st January 2015.
On 24th November 2014, as part of an
orderly transition in the management of
our Estate Agency business, Adrian Gill
was appointed as Executive Director,
Estate Agency and he took over from David
Newnes on 1st January 2015 following a
transition period. Adrian has considerable
experience in the sector, having spent
over 10 years as an Executive Director at
Connells Limited, the national estate agency
business of the Skipton Building Society and
two years as an independent Non Executive
Director of LSL. David Newnes retired from
the Board on 31st December 2014 and we
would like to thank David for his substantial
contribution to the development of LSL over
a long and distinguished career with the
Group. In December 2014, David Newnes,
in recognition of over 35 years’ service to
the estate agency industry, received the
‘Outstanding Contribution to Estate Agency
Award’ at the prestigious Sunday Times
Estate Agency of the Year Awards.
After many years of excellent service to the
Group, Roger Matthews retired as Chairman
on 31st December 2014. I would personally
like to add my thanks to those of the Board
for the guidance and support that Roger
has provided since he joined the Board as
Chairman on the IPO of the Group in 2006.
During the latter part of 2014, Roger
Mathews as Chairman, consulted with
a number of our major Shareholders
regarding the future composition of the
Board, including my change of role and
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•••LSL AR 2014•••.indd 13
27/03/2015 11:39
Overview
LSL Property Services plc
Annual Report and Accounts 2014
12
residential sales businesses. During 2014,
headcount reduced towards the end of the
year in light of the softening in the market.
In total, the number of Group employees
decreased to 5,222 (2013: 5,299).
Our success is ultimately dependent on the
customer service provided by colleagues
in all parts of the business. We have had
a successful year in 2014 and I would
like to thank all of our employees for their
hard work and commitment which has
contributed to this result and wish them
well in their careers with LSL.
Current trading and outlook
The forthcoming year is expected to see
uncertain market conditions in the first
half with the potential for improved market
conditions during the second half of the
year. Year on year market comparatives in
the first quarter are expected to be adverse
in part due to the lower opening pipeline of
activity following the weaker last quarter of
2014. Whilst we are seeing improvements
in February, the second quarter is
expected to be impacted by the upcoming
general election.
Against this uncertain market backdrop,
the Group remains committed to driving
profitable organic growth across the
business. In light of the changed market
conditions, a review of headcount
and other costs by business has been
completed and the necessary actions are
being taken. We will continue to evaluate
selective acquisitions and will capitalise
fully on the investments made in 2014 to
optimise profitability.
The Group has started the year in line with
management’s expectations and through a
series of internally generated initiatives and
an expectation of a stronger market in the
second half, the business is well placed to
deliver a solid performance in 2015.
The Group has a robust balance sheet
with relatively low levels of gearing and
is extremely cash generative at the
operational level. The business is well
positioned to capitalise on the changing
market conditions to increase
Shareholder value.
Simon Embley
Chairman
12th March 2015
Your Move, Hampton Hill.
Bill Shannon’s new responsibilities. Whilst
as Chairman, I am not independent
on appointment, Shareholders, the
Nominations Committee and the Board
supported my change of role as it facilitates
an orderly succession and reflects the
Board’s desire to retain my knowledge and
expertise of the residential property market,
maintain contacts with key stakeholders
and benefit from my record of delivering
shareholder value.
Steve Cooke, the Group Finance Director,
left the Board on 19th December 2014.
Andrew Burchall was appointed as Interim
Group Finance Director on 5th January 2015
and the search is on-going for a permanent
Group Finance Director.
The Board remains committed to high
levels of corporate governance. In respect
of 2014, the Board has again conducted an
annual review of its effectiveness and that
of its Committees, taking into account the
balance of skills, experience, independence
and knowledge of our businesses and
we concluded that the Board and its
Committees are effective and are able
to discharge their respective duties and
responsibilities appropriately.
In September 2014, the FRC updated the
UK Corporate Governance Code (Code)
and whilst this Report includes disclosures
that reflect the 2012 edition of the Code, we
have looking forward, ensured that for 2015
we are operating in accordance with the
2014 edition of the Code. This includes the
implementation of our Remuneration Policy,
further details of which are set out in the
Directors’ Remuneration Report.
The Board has during the year also
reviewed its composition, which at the date
of this Report includes three independent
Non Executive Directors and two Executive
Directors. We have also commenced
a process to appoint an additional
independent Non Executive director to
the Board. Further, the Board continues
to recognise the benefits of diversity in the
boardroom, including gender and racial
diversity. The current Board composition
includes one female Director, Helen Buck,
who is an independent Non Executive
Director. Whilst we remain of the view
that the setting of targets for the number
of female directors on the Board is not
necessary, and that we will continue to
appoint on merit, I will continue to ensure
that our searches for new directors take
into account diversity, including gender
and race.
LSL remains committed to promoting
diversity throughout the Group and in
2014 we continued to build on the diversity
reviews conducted during the previous
years. Further details of the study and its
conclusions are set out in our Corporate
Social Responsibility Report.
As Chairman, with the responsibility for
leadership of the Board, I personally review
its effectiveness on all aspects of its role and
encourage feedback.
People
The Group expanded significantly during
2013 through investment to build capacity
and through a number of small bolt-on
acquisitions in both lettings books and
•••LSL AR 2014•••.indd 14
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
13
Strategic Report
In this section
14 Strategy
15 Business Model
16 Markets
18 Business Review – Estate Agency Division
24 Business Review – Surveying Division
26 Financial Review
29 Principal Risks and Uncertainties
32 Corporate Social Responsibility
40 Board
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Marsh & Parsons, Marylebone.
•••LSL AR 2014•••.indd 15
27/03/2015 11:39
Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
14
Strategy
LSL is committed to delivering long term shareholder value by
building market leading positions in the residential property
services market through organic growth, selective acquisitions and
the delivery of high quality service and appropriate outcomes for
customers
Full Year 2014 Average FTE
18%
4,760
82%
n Estate Agency
n Surveying
Estate Agency Branches
169
539
290
58
22
n Your Move
n Reeds Rains
n LSLi
n Marsh & Parsons
The Group’s strategy is to grow long term profi tability from the provision of residential
property services by building value across LSL’s two market segments:
n Estate Agency and Related Services (continue to grow market share and profi tability and
to expand LSL’s presence in the prime Central London Residential Sales and Lettings
markets); and
n Surveying and Valuation Services (retain key lender clients, grow capacity, manage risk
and optimise effi ciency).
Estate Agency and
Related Services
Surveying and
Valuation Services
Drive market share through continued
development of excellent service delivery
and strong relationships with lenders in
order to remain their partner of choice.
Increase capacity through the training of
new graduates as well as recruitment of
qualifi ed surveyors. Continue to leverage
LSL’s size of operation and continue to build
the Group’s technology solutions to drive
operational effi ciencies.
Be renowned for quality and excellence
in service delivery and provide on-going
strategic and operational added value to
lenders and corporate clients. In this regard
LSL actively supports the work of the RICS
in raising consumer awareness of the
benefi t of surveys and improving standards.
Deliver organic growth by continuing to
develop the market for the provision of
private surveying services delivered direct
to private house purchasers after prioritising
delivery of valuation services to lender
clients during times of constrained capacity.
Residential Sales and Lettings
Provide a service proposition that
recognises customer needs and maximises
income across the value chain.
Drive organic growth through increasing
Residential Sales transaction volumes and
investing further in Lettings services.
Plan to grow LSL’s share of the prime
Central London Residential Sales and
Lettings markets by supporting Marsh &
Parsons’ growth plans.
Asset Management
Grow market share by providing innovative
solutions and strong service delivery to a
broader selection of clients.
Mortgage and Protection services
Build broker networks for the provision of
mortgage and protection products and
realise synergies and cost savings to make
the networks more effi cient.
Use the networks to strengthen
relationships with key lender clients and
to provide high quality service and good
fi nancial outcomes for consumers.
Acquisitions
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. There will
continue to be a particular focus on Estate Agency acquisitions to build market share in
Residential Sales and Lettings services.
4,312
910
Estate Agency and Related
Services headcount
Surveying headcount down 8%
•••LSL AR 2014•••.indd 16
27/03/2015 11:39
Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
15
Business Model
B 2C – House sellers,
H ouse purchasers,
L andlords, Tenants
Customers
L e n ders – Banks/building
S o c i eties
er Relationships
v Brand
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LSL’s Assets
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Leading
Positions
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Strong
revenue
and profit
margins
11 Estate Agency Brands
3 Asset Management Brands
Branch Network
Call Centres
Lender Relationships
Esurv Brand
Investment
Cashflow
Dividends
n Estate Agency and Related Services
n Surveying and Valuation Services
LSL’s business model is how LSL puts its strategy into action. The execution of the strategy results
in market leading positions in the Group’s business segments which produces a virtuous circle of
strong revenues, profitability and cash flow which allows significant reinvestment in the business
in order to further enhance LSL’s market positions while also paying out a significant proportion of
earnings as a dividend to Shareholders.
• LSL has market leading positions in residential property
surveying, mortgage valuations, asset management, residential
sales and lettings, which are highly fragmented markets.
• LSL serves retail customers in its Estate Agency businesses,
such as house sellers and buyers, landlords and tenants.
• The model benefits from scale advantages which include superior
productivity in the Surveying business as a result of shortened drive
times and the ability to focus LSL’s agency branches on customer
service by building hubs and call centres to provide instructions to
the branches and to handle certain administrative tasks centrally.
• LSL serves business customers in its Surveying and Asset
• LSL, through this business model, has delivered shareholder value
Management businesses, such as Banks and Building societies,
and benefits from long term relationships and contracts.
despite the weakness of the residential property market over the past
five years.
• The growth and reputation of LSL is dependent on providing
• The business has low capital requirements and is highly cash
exceptional service and appropriate outcomes for customers.
generative.
• The business model has demonstrated resilience to changes
in the residential property market due to its market positions in
Lettings and Asset Management.
• LSL allocates the strong cash generation between paying dividends
to Shareholders, reinvesting in the business to drive future organic
growth and in making selective, value adding acquisitions.
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•••LSL AR 2014•••.indd 17
27/03/2015 11:40
Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
16
Markets
LSL operates across the residential property services value chain
Market Transaction Data
Full Year 2014 Revenue
Total Mortgage Approvals
for House Purchase1
‘000
5
7
5
3
9
5
0
1
6
6
3
7
9
6
7
2010 2011 2012 2013 2014
Remortgage Volumes2
‘000
9
3
3
7
8
3
0
4
3
3
9
3
5
8
3
2010 2011 2012 2013 2014
Total Mortgage Approvals1
‘000
3
0
2
,
1
7
2
2
,
1
1
5
1
,
1
6
8
2
,
1
0
8
2
.
1
2010 2011 2012 2013 2014
Repossesion Volumes2
‘000
22%
£287.5m
0
0
8
,
5
3
0
0
8
,
5
3
0
0
9
,
3
3
0
0
9
,
8
2
0
0
0
,
1
2
2010 2011 2012 2013 2014
78%
1 Source: Bank of England for “House Purchase Approvals”,
“Remortgage approvals” and “Total Mortgage Approvals”
2014
2 Source: Council of Mortgage Lenders arrears and repos-
sessions data relating properties taken into possession by
fi rst-charge mortgage lenders for 2014.
n Estate Agency
n Surveying
•••LSL AR 2014•••.indd 18
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LSL Property Services plc
Annual Report and Accounts 2014
17
LSL’s market can be categorised into two principal segments
Estate Agency and
Estate Agency and
Related Services
Related Services
Estate Agency and Related Services
78.4%
of Group revenue in 2014 (2013: 76.6%)
The Estate Agency and Related Services segment (the Estate Agency Division) includes
Residential Sales and Lettings and the related markets of Asset Management (including
repossessions asset management services for lenders and property management for
multi-property landlords) and Financial Services – predominantly mortgage and protection
brokerage with revenue earned directly by the Estate Agency brands and through the
operation of intermediary networks.
Surveying and
Surveying and
Valuation Services
Valuation Services
Surveying and
Valuation Services
21.6%
of Group revenue in 2014 (2013: 23.4%)
The Surveying and Valuation Services
segment (the Surveying Division) includes:
• Valuation services for lenders for
residential mortgage purposes.
• Surveying services for private house
purchasers.
Mortgage and Protection
• Home Reports and professional
services in Scotland.
In 2014 Total Mortgage Approvals were
1,280,000 (2013: 1,286,000)1 including
House Purchase Approvals of 769,000
(2013: 736,000)2. These volumes are
roughly half normalised levels.
Remortgage volumes of 385,000 were
down by 2% compared to 2013 (2013:
393,000)1. Total mortgage approvals
were broadly fl at at 1,280,000 (2013:
1,286,000)1. The historic normalised level
of total transactions for the period from
2002 to 2007 was circa 3.6m per annum.
Residential Sales
and Lettings
52.4%
15.2%
of Group revenue in 2014 (2013: 51.1%)
of Group revenue in 2014 (2013: 13.8%)
• Estate Agency services for residential
• Broking services for mortgages.
• Broking services for protection
products.
property sales.
• Comprehensive Lettings service for
residential landlords and tenants.
In 2014 market transaction volumes
increased strongly in the fi rst half of the
year, but declined markedly after the mid-
year point. Transaction volumes remain
well below the historic normalised levels of
1.2m per annum. Mortgage approvals for
house purchase rose by 4.5% during the
year to 769,000 (2013: 736,000).
Asset Management
4.1%
Other Income
6.7%
of Group revenue in 2014 (2013: 5.5%)
of Group revenue in 2014 (2013: 6.1%)
• Repossessions asset management
services for lenders.
• Property management services for
multi-property landlords.
Repossession volumes fell by 27% to
21,000 in 2014 (2013: 28,900)2 and they
have now fallen for fi ve years running.
This includes franchising income,
conveyancing services, EPCs, Home
Reports, utilities and other products and
services to clients of the Estate Agency
branch network.
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•••LSL AR 2014•••.indd 19
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Strategic Report
Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
18
Business Review
Estate Agency Division
+15%
Exchange Income
2013: +11%
+12%
Lettings Income
2013: +9%
+22%
Financial
Services Income
2013: +13%
+3%
Fee per exchange unit
2013: +7%
15.0%
Operating Margin
2013: 14.7%
The Estate Agency Division delivered excellent profi t growth
Financial
Residential Sales exchange income
Lettings income
Asset Management income
Financial Services income
Other income1
Total income
Operating expenditure
Operating profi t2
KPIs
Exchange units
Exchange units3
Operating margin (%)
Fees per unit
Fee per unit3
House purchases (000’s)4
Repossessions5
2014
£m
92.1
58.5
11.7
43.7
19.3
225.3
(191.4)
33.9
29,704
29,111
15.0%
3,101
2,968
769
21,000
2013
£m
80.0
52.2
14.3
35.8
15.9
198.2
(169.1)
29.1
27,512
27,352
14.7%
2,908
2,877
736
28,900
%
change
15
12
(18)
22
21
14
13
16
8
6
7
3
5
(27)
1 ‘Other income’ includes franchising income, conveyancing services, EPCs, Home Reports, utilities and other products and
services to clients of the branch network.
2 Operating profi t is before exceptional items, contingent consideration, amortisation of intangible assets and share-based
payments.
3 Exchange units and fee per exchange are on a like-for-like basis (excluding branch openings and closures).
4 Source: Bank of England for “House Purchase Approvals” 2014.
5 Source: Council of Mortgage Lenders arrears and repossessions data relating to properties taken into possession by fi rst-
charge mortgage lenders for 2014.
Estate Agency Division
Performance
The UK residential property services
market in 2014 was very much a story of
two halves. The year started very strongly
continuing the trend seen in the second
half of 2013 with house purchase approvals
up 35% year on year in the fi rst quarter of
2014 and by 19% in the fi rst half for the
year. Year on year growth then moderated
in the second and third quarters before
contracting by 16% in the fi nal quarter of
the year. April also saw the implementation
of changes to mortgage application
processing by lenders following the MMR.
These changes impacted the market from
the second quarter onwards. Changes
to stamp duty introduced at the start
of December 2014 also had an impact,
particularly in prime Central London, but
there was a general slowing of activity
as consumer sentiment weakened in the
second half of the year.
Allowing for this seasonal volatility, the
total market, as measured by mortgage
approvals for house purchases, for the
full year increased by a modest 4.5% to
769,000 (2013: 736,000)1 which compares
to historic normalised levels of 1.2m
approvals per annum. Allowing for the
lag between mortgage approval and
completion, it is estimated that the number
of mortgage completions in the year, which
is the key driver for LSL’s Residential Sales
income, increased by 11% to 677,000
(2013: 609,000)1.
LSL has a balanced Estate Agency
model and over the last seven years has
signifi cantly built its exposure to non-
cyclical income and countercyclical streams
such as Lettings and Asset Management
income. These income streams have grown
at a compound annual rate of 15% over
the period, increasing from £40.4m in 2010
to £70.2m in 2014. Given expectations
for the housing transaction volumes in
the UK residential property market in
2015, the Group expects to continue to
target these income streams through
an active programme of organic growth
and acquiring lettings books across the
•••LSL AR 2014•••.indd 20
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Strategic Report
Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
19
UK portfolio. The Estate Agency Division
delivered an excellent performance in
2014 with total income growing by 14% to
£225.3m (2013: £198.2m). The benefit of
operational gearing can be seen as 18%
of the increase in revenue fell through to
operating profit even after investment to
support future growth. Operating profit
increased by 16% to £33.9m (2013:
£29.1m). The business therefore improved
its operating profit margin to 15.0% (2013:
14.7%). As the market in 2015 tightens,
particularly in the first half, the Group will
be looking at further ways to improve
efficiency.
Investment in the Estate Agency Division
during 2014 included the recruitment of
additional employees into Lettings and
Financial Services which will allow the
Estate Agency Division to capitalise on
market opportunities in 2015. In addition,
Marsh & Parsons opened four new
branches which will allow it to grow in
new geographies within the prime Central
London market place.
Estate Agency Division
Branches
Your Move, Reeds Rains and the LSLi
brands all continued to perform well
during the year. Residential Sales income
increased by 15% to £92.1m (2013: £80.0m)
due mainly to an improvement in volume
and the average fee which increased by
7% to £3,101 (2013: £2,908) driven partly
by improved mix. Excluding the impact
of Marsh & Parsons, the average fee
increased by 10% to £2,654 (2013: £2,407).
Marsh & Parsons
Marsh & Parsons delivered a solid
performance in a challenging prime
Central London market. Although there
was significant house price appreciation
in prime Central London in the first half
of 2014, these conditions significantly
ameliorated in the second half of the year.
There continues to be a scarcity of stock
for both residential sales exchanges and
lettings in prime Central London markets.
This has created pressure on volume
growth although commission percentages
have been maintained and the average
fee per exchange has increased by 11%
in the year. Against this backdrop, Marsh
& Parsons revenue increased by 8.7% to
£32.5m (2013: £29.9m) with Lettings growth
of 18% which is a strong result. Operating
profit was £6.5m (2013: £6.7m).
Operating profit reduced marginally year
on year because of an increase in the cost
base driven by further investment in new
branch openings to give the business
greater coverage of the prime Central
London market and the capacity to further
expand going forward. During 2014, four
new branches were opened in Shepherd’s
Bush, Camden, East Sheen and Richmond
which are performing in line with the Board’s
expectations. The Group is targeting further
new branch openings in 2015.
Financial Services
Total Financial Services income delivered
through the intermediary networks of
First Complete and Pink Home Loans,
the Estate Agency Division’s branches
and Linear Financial Solutions increased
substantially by 22% during 2014 to £43.7m
(2013: £35.8m). Revenue has continued to
grow consistently since 2010 as a result
of significant organic growth including the
successful roll out of Financial Services
to all Estate Agency branches and the
acquisition of new intermediary networks. In
total the Group arranged mortgage lending
completions of £11.6bn during 2014 (2013:
£7.6bn) giving the Group an important
position as a mortgage distributor for lender
clients as well as a growing revenue and
profit stream.
Counter-Cyclical Income
LSL continues to focus on growing Lettings
income across all of its businesses through
organic growth and through selective
acquisitions of lettings books. LSL’s on-
going focus on growing Lettings income
reflects the recurring nature of the revenue
stream along with attractive economics.
LSL is continuing to invest in acquiring
lettings businesses and has recruited
additional Lettings consultants during
the year. Total Lettings income grew by
12% year on year, an improvement on the
growth rate of 9% in the prior year. Growth
was also consistent throughout the year
with 12% growth sustained in both the first
half and the second half of the year.
With the improvements in the economy
and continued low interest rates,
repossession volumes again fell. The rate
of market contraction increased to 27%
from 15% in 2013 with the total number
of repossessions now down to 21,000 in
2014 (2013: 28,900)2. The market has now
declined for each of the last five years and
is now well below half of the total of 48,900
in 2009. During this period LSL’s market
share in Asset Management has increased.
However, the acceleration in the decline
in the size of the market in 2014 as well
as continued fee pressure has resulted in
an 18% reduction (2013: 8% reduction) in
revenue to £11.7m (2013: £14.3m). Despite
1 Source: Bank of England for “House Purchase Approvals”,
“Remortgage Approvals” and “Total Mortgage Approvals” 2014
2 Source: Council of Mortgage Lenders arrears and
repossessions data relating to properties taken into possession
by first-charge mortgage lenders for 2014.
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•••LSL AR 2014•••.indd 21
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
20
Business Review – Estate Agency Division continued.
this contraction, the Asset Management
business is well positioned to capitalise on
an increase in repossession volumes which
may occur if and when interest rates start
to rise.
In order to offset the decline in repossession
volumes, the Asset Management business
has further developed its corporate property
management offering.
The Group now benefits from total counter-
cyclical income from Lettings and Asset
Management of £70.2m compared to
£66.5m in 2013, which represents 31% of
the Estate Agency Division’s revenue and
24% of Group revenue.
Developments
After many years with LSL, most recently
as an Executive Director, David Newnes
retired at the end of 2014. He was
succeeded by Adrian Gill, who was, until
November, a Non Executive Director of the
Group. Adrian has considerable experience
in the residential property sector, having
spent over 10 years as Executive Director
at Connells Limited, the national estate
agency business of the Skipton Building
Society. Over the next few months, Adrian
as Executive Director, Estate Agency will be
reviewing and updating the Group’s strategy
for the Estate Agency Division.
As well as investing in headcount in 2014
to increase Lettings and Financial Services
capacity, LSL also continued a programme
of investment in new front end systems
in Your Move, Reeds Rains and the LSLi
brands which was started in 2013. LSL
provides excellent service to its customers
and this has been underpinned by high
quality systems. In 2013 the Group began
a project to design and implement next
generation front end lettings systems. This
was successfully rolled out during 2014 and
further upgrades are planned into 2015 to
enhance the functionality and capabilities of
the applications.
In addition LSL is in the process of rolling
out a new common IT platform across our
Financial Services intermediary networks,
trading as Pink Home Loans and First
Complete, which will improve customer
service and support the on-going provision
of appropriate financial outcomes to
consumers and increase operational
efficiency.
The MMR was implemented on 26th April
2014. The FCA’s aim for the MMR was
to deliver a ‘sustainable market for all
participants that is flexible for consumers’. In
2014, LSL has made substantial investment
and took significant steps to prepare for the
new requirements including the selection of
and investment in new software and training
of the employed and network employees as
required. The implementation has gone well
and the market has settled in to the new
lending criteria regime.
At the start of 2015, the online property
portal market saw the launch of
‘OnTheMarket.com’, the portal of Agents
Mutual. LSL has not joined OnTheMarket.
com and continues to use both Rightmove
and Zoopla and their associated portals
as LSL believes that this approach offers
the best service to the Estate Agency
customers.
During 2014, the Group has continued to
make selective acquisitions and has added
to the Estate Agency Division in the South
East through the acquisitions of Hawes &
Co and ten lettings books.
In 2015 LSL will continue with the same
strategy focusing on driving organic growth
in Residential Sales, Lettings and Financial
Services and rolling out new branches
in Marsh & Parsons. The Group will also
continue to evaluate selective estate agency
acquisitions. Subsequent to the year end,
LSL acquired Thomas Morris a multi award
winning estate agency and lettings business
with seven branches in Cambridgeshire,
Bedfordshire and Hertfordshire together
with a further six lettings books.
Regulation – Financial Services
First Complete and Pink Home Loans
(the trading name of Advance Mortgage
Funding) are both directly authorised by the
FCA in relation to the sale of mortgage, pure
protection and general insurance products.
Your Move, Reeds Rains Financial Services,
Reeds Rains and Embrace Mortgage
Services along with the LSLi subsidiaries
are all appointed representatives of First
Complete, while Linear Financial Solutions
is an appointed representative of Advance
Mortgage Funding for mortgage and
insurance business and also an appointed
representative of Openwork for investment
business.
As a result of Linear Financial Solutions’
appointment by Openwork, LSL has a small
indirect shareholding of Openwork.
Hawes & Co, New Malden
•••LSL AR 2014•••.indd 22
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
21
Regulation – Residential Sales
and Lettings
Branch numbers
Breakdown of Estate Agency branches as at
31st December 2014
Your Move
Reeds Rains
LSLi
Marsh & Parsons
Totals
Owned
Franchised
Totals
218
124
52
22
416
72
45
6
–
123
290
169
58
22
539
The above branch numbers include four virtual branches
The LSL Estate Agency Division’s branches
adhere to the Codes of Practice issued
by industry professional and regulatory
bodies, The Property Ombudsman (TPO)
and/or the Association of Residential
Lettings Agents (ARLA). Further, in June
2014, Your Move’s Lettings Director
became the President of ARLA.
This is in addition to observing compliance
with relevant legislation, such as the
Consumer Protection Regulations,
guidance material published by relevant
regulators, including the Competition
and Markets Authority (CMA) (and its
predecessor the Offi ce of Fair Trading
(OFT)), the National Trading Standards
Agency/Trading Standards Institute (TSI),
HMRC and codes published by other
relevant bodies, including the Advertising
Standards Authority (ASA). LSL from time
to time also enters into direct dialogue
with the regulators and consumer groups,
such as Which. During 2014, the CMA, TSI,
HMRC and FCA took over responsibilities
from the OFT in relation to Residential
Sales and Lettings regulation (including
Anti-Money Laundering) and
Consumer Credit.
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•••LSL AR 2014•••.indd 23
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
22
Business Review – Estate Agency Division continued.
Market intelligence
LSL issues a number of market
indices and reports on Residential
Sales, Lettings and Financial
Services including a ‘First Time
Buyer Monitor’ and market
sentiment surveys. These are
made available to journalists
ensuring that LSL and its
brands are regularly quoted
across national and regional
media. These indices have also
been quoted in Parliamentary
debates and are used by relevant
regulatory bodies, such as the
Bank of England, to contribute to
their market review and evaluation
exercises. Set out here are details
of the indices relevant to the
Estate Agency Division.
LSL Property Services/Acadata
House Price Index
LSL First Time Buyer
Monitor
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, derived
from Land Registry house price data –
seasonally and mix adjusted by property
type – as opposed to valuation estimates
or asking prices. It also uses the price
of every single relevant transaction, as
opposed to prices based upon samples.
There is also a separate House Price Index
for Scotland.
LSL Buy to Let Index
Monthly analysis of approximately 20,000
rental properties and tenancies in England
and Wales to determine rents, arrears,
yields and voids. Figures for the whole
country are inferred by scaling up from
LSL’s market share.
This monthly analysis uses the extensive
data collected from fi rst time buyers
registering as buyers and also fi rst time
buyers arranging their mortgage with
LSL’s Estate Agency Division to update
the Council of Mortgage Lenders’ (CML)
fi rst time buyer data. LSL loan to value
data is applied to CML price purchase
data to calculate deposit and affordability
information. Sentiment and salary data are
derived from a survey conducted by LSL.
Templeton Tenant
Arrears Tracker
This quarterly analysis is based on LSL and
English Housing Survey data and reports
on the level of tenant arrears.
LSL Landlord Sentiment Survey
This quarterly survey determines the views
of landlords on the UK lettings market.
Further information and copies of the latest reports can be found at: www.lslps.co.uk/news
•••LSL AR 2014•••.indd 24
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
23
Estate Agency and Related Services
Awards and Achievements 2014
Your Move
Intercounty
Linear Financial Solutions
Estate Agency of the Year Awards 2014,
sponsored by the Sunday Times:
Lettings Agency of the Year Awards
2014, sponsored by the Sunday Times:
Mortgage Strategy Awards 2014
• Best Broker for General Insurance –
• Best Marketing – Gold Award
• Best Medium Letting Agent (East of
Winner
• Best Innovation – Gold Award
• Best Financial Services – Gold Award
• Best Training and Development – Bronze
Award
• Best National Estate Agent –
Bronze Award
Five Your Move managers were also
shortlisted in the individual awards
category – the highest number shortlisted
from an individual estate agency brand.
Lettings Agency of the Year Awards
2014, sponsored by the Sunday Times:
• Best Property Management –
Silver Award
Reeds Rains
Estate Agency of the Year Awards 2014,
sponsored by the Sunday Times:
• Best National Estate Agent – Silver
Award
• Best Financial Services – Bronze Award
Lettings Agency of the Year Awards
2014, sponsored by the Sunday Times:
• Best Property Management –
Gold Award
• Best National Lettings Agent –
Silver Award
England) – Gold Award
• Best Broker for Protection – Runner Up
Marsh & Parsons
Money Marketing Awards 2014
Estate Agency of the Year Awards 2014,
sponsored by the Sunday Times:
• Best London Estate Agency (Medium) –
Gold (for the fifth year running)
UK Property Awards 2014, sponsored
by Rolls Royce Motor Cars:
• Best Lettings Agency in London
• Best Broker for Mortgages – Shortlisted
• Best Broker for Protection – Shortlisted
First Complete
Mortgage Strategy Awards 2014:
• Best Network (with more than 300
Appointed Representatives) – Finalist
• Best Real Estate Agency in London
Money Marketing Awards 2014:
• Best UK Real Estate Agent
• Best Network Award – Runner Up
The International Property Awards,
Sponsored by Rolls Royce Motor Cars:
• Best International Real Estate Agent
Pink Home Loans
Group HR
CIPD North East 2014 Award for
Innovation in Social Media or Technology
(for PeopleMatters)
Mortgage Strategy Awards 2014:
LSL Land & New Homes
• Best Network (with less than 300
Appointed Representatives)
ISO 9001 quality assurance
accreditation by BSi
Financial Advisor Service Awards 2014:
• 5 star award
British Mortgage Awards 2014:
• Business Leader of the Year Award –
Mark Graves
Money Marketing Awards 2014:
• Best Network Award – Runner up
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•••LSL AR 2014•••.indd 25
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
24
Surveying Division
Strong second half performance
+3%
Revenue
2013: -2.9%
+9%
Income per job
2013: +3%
21.4%
Profi t Margin
2013: 21.7%
361
Profi t Margin
2013: 386
Financial
Revenue
Operating expenditure
Operating profi t1
KPIs
Profi t margin (%)
Jobs Performed (‘000’s)
Revenue from private surveys
Income per job (£)
PI insurance (Balance Sheet) provision at 31st December
Number of qualifi ed surveyors at 31st December
Total
2014
£m
62.2
62.2
(48.9)
(48.9)
13.3
13.3
21.4
21.4
372
372
4.0
4.0
167
167
36.7
36.7
361
361
2013
%
£m Change
3
3
3
3
3
3
2
2
2
60.4
60.4
60.4
(47.3)
(47.3)
(47.3)
13.1
13.1
13.1
21.7
21.7
396
396
396
4.9
4.9
4.9
153
153
153
25.9
25.9
386
386
386
(6)
(6)
(6)
(18)
(18)
(18)
9
9
9
(6)
(6)
(6)
-
-
-
Mortgage approvals (000’s)2
1,280 1,286
1,280 1,286
1,286
1 Operating profi t is before exceptional items, amortisation of intangible assets and share-based payments
2 Bank of England for “Total Mortgage Approvals” 2014
Surveying Division Performance
Total mortgage approvals remained broadly
fl at year on year at 1.280m (2013: 1.286m)
with growth in the fi rst half followed by a
10% decrease in total mortgage approvals
in the second half compared to the same
period last year. This slowdown in the
second half can be attributed to consumer
sentiment and the impact of the MMR.
Surveying turnover was £62.2m (2013:
£60.4m) an increase of 3% on last year and
the total number of jobs performed was
372,000 (2013: 396,000). The reduction in
volumes was driven by the slowdown of the
mortgage market in the second half of the
year, with volumes down by nearly 10% year
on year. Additionally the decision of a major
lender client to improve commercial terms
but transfer some of their valuations to
another provider of valuation services also
impacted on the second half.
Despite a 1% reduction in the Surveying
Division’s turnover to £31.0m (2013: £32.0m)
in the second half versus the fi rst half of
the year, the operating profi t margin in the
second half year was 24.5% (2013: 24.1%)
through improved effi ciency and tight cost
control. The operating profi t of £7.6m (2013:
£7.7m) also represented a 33% increase
on the fi rst half of the year. As reported last
year, the Surveying Division reduced the
focus on developing surveying services for
private buyers to focus on higher margin
surveying for corporate clients. As a result
the full year revenue from surveying services
for private buyers reduced by 18% to £4.0m
(2013: £4.9m).
As reported in 2013 in response to the
surveying market’s capacity constraints, the
Group launched a new graduate recruitment
and training programme. This represents a
major investment for the business. In 2014 a
further 60 graduates were hired in addition
to 43 hired during 2013. The benefi ts of this
investment commenced in the second half
of the year and will be further realised in
2015. The constrained capacity in the fi rst
half of 2014 resulted in an improvement in
the pricing environment and the benefi ts
were realised in the longer term contracts
renewed in the year and the major new
contract won.
Operating profi t was £13.3m (2013: £13.1m)
and the operating profi t margin was 21.4%
(2013: 21.7%). These fi gures are stated
after deducting the cost of investment in
the graduate programme. Adjusting for this
cost, on a like-for-like basis, operating profi t
increased to £15.4m (2013: £13.6m), an
increase of 13.2% and the operating margin
was 24.8% (2013: 22.5%).
Surveying Division Developments
The major initiative in the Surveying Division
of investing in a new graduate recruitment
and training programme to increase
capacity has continued in 2014. Whilst the
overall market conditions worsened in the
second half of 2014, some geographically
concentrated capacity constraints remain,
particularly in London and the South East.
The graduate programme has enabled LSL
to respond to this challenge by moving
surveyors around the country.
•••LSL AR 2014•••.indd 26
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
25
Surveying and
Valuation Services
Awards and
Achievements
2014
e.surv
Mortgage Strategy Awards 2014:
• Valuer of the Year – Shortlisted
Equity Release Awards 2014:
• Equity Release Valuer of the Year
Re-awarded:
• ISO 9001:2008 quality assurance
accreditation by BSi
• Investors in People Accreditation
e.surv has also achieved registration
under the Royal Society for the Prevention
of Accidents QSA Scheme.
progressed. This is resulting in an increase
in the average cost per claim, particularly
in respect of legal costs refl ecting the
complexity of the arguments. The additional
provision represents the Group’s current
best estimate of likely claims costs but
the process of resolving open claims and
estimating future claims is on-going. The
review was conducted with the overall aim
of ensuring a high degree of confi dence
that the total PI provision will be adequate to
cover the remaining risk relating to the 2004
to 2008 high lending period. The provision
required is highly sensitive to the run rates of
new claims and the costs per claim for both
new and existing claims. Claims experience
since the high risk lending period is
substantially improved as a result of both
structural changes in the market place and
the overhaul of internal procedures.
Market Intelligence
LSL issues a number of market indices
and reports and the report relevant to the
Surveying Division is listed below. Further
information and copies of the latest reports
can be found at www.lslps.co.uk/news
e.surv Chartered Surveyors
Mortgage Monitor – tomorrow’s
mortgage data today
Each month e.surv produces a forecast
on mortgage lending volumes and loan to
value trends. It does this by analysing over
one million 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 fi nal
approvals data.
In the fi nal quarter of the year the Surveying
Division concluded a project to optimise
operational performance and productivity
whilst improving its working practices;
this included the consolidation of all
administrative functions at its Kettering
support services location. The associated
one off costs of £0.7m associated with this
exercise will be recovered in savings during
the fi rst half of 2015.
The Surveying Division serves key lender
clients through both exclusive contracts and
through panel management arrangements.
LSL is continuing to invest in the business
in order to maintain high service levels for
all clients.
The Surveying Division had a number of
contracts up for renewal in 2014 and all
of the major contracts were successfully
renewed with improved pricing. There will
be fewer renewals and new opportunities
in 2015 but the Surveying Division will
vigorously pursue those available. The
uncertain economic conditions, including
any impact of the general election,
may impact the overall housing market
and consequently surveying volumes,
nevertheless the renewal of existing major
contracts in 2014 secures a signifi cant
proportion of expected revenues.
PI Costs
As previously announced on 19th
December 2014, LSL has needed to
further increase the PI provisions relating
to the 2004 to 2008 high risk lending
period. The announcement indicated a
range of between £20.0m and £25.0m
and following further work, including a
case by case independent review by
specialist external legal counsel, LSL
has provided an additional reserve of
£24.6m which is included in 2014 as an
exceptional item. Whilst the cause is an
historic market issue relating to historic
periods, it remains disappointing. The
additional provision refl ects a number
of factors. Although LSL has seen the
reduction in the rate of notifi cations that
had been expected during the year, and
assumed in setting the previous level
of provision, a greater proportion of the
notifi cations are deteriorating into claims.
Claims are also hardening with the more
diffi cult and complex claims now being
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•••LSL AR 2014•••.indd 27
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
26
Financial Review
The key drivers of the fi nancial performance of LSL in 2014 are summarised below:
£287.5m
Group Revenue up 11.2%
2013: £258.6m
£37.1m
Group Underlying
Operating Profi t up 6%
2013: £37.1m
£42.0m
Operating Cashfl ow1
2013: £42.4m
1 Operating cash fl ow is before impact of
PI and exceptional costs
Income statement
Revenue
Revenue increased by 11.2% to £287.5m in
the year ended 31st December 2014 (2013:
£258.6m).
Operating Expenses Excluding
Exceptional Costs, Amortisation and
Share Based Payment
Operating expenses increased by 10.5% to
£249.3m (2013: £225.6m). This was mainly
in the Estate Agency Division and included
investment to support revenue growth in
2014 on the back of ten months of market
growth seen in 2013. The average number
of full time equivalent employees during the
year was 4,760 (2013: 4,327).
Underlying Operating Profi t
Group Underlying Operating Profi t (before
exceptional gains and exceptional costs,
contingent consideration, amortisation
of intangible assets and share-based
payments) increased by 13.2% to £42.0m
(2013: £37.1m) with the Underlying Operating
Profi t Margin of 14.6% (2013: 14.3%). On
a statutory basis, the Group operating
profi t increased by 72.7% to £33.9m (2013:
£19.6m) with the Operating Profi t Margin of
11.8% (2013: 7.6%).
Exceptional Items
Total net exceptional costs in 2014 were
£6.2m (2013: £13.0m). The main exceptional
costs in 2014 were comprised of PI Costs of
£24.6m (for further details see Provision for
PI claims and notifi cations below). The total
exceptional cost also includes acquisition
related costs (£0.4m) and restructuring,
redundancy and other associated branch
closure costs including onerous lease
provisions (£1.1m). These exceptional costs
were partly offset by a gain on the disposal
of freehold properties (£35,000) and on the
sale of part of LSL’s investment in Zoopla on
its IPO totalling £19.8m. In 2013 exceptional
costs comprised of PI Costs of £12.0m,
acquisitions related costs of £0.2m and
redundancy and other associated branch
closure costs of £0.9m. These costs were
offset by a gain on the sale of freehold
properties totalling £0.1m.
Provision for PI claims/notifi cations
Since early in 2012, the Group has
experienced a high level of claims relating
to the 2004 to 2008 period, which was
a period of relatively high risk lending
characterised by higher house prices,
high loan-to-value ratios and considerable
levels of buy-to-let and sub-prime lending.
As a result, the provision for PI Costs was
increased by £17.3m in June 2012 and again
by £12.0m in November 2013. Following a
further deterioration in claims experience
in 2014, the provision for PI Costs was
increased by £24.6 million in 2014. Further
details are set out in the Surveying Division
Business Review (at page 24) and in Note 7
to the Financial Statements.
Contingent consideration
Certain contingent consideration
arrangements have been accounted for
as remuneration as the arrangements
potentially involve the vendors forfeiting
amounts otherwise due if continued services
are not provided. These amounts are
shown separately on the face of the Income
Statement.
Contingent consideration relating to the
2011 acquisition of Marsh & Parsons has
been treated as an expense of £2.3m (2013:
£0.4m) in 2014. Further, LSLi has acquired
a number of subsidiaries whereby the
contingent consideration is also considered
to be remuneration under IFRS 3. A credit of
£2.7m (2013: £2.4m expense) was recorded
in 2014 refl ecting revisions to future earn out
assumptions.
Net Financial Costs
Net fi nancial costs (excluding exceptional
fi nance costs) amounted to £2.2m (2013:
£3.1m). The fi nance costs related principally
to interest and fees on the revolving credit
facility, however, £0.1m (2013: £0.7m) of the
costs relates to the unwinding of discounts
on provisions.
Taxation
The UK standard corporation tax rate has
reduced from 28% as at 1st January 2011
to 21% from 1st April 2014 with a further
reduction to 20% occurring on 1st April
2015. The effective rate of corporation tax for
the year was 21.1% (2013: 21.4%) excluding
prior year adjustments. The effective tax
rate for 2014 and 2013 was impacted by
non-taxable income for joint ventures and
dividends, the impact of a rate change
on the deferred tax liability, contingent
consideration recognised as an expense
and the impact of temporary differences
•••LSL AR 2014•••.indd 28
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
27
on certain non-qualifying properties no
longer being recognised. Excluding these
impacts the effective tax rate is 22.0% (2013:
24.0%). Income tax charged directly to other
comprehensive income was £2.7m (2013:
£4.4m); this is comprised of a credit of £4.1m
and a charge of £1.4m and relates to the
revaluation of financial assets (see Note 16
to the Financial Statements). Income tax
credited directly to the share based payment
reserve is £nil (2013: £nil).
Adjusted Basic Earnings Per Share
The Basic Earnings Per Share was 24.5
pence (2013: 13.6 pence). The Adjusted
Basic Earnings Per Share (as calculated in
Note 10 to the Financial Statements) is 30.5
pence (2013: 25.3 pence). The Directors
consider that the adjustments made to
exclude the after tax effect of exceptional
items, contingent acquisition consideration
treated as remuneration, and amortisation
of acquisition intangibles 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 £8.5m (2013: £7.1m) and an
additional £0.7m (2013: £0.7m) has been
spent internally on developing new software
which has been treated as an intangible
asset.
Bank Facilities
LSL refinanced its bank facility in 2013
with a £100.0m revolving credit facility in
place until August 2017 (2013: £100.0m).
Further details on the Group’s financial
commitments as well as the Group’s
treasury and risk management policies
are set out in Note 29 to the Financial
Statements. During the period under review,
the Group complied with all of the financial
covenants contained within the facility.
acquisitions by the Estate Agency Divisions
and payment of PI claims of £13.3m (2013:
£14.4m). Net Bank Debt represented 11.2%
of the Group’s market capitalisation at 31st
December 2014, and 74.0% of the Group’s
adjusted EBITDA for the year (2013: 5.8%
and 64.0% respectively).
Net Bank Debt
As at 31st December 2014 Net Bank
Debt was £34.7m (2013: £26.3m) and
Shareholders’ funds amounted to £83.1m
(2013: £99.3m) giving balance sheet gearing
of 41.8% (2013: 26.5%). The increase in
Net Bank Debt arose as a result of the
acquisitions and further investment in joint
ventures and financial assets for various new
Cash Flow
The Group generated £42.0m (2013:
£42.4m) of operating cash flow which is
before capital expenditure including software
of £9.2m (2013: £7.9m) and before PI claims
paid out of £13.3m (2013: £14.4m) and
exceptional costs of £1.5m (2013: £1.1m).
The marginal decrease was due to improved
Group Underlying Operating Profit offset by
investment in working capital. During the
year the Group sold a number of freehold
properties receiving net proceeds of £0.1m
(2013: £1.4m) and generating an exceptional
profit of £nil (2013: £0.1m).
Zoopla IPO
On 18th June 2014, Zoopla underwent an
IPO and as part of this, LSL sold 48.9% of its
stake in Zoopla for £20.8m, net of associated
costs and £16.8m net of tax. The total gain
on the sale of the shares was £19.8m net
of associated costs. Zoopla’s share price at
31st December 2014 was £1.965 per share.
The fair value of the Group’s remaining 2.6%
stake in Zoopla is calculated to be £21.3m at
31st December 2014.
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•••LSL AR 2014•••.indd 29
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
28
Frost’s, St Albans
Net Assets
The Group’s net assets as at 31st December
2014 were £83.1m (2013: £99.3m). The
Group’s investment in Zoopla had largely
been revalued ahead of its realisation on
IPO. Accordingly, the exceptional gain in the
year had already been largely reflected in
Group net assets and the £16.8m special
dividend paid during the year therefore
reduces net assets compared with
December 2013.
Treasury and Risk Management
LSL has an active debt management
policy. During the first half of 2014, the
Group had interest rate swaps in place
which fixes the interest on borrowings
up to £25.0m at an average LIBOR rate
of 2.93%, which provided a degree of
predictability on finance costs. The interest
rate swaps expired and were not renewed.
LSL continues to review debt management
policy and will consider additional hedging
in due course. LSL does not hold or issue
derivatives or other financial instruments for
trading purposes.
Post Balance Sheet Events
Subsequent to the year end, LSL acquired
Thomas Morris a multi award winning estate
agency and lettings business with seven
branches in Cambridgeshire, Bedfordshire
and Hertfordshire for an initial consideration
of £4.0m, and six small lettings book
acquisitions for a total initial consideration
of £1.8m. In addition, via LSLi, LSL
acquired the remaining shares in JNP for a
consideration of £53,625 and following the
transaction, LSL holds 100% of the shares
in JNP.
Management is in the process of allocating
the purchase price in accordance with IFRS
3. As a result, the initial accounting for the
acquisition is currently incomplete, so a fair
value table of the identifiable assets and
liabilities has not been presented.
International Financial Reporting
Standards (IFRS)
The Financial Statements have been
prepared under IFRS as adopted by the
European Union.
•••LSL AR 2014•••.indd 30
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
29
Principal Risks and Uncertainties
LSL has an overall framework for management of risks and internal controls to mitigate
the risks. Through the framework, the Board continually identifies, evaluates and
manages the principal risks and uncertainties faced by LSL and which could adversely
affect its business, operating results and financial condition.
During 2014, in line with FRC guidance, LSL’s risk management and internal controls framework included:
a. ownership of the risk management and internal controls framework by the Board, supported by the Company Secretary, Head of
Risk and Internal Audit and Group Finance;
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 and Internal Audit;
d. the Board regularly identifies, reviews and evaluates the principal risks which may impact the Group as part of the planning and
reporting cycle to ensure that such risks 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.
In line with 2014 edition of the Code
and the FRC’s ‘Guidance on Risk
Management, Internal Control and
Related Financial and Business Report’,
which integrates and replaces the FRC’s
previous guidance (‘Internal Control:
Revised Guidance for Directors on the
Combined Code’ and ‘Going Concern
and Liquidity Risk Guidance for Directors
of UK Companies’) which was published
in September 2014, LSL has adopted a
Group-wide risk appetite statement and
framework. The new framework will be
applied during 2015, and LSL will report
on its progress in the 2015 Report.
Listed overleaf are the risks which the
Board has identified at the date of this
Report as being therefore the principal
risks and uncertainties faced by LSL at the
date of this Report, together with details of
key management and 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 overleaf. This may
include some risks which are not currently
known to the Group or that LSL currently
deems as immaterial, or were included
in previous Annual Report and Accounts
and through changes in external factors
and careful management, are no longer
deemed to be material to the Group as a
whole.
However, these risks may individually or
cumulatively also have a material adverse
effect together with other risk factors
which are beyond the direct control of LSL,
and may have a material adverse impact
on LSL’s business, results of operations
and/or financial condition. The risk
management framework and procedures
in place can only provide reasonable but
not absolute assurance that the principal
risks and uncertainties are managed to an
acceptable level.
Further information relating to how LSL
managed these risks and uncertainties
during 2014 is set out in the Audit
Committee Report (Internal Controls) of this
Report on page 60.
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•••LSL AR 2014•••.indd 31
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
30
Principal Risks and Uncertainties
Description and Impact:
Housing Market – UK:
• The UK residential housing market in 2014 was a story in two
halves, with some market improvement in the first quarter,
followed by a weakening from the second quarter which
continued for the remainder of the year.
• Market trends in 2014 were linked in the first half of the year to
the implementation of MMR, and in the second half of the year
to the tightening of lending criteria together with some cooling
of sentiment in the housing market generally. In addition,
looking forward there is some short term political risk around
the 2015 general election. Any impact on transaction volumes
(both house purchase and remortgage) and house prices may
adversely affect the profitability and cash flow of all key brands
and businesses.
Housing Market – Central London:
Management and Mitigation
The Board regularly reviews trends in market volumes and monitors
the Group’s operational gearing to decide on the appropriate level of
resourcing. In addition, the Board regularly focuses on non-cyclical
and countercyclical income streams, in particular Lettings, to offset any
impact on residential transaction numbers.
Further, regular reviews of trends in market volumes are undertaken
and decisions made on any cost base reductions measures.
• LSL has an exposure to the prime Central London property
market via Marsh & Parsons. 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.
Marsh & Parsons has an incentivised and established management
team with a growth strategy. It operates in all segments of the prime
Central London market and has opened four new branches in 2014
with further new openings planned for 2015 to improve geographical
coverage. The Board closely monitors the company’s performance.
Client Contracts:
• A failure to secure or renew, key Valuation Services or Asset
Management contracts, or any significant reduction in volumes
combined with a pressure on fees, either as a result of adverse
market conditions, market consolidation, competition or
inadequate service delivery.
There continues to be investment in customer services to retain
existing clients and to attract new ones. In addition, LSL continues
to provide private survey services to provide a supplemental income
stream to the core B2B arrangements.
Group-wide relationship management arrangements are in place to
ensure that LSL uses its networks to strengthen relationships with key
lender clients.
Professional Services:
• Liabilities arising from the provision of inaccurate professional
services advice to clients (e.g. valuation services) arising from
employee errors and/or a failure by LSL businesses to put in
place and to maintain appropriate internal controls.
• The period from 2004 to 2008 is identified as the high risk
lending period and notifications relating to this period are still
being received. Accordingly, the PI provisions disclosed in the
Report is the Group’s best estimate of likely claim costs, and
this remains sensitive to the rate of new notifications and the
average cost of current and future claims.
Monitoring arrangements include oversight by the Board (including
regular review of the PI provision relating to Surveying and Valuation
Services) and appropriate quality controls and Risk and Internal Audit
reviews of services provided on a sample basis. There are also specific
operational controls implemented within the Surveying Division which
includes a risk based criteria for the identification of transactions to be
subject to enhanced review measures.
During 2014 LSL completed a detailed review of its PI claims and
the associated PI provision and further initiatives to improve internal
controls and related reporting are continuing into 2015.
• The costs and management resources applied in responding
to claims and notifications diverts resources away from value
adding activities.
• Costs and losses arising from a failure to manage any actual
The Board regularly review the PI provision to ensure that the cost
per claim, number of notifications and the rate of deterioration from
notifications to claims are in line with the parameters used to calculate
the provision.
or threatened legal claims.
•••LSL AR 2014•••.indd 32
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Strategic Report
LSL Property Services plc
Annual Report and Accounts 2014
31
Description and Impact:
Management and Mitigation
Regulatory and Government:
• Failure to comply with existing legislation/regulation or
changes to legislation/regulation and/or Government/EU
policy which 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 existing business practices and
any reform proposals. Where appropriate Government departments
and/or trade bodies are engaged in a dialogue.
• Changes in macro Government economic policy or specific
initiatives in respect of the UK Residential Housing sector
following the forthcoming election may impact upon the
business.
The Board also monitors the impacts of changes and assess changes
to business practices which may be required to respond to Government
policy changes and to ensure compliance with any new legislation.
Where necessary external specialists are engaged to provide advice to
ensure that all laws and regulations are adhered to and that a culture
of ensuring appropriate customer outcomes is embedded across the
Group.
Financial Services Regulation (including FCA
requirements):
• Failure to comply with relevant legislation including FCA
requirements or changes to Financial Services legislation
which would result in a fine, adverse publicity, reputational
damage and could result in loss of authorisations which would
impact on business results.
• The continued growth of LSL’s Financial Services business in
2014 has resulted in increased interaction with the FCA.
The Group has improved its Financial Services compliance framework
through the enhancement of technology solutions and the inception
of new compliance roles operating across the breadth of Financial
Services operations.
LSL has a proactive engagement strategy with the FCA and the Board
closely monitors the Financial Services business and receives regular
updates on its communications with the FCA.
Acquisitions:
• Failure to identify and secure appropriate targets for
acquisition and once acquired, the businesses are not
successfully integrated into the Group.
Each Division has plans in place to identify acquisition opportunities
and wherever necessary additional external consultants are hired to
assist with this process.
• Liabilities arising from a failure to carry out appropriate due
diligence prior to an acquisition.
IT Systems, Infrastructure and Security:
• Failures, interruptions or security breaches of any Group
IT services on which any business is reliant for operational
performance and financial information.
Further, the Group has in place dedicated teams to deliver, monitor
and integrate acquisitions. Where opportunities arise, thorough due
diligence is carried out and all significant acquisitions are approved
by the Board, to ensure acquisitive growth is delivered within strategic
financial parameters. Detailed 100 day integration plans are prepared by
management and implemented once the business has been acquired.
A post acquisition review is presented to the Board on the financial and
operational success of each significant acquisition, the integration of
the business within the Group and any learnings and improvements
arising from the process.
Dedicated in-house IT departments with specialist staffing.
Maintenance of Group policies, including a formalised business
continuity infrastructure and contingency plans in the event of a system
failure. Regular monitoring by subsidiary company management,
external specialists and Risk and Internal Audit, with any system issues
highlighted to the Board.
Retention and Recruitment:
• Failure to retain/recruit qualified or experienced individuals
with the necessary skills and experience into the senior
management team which is key to delivering the future growth
strategy of the Group.
The executive team focuses on the retention of all senior management
and ensures that adequate remuneration policies, management
development and succession plans are in place. This is supported by
annual reviews by the Remuneration and Nominations Committees.
The Group HR Department includes a dedicated Talent Acquisition
Team focusing on the recruitment of high quality employees. The
Group also has in place a range of graduate recruitment and training
schemes.
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Corporate Social Responsibility
The Board has overall responsibility for establishing the Group’s Corporate Social Responsibility
(CSR) statement and associated policies with the Group Finance Director, 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, progress and achievements are communicated to employees at
regular intervals through bulletins, intranet sites and notice boards as appropriate (including the Group HR on line service systems).
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.
As part of LSL’s regular risk assessment procedures, the Board takes account of the significance of environmental, social and governance
(ESG) matters to the business of the Group and in its decision making. The Board has identified and assessed 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
received adequate information to make this assessment and that account is taken of ESG matters in the training of Directors. The Board
has also 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
Charity Fundraising Ball in aid of Cancer Research.
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LSL’s People
LSL recognises that its people are a
valuable asset and is committed to
providing a working environment in which
its 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 is
achieved through employee opinion surveys.
This also ensures that LSL, in its decision-
making, takes into account its employees
views. For further details of the employee
survey arrangements, see Communication
(Employees) below.
Lisa Charles-Jones, Group HR Director running for Cancer Research.
LSL’s 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 Estate Agency
and Surveying are achieved by the quality and service provided by the Group’s employees. LSL’s employees are its key differentiator and it
is this principle that guides the Board’s decision making on how LSL approaches the management of its people.
Communication
Employees:
LSL ensures that employees are kept informed of Group affairs via information distributed by post, e-mail, handbooks or the various
intranet sites. LSL values employee feedback and all Group employees are encouraged to discuss strategic, operational and business
issues within their teams and with their management.
In addition, the Board receives employee feedback via employee opinion surveys which operate across all parts of the Group businesses
on an annual basis. The data that is captured is presented to the Board as part of a regular review of employee matters which focuses
on understanding the issues facing our employees. KPIs such as labour turnover and responses to key questions are also monitored to
measure staff morale. Further the 2014 employee opinion survey results were reviewed in respect of age and gender diversity, see below
for further details.
Since 2013, LSL has engaged an external consultant to assist with the annual employee surveys and this engagement allows LSL to
not only generate an accurate picture of engagement across the Group, it also allow LSL’s to assess the results and feedback received
against similar organisations using the benchmarking data retained by the agency. The 2014 survey covered all aspects of the working
environment including training, careers, performance and company communications together with questions on the effectiveness of
company management and leadership. The response from employees to the survey was very positive with 3,337 (67%) (2013: 3,114
(63%)) returns.
The survey results provide the Board with insight into what factors concern and motivate the Group’s employees and contribute to
action plans and/or focus groups across the Group. The employee survey process is continually evaluated and developed to maximise
the validity and reliability of the data that is captured. Further, the process will be repeated again in 2015 as LSL remains committed to
the continual development and improvement of employee engagement across the Group. On strategic matters, LSL recognises and
consults Unite.
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 LSL’s
decision-making processes and in particular in the development of its services to customers.
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Corporate Social Responsibility continued.
Equal Opportunities
LSL promotes equal opportunities in
employment, recognising that equality and
diversity is a vital part in its success and
growth. The Group 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 individuals
suffer harassment or intimidation.
Specifi c employment policies exist which
employees are required to observe and over
which the Group Chief Executive Offi cer
has overall responsibility with some policies
being submitted annually for review and
approval by the Board. Compliance with
legislation and Group policies is audited by
the Group’s Risk and Internal Audit team
with regular reporting to the Board, which
includes indicators such as staff turnover
Age and Gender Diversity:
Since 2011, LSL has undertaken reviews in relation to gender diversity which was further explored in 2014 by the completion of an age
and gender analysis of its 2014 employee opinion survey which revealed that whilst feedback from employees is consistent regardless of
gender, there are differences in relation to age groups. This feedback will be taken into account in Group employee initiatives going forward.
Intercounty raising money for the Ice Bucket Challenge.
The fi ndings of the 2011, 2012 and 2013 reviews are set out in LSL’s previous Annual Report and Accounts. For details of relevant gender
diversity KPIs, see below
Disability:
LSL has in place policies and procedures to achieve its objective 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.
Employee Key Performance Indicators:
The Group uses a number of key performance indicators to measure its progress during the year, including employee turnover and the
makeup of its workforce by gender.
Total Employees at (31st December)
Total Employee turnover percentage (%)*
*Data excludes forced leavers.
Breakdown by Gender
Male
Female
2014
2013
5,222 5,299
26.4
27.8
2012
4,754
26.7
2011
4,831
24.8
2010
4,490
28.5
2014
2,316
2,906
2013
2,318
2,981
2012
2,052
2,702
2011
2,065
2,748
2010
1,838
2,652
In accordance with reporting requirements, the gender split for the Board, senior management team and Group employees for 2014 and
2013 is as follows:
Directors
Senior management team
Group employees
Female
2013
1
12
2,981
2014
1
12
2,906
Male
2013
8
44
2,318
2014
7
50
2,316
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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. During 2014, LSL continued its commitment to recruit, develop and invest in colleagues. The
Group’s approach is to prioritise colleague learning and development to strengthen the businesses and to ensure the Group’s continued
success. Examples of this approach to training are detailed below.
Surveying:
During 2014 e.surv continued with its Graduate Surveyor recruitment and a further intake of 50 employees were taken on to the programme.
There are now in excess of 100 graduates in the business, many of whom have achieved AssocRICS qualifi cations, and it is expected that
the remainder will qualify during 2015. e.surv continues to use the Mitre Training Academy to support the learning and development of the
Central Operations staff. There are now 26 members of staff who are working towards NVQ accreditation at either Level 1, 2 or 3 in Business
Administration, Customer Service, Team Leading, Management, and Business Improvement Techniques.
In addition to this training initiative undertaken with Mitre, all surveyors receive continuing professional development through a variety of
methods ranging from distance learning, regional workshops and an annual conference.
Estate Agency and Related Services:
Across the Group’s Estate Agency Division’s branches, employees adhere to the Codes of Practice issued by The Property Ombudsman
(TPO) and/or the Association of Residential Lettings Agents (ARLA). This is in addition to observing compliance with relevant legislation, such
as the Consumer Protection Regulations, guidance material published by relevant regulators, including the Competition and Markets Authority
(CMA) (and its predecessor the Offi ce of Fair Trading (OFT)), the National Trading Standards Agency/Trading Standards Institute (TSI), HMRC
and codes published by other relevant bodies, including the Advertising Standards Authority (ASA). LSL from time to time also enters into direct
dialogue with the regulators and consumer groups, such as Which. During 2014, the CMA, TSI, HMRC and FCA will took over responsibilities
from the OFT in relation to Residential Sales and Lettings regulation (including Anti-Money Laundering) and Consumer Credit.
2014 continued to present regulatory changes, including the replacement of the OFT, the introduction of new cancellation regulations and
new guidance for lettings professions published by the CMA. Further the Government has continued to review consumer legislation, and the
Consumer Rights Bill, which seeks to simplify the UK’s consumer legislation and implement the EU’s Directive on Unfair Commercial Practices,
has continued its passage through Parliament during 2014.
LSL monitors all relevant legislative changes, such as consumer rights and data protection reforms, and in response keeps under review its training
programmes to ensure that employees receive specially designed training courses, with the quality of service monitored on a regular basis.
LSL’s ‘Talent Development Team’ delivered training to a total of 5,341 employees during 2014, equating to the delivery of 9,330 training days.
2014 saw the implementation of ‘Learning Matters’, an online eLearning system which allows employees to complete eLearning training
packages for compliance and regulatory purposes, and as a result of this system LSL are able to report upon compliance training completion
rates in real-time.
HR Ski diving for
Cancer Research
Reeds Rains Golf Day for
Agents Giving.
Your Move raising money for Children in Need.
Intercounty supporting cazfest (Heart Risk)
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As stated above, LSL monitors all relevant legislative changes and in response keeps under review its training programmes to ensure that
employees receive specially designed training courses, with the quality of service monitored on a regular basis.
Throughout the year a number of new learning initiatives were implemented including the launch of the Leadership Pathway – an accredited
development programme for existing and future managers, apprenticeship programmes and various CPD workshops to support the
development of new and tenured employees.
In relation to LSL’s Financial Services business, the FCA is responsible for the conduct of firms authorised by the Financial Services and
Markets Act 2000 (FSMA). LSL’s Financial Services businesses include two authorised firms, which operate broker networks that include other
Group companies acting as their appointed representatives. Accordingly, the Financial Services companies are responsible for the training
and compliance arrangements of all Financial Services business conducted by Group companies. LSL’s Financial Services businesses place
strong emphasis on the quality of service provided to customers and as part of the compliance arrangements, all employees involved in
the Financial Services businesses receive appropriate and relevant training. In particular, all advisers complete a specially designed training
programme which is supplemented by effective supervision, regular monitoring and regular refresher training sessions.
For further details on the regulations relevant to LSL’s businesses, please see pages 20 and 21 of the Strategic Report, Business Review –
Estate Agency Division in this Report.
During 2014, the Group training expenditure was:
Division
Estate Agency and Related Services (£)
Surveying and Valuation Services (£)
Total Expenditure
Expenditure 2014
1,294,812
937,725
2,232,537
Expenditure 2013
1,460,499
381,647
1,842,146
This includes in-house training costs of £1,950,795 (2013: £1,213,523). The increase in the Surveying and Valuation Services expenditure
relates to e.surv’s graduate training scheme which is referred to above and in the Surveying Division Business Review.
Health, Safety and Welfare
LSL places great importance on the health, safety and welfare of its employees. Policies, Group standards and procedures are in place,
which aim to identify and remove any hazardous areas, reduce material risks of fire and accidents or injuries to employees and visitors
and, in conjunction with its HR policies, manage workplace stress levels.
To this end, LSL makes every reasonable effort to provide safe and healthy working conditions in all offices and branches. Similarly, it is
the duty of all employees to exercise responsibility and to do everything to prevent injury to themselves and to others.
Separate Health and Safety policies exist which employees are required to observe and the Group Finance Director has overall
responsibility for this. Compliance with legislation and Group policies is audited by the Group’s Risk and Internal Audit team with regular
reporting to the Board, and includes indicators such as accident numbers.
Environmental Issues
LSL recognises that the environment has an intrinsic value, is central to quality of life and it underpins economic development. As
part of this understanding, LSL have assessed the main areas in which it is able to effect the largest reductions in the Group’s overall
environmental impact.
The Group’s Environmental Policy is contained within the CSR Policy, which the Group Finance Director, has overall responsibility for.
Compliance with aspects of the CSR Policy is audited by the Group’s Risk and Internal Audit team with regular reporting to the Board.
Since 2010, LSL’s ‘green’ priorities have been to:
• Improve energy efficiency and reduce energy usage
• Reduce waste and increase recycling
• Reduce transport generated CO2 emissions
Since the adoption of these ‘green’ priorities, LSL has sought to keep stakeholders informed on how LSL manages its environmental impacts
and how it is performing. Stakeholders may also provide LSL with views and opinions which can strengthen LSL’s approach to environmental
management. Within this framework, LSL companies 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 receives regular reports to enable it to monitor progress.
Going forward into 2015, LSL will continue to promote environmental awareness within the Group and to encourage the use of
environmentally sensitive operating models. Set out in the table opposite are examples of the environmental initiatives focused on in 2014.
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Green Priorities
and Environmental
Initiatives:
Examples of Actions Continued in 2014:
Recycling
• Group companies working to specific targets in relation to the use of general waste services in and the
use of dry mixed recycling.
• Environmental waste friendly arrangements with Green Star (part of Biffa) extended with the
commission of several new transfer stations which will result in Group companies increasing its use of
dry mixed recycling during 2014.
• e.surv participation in the ‘Shred-Pro’ shredding and recycling programme which saved 121 trees (2013:
136 trees).
• Across the Group various recycling schemes are in place with Iron Mountain, which delivered the
following benefits:
• 173 (2013: 133) cubic metre landfill reduction.
• 761,457 (2013: 1,102) trees saved.
• 50,030 kilos (2013: 58,859) kilos of recycled paper produced.
Power Saving
• Continued monitoring of energy consumption and benefits of energy saving initiatives.
• Installation of Smart Meters to monitor electricity and gas consumption within some Estate Agency
Division branches as part of branch refurbishment programmes.
• Installation of low energy lighting installations including the installation of LED wall and window displays
at some Estate Agency Division branches, also as part of branch refurbishment programmes.
• Encouraging the switching off of electrical equipment, such as printers and PCs overnight.
• Promotion of the installation of timer plugs and other devices.
Avoid/Limit Printing
• Continued use of the “think before you print” note on emails to customers and employees.
• Continued investment in electronic record keeping avoiding the need to maintain paper files.
• Promote double sided photo copying and printing where paper records are necessary.
Remote Meetings
• LSL employees are geographically spread out across the UK and where possible, meetings are
held by telephone conference facilities to avoid the need for travel which provides both financial and
environmental benefits to the Group.
• Implementation and utilization of on-line training arrangements (e.g. Learning Matters) to encourage
remote training and minimise travel delivering financial and environmental benefits.
Reduce Carbon
Emissions
• 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.
• See also mandatory emissions reporting below.
The Greenhouse Gas Emissions (Directors’ Reports) Regulations 2013 and Part 7 of The Companies Act 2006 (Strategic
Report and Directors’ Reports) Regulations 2013:
Since 2012, as required by the introduction of mandatory emissions reporting legislation that came into force during 2013 and applies
to reporting periods commencing on or after 30th September 2013, LSL has commissioned an independent environmental consultancy,
Carbon Credentials, to evaluate the Group’s emissions quantification and reporting process. This is in order to ensure compliance with
mandatory emissions reporting regulations and provide next steps for continuous improvement of Greenhouse Gas Emissions reporting
activities.
In accordance with Part 7 of The Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations, each year LSL reports on
any targets and KPIs approved by the Board. For the period from 1st October 2013 to 30th September 2014, the LSL Group of companies’
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Corporate Social Responsibility continued.
Your Move Camborne support the local Community.
emissions amounted to 9,614 tCO2e (2013: 9,164 tCO2e). LSL’s intensity ratio has been calculated based on the tCO2 per £m of revenue
and tCO2 per full time equivalent employee. LSL’s intensity ratio from the 1st October 2013 to 30th September 2014 was 34 tCO2e (2013: 37
tCO2e) per £m of revenue and 2.1 tCO2e (2013: 2.0 tCO2) per full time equivalent employee.
The Group has calculated the above emissions according to the Climate Disclosure Standards Board’s Climate Change Reporting
Framework Edition 1.1. These sources fall within the consolidated Financial Statement. LSL does not have responsibility for any emissions
sources that are not included within the consolidated Financial Statement. Figures were calculated using emission factors from the UK
Government’s GHG Conversion Factors for Company Reporting 2014.
LSL has taken data from its Carbon Reduction Commitment and EU Emissions Trading Scheme obligations in order to report in
accordance with the new reporting requirements.
In relation to 2015, the collation of energy data from across the business for the purposes of mandatory greenhouse gas reporting has
prepared and placed LSL in a strong position to ensure compliance with new Energy Savings Opportunity Scheme (ESOS) regulations
under Article 8 of the EU Energy Efficiency Directive.
Social and Community interests (including Human Rights and Ethical Issues)
LSL’s social, community interests (which includes the promotion of human rights and ethical issues) objective is to establish a common
and coherent approach among Group businesses and to support investment in the communities in which they operate. Group companies
are sensitive to local communities cultural, social and economic needs. LSL is committed to acting responsibly wherever it operates and
to engaging with stakeholders to manage the social, economic and environmental impact of all Group activities.
LSL’s business has a direct impact on the local communities in which it operates and the Board recognises that good relations with local
communities are fundamental to LSL’s sustained success. Working in partnership with communities over a sustained period of time is the
most effective way to achieve objectives and lasting change.
LSL supports its businesses in achieving these 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 opposite.
LSL’s approach to the promotion of human rights and ethical issues is contained within the Group’s HR policies, which includes the
Group’s Combined Ethics Policy, which is presented to the Board for annual review and approval. While all Group employees are made
aware of the policy, the Risk and Internal Audit Team will audit awareness and compliance.
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Charitable Donations:
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 in 2014 LSL employees raised over £25,000. Over 199 employees participate in the scheme, which donates to a range
of charities.
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
Agents Giving (www.agentsgiving.org/):
During 2014, the Agents Giving initiative supported a total of 29 different charities, which included charities nominated by employees of LSL’s
Estate Agency Division. Agents Giving, which was launched originally in 2007 as “The Estate Agency Foundation” and then rebranded in
2014, has as its objectives:
1. encourage and support estate agents throughout the UK to raise funds for charitable causes;
2. bring together the whole industry to contribute to charitable causes throughout the UK; and
3. raise funds from supporters’ activities and central fundraising events which will be distributed to established and recognised charities.
Agents Giving 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 Agents Giving initiative makes a significant contribution to
communities.
Surveying
Within the Surveying Division, during 2014 a number of different charities (national and local) were supported by initiatives undertaken by
e.surv Chartered Surveyors’ employees, which included the following:
• Cransley Hospice, a hospice for terminally ill patients in Kettering (nominated staff charity since in 2010) (www.cransleyhospice.co.uk).
• Alzemeimers Society (www.alheimers.org.uk)
• Help for Heroes (www.helpforheroes.org.uk)
• Race for Life (www.raceforlife.cancerresearchuk.org)
• Shelter in a Storm (www.ihgshelterinastorm)
• MS Trust (www.mstructs.org.uk)
Group HR
During the year, the Group HR Team undertook to organise a series of fund raising initiatives in aid of Cancer Research UK, which included
a sky dive, a charity gala dinner, regular cake sales, car boot sales and the completion of marathons , which in total has raised £27,000. The
money was raised in memory of a member of the Group HR Team, Christine Smith who passed away in 2014.
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The Board
3
1
2
4
1. Mark Morris
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 on 21st November 2006
and he served as the Senior independent
Non Executive Director from November 2006
until 31st December 2014. 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 works with 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.
2. Simon Embley
Chairman
Simon was appointed Non Executive Chairman
on 1st January 2015, having previously held
the positions of Deputy Chairman and Group
Chief Executive Officer. He became the Group
Chief Executive Officer of LSL at the time of
the management buy-out of e.surv 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.
3. Adrian Gill
Executive Director, Estate Agency
Adrian was appointed as the Executive Director,
responsible for Estate Agency on 24th November
2014 having served as an independent Non
Executive Director since September 2012.
Adrian has overall responsibility for the
performance, strategy and development of the
Estate Agency Division across LSL. He was
previously an executive director at Connells
Limited (Connells), the national estate agency
business of the Skipton Building Society, for
over 10 years. Prior to his role at Connells,
Adrian was managing director of Lush Retail.
Adrian is a chartered accountant and is
currently also a director at Lifetime
Legal Limited.
4. Helen Buck
Non Executive Director
Helen was appointed as an independent Non
Executive Director on 1st December 2011. She
is also a member of the operating board of
Sainsbury’s Supermarkets Limited (Sainsbury’s)
having been appointed as retail director in
March 2012 and became business development
director in May 2014 with responsibility for
developing the business beyond the core, as
well as Mobile by Sainsbury’s, Sainsbury’s
Energy and Sainsbury’s Online. Helen joined
Sainsbury’s in 2005 and, after spending four
years running brand communications, moved to
the trading division as business unit director, in
2009. Before joining Sainsbury’s, Helen held a
number of senior positions at Marks & Spencer
Group plc, Woolworths and Safeway and was a
senior manager at McKinsey and Co.
5. Ian Crabb
Group Chief Executive Officer
Ian was appointed Group Chief Executive
Officer on 9th September 2013 and he has
primary responsibility for the performance,
strategy and development of LSL. Previously Ian
was executive chairman of Learndirect, where
he worked closely with Lloyds Development
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5
6
7
8
Capital on Learndirect’s growth strategy and
before that was chief executive of Quadriga
Worldwide, Europe’s market leader in digital IP
communication and entertainment services for
hotels, where he was responsible for expanding
the business into 50 countries. Over the seven
year period of his stewardship, which included
the 2007 sale of the company by Terra Firma,
the business consistently over-achieved
against demanding financial targets. Earlier,
Ian was a member of the Industrial Advisory
Board at Permira Advisers LLP and worked on
major transactions including the €640m buy
out of Hogg Robinson. Prior to this he was
chief executive of IKON Office Solutions, the
document management and office products
provider for six years, delivering significant
growth both organically and through several
acquisitions.
6. Bill Shannon
Non Executive Director, Deputy
Chairman, Senior Independent Director,
and Chairman of the Remuneration
Committee and Nominations Committee
Bill was appointed as an independent Non
Executive Director and the Chairman of the
Remuneration Committee on 7th January 2014
and on 1st January 2015, he took on the roles
of Deputy Chairman, Senior Independent
Director and Chairman of the Nominations
Committee. Bill has significant PLC board
experience in strategy, operations, finance and
governance in the consumer, financial services,
residential and commercial property sectors.
He is currently non executive chairman of St
Modwen Properties plc and non executive
director of Johnson Service Group plc. He
was previously at Whitbread Group plc from
1974 and between 1994 and 2004, he was
the divisional managing director. He has also
served as non executive chairman of Aegon
UK plc and non executive director of Rank
Group plc, Barratt Developments plc, and
Matalan plc.
7. Sapna FitzGerald
Legal Services Director 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, 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.
8. Andrew Burchall
Interim Group Finance Director*
Andrew was appointed the Interim Group
Finance Director on 5th January 2015.
Andrew’s previous roles include group
finance director at The Corporate Services
Group plc and Impellam Group plc. Andrew
is a Chartered Accountant and qualified with
PriceWaterhouseCoopers.
*Andrew Burchall and Sapna FitzGerald are not
Directors of LSL
The Strategic Report (including the
Strategy, the Business Model, the Business
Reviews, the Financial Review, the Principal
Risks and Uncertainties, the Corporate
Social Responsibility Report and the Board)
is approved by and signed on behalf of the
Board of Directors.
Ian Crabb
Group Chief Executive Officer
12th March 2015
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Report of the Directors and
Corporate Governance Reports
In this section
43
Statement of Directors responsibilities in
relation to the Group Financial Statements
44 Report of the Directors
49 Corporate Governance Report
Audit Committee Report
55
62
Directors’ Remuneration Report
Intercounty, Dunmow.
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Statement of Directors
Responsibilities in Relation to
the Group Financial Statements
The Directors are responsible for preparing the Annual Report and the Group Financial Statements in accordance with applicable
United Kingdom law and those International Financial Reporting Standards (IFRS) as adopted by the European Union.
Under Company Law the Directors must not approve the Group Financial Statements unless they are satisfied that they present fairly
the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing the Group
Financial Statements, the Directors are required to:
• select suitable accounting policies in accordance with IAS 8 ‘Accounting Policies, Change in Accounting Estimates and Errors’
and then apply them consistently;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial
performance;
• state that the Group has complied with IFRSs, subject to any material departures disclosed and explained in the Financial
Statements; and
• make judgements and accounting estimates that are reasonable and prudent.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that
the Financial Statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are also responsible for preparing the Strategic Report, the Report of the Directors, the Directors‘ Remuneration
Report, the Audit Committee Report and the Corporate Governance Report in accordance with the Companies Act 2006 and
applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules.
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Report of the Directors
Business Review and Development
The Chairman’s Statement and the Strategic Report set out a review of the business including details of LSL’s performance,
developments (including future developments) and strategy.
Annual General Meeting
The AGM will be held at the London offices of LSL, 1 Sun Street, London EC2A 2EP on 30th April 2015 starting at 2.30pm.
The Notice of Meeting convening the AGM is in a separate circular to be sent to Shareholders with this Report. The Notice of
Meeting also includes a commentary on the business of the AGM and notes to help Shareholders to attend, speak and/or vote at
the AGM.
Financial Results
The Strategic Report and Financial Statements set out the results of LSL.
Dividend
As a result of the growth in underlying Group profitability, more stable market conditions and the Board’s positive view of future
prospects for the business, an increase in the final dividend of 15% to 8.3 pence per share (2013: 7.2 pence per share) will be
proposed to Shareholders at the forthcoming AGM, increasing the total dividend for 2014, excluding the one off special dividend
related to Zoopla of 16.5 pence per share, by 17% to 12.3 pence per share (2013: 10.5 pence per share). The proposed dividend
payment is at the upper end of LSL’s 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 the Board’s confidence in the future.
The ex dividend date for the final dividend is 26th March 2015 with a record date of 27th March 2015 and a payment date of 7th May
2015. 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 its 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 its employees 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 its employees are contained in the
CSR statement at pages 32 to 39 of this Report. The CSR statement also summarises the Group’s policy in relation to disabled employees.
Financial Instruments
The Strategic Report sets out LSL’s strategies and objectives relating to treasury and risk management. Details of the financial
instruments are set out in Note 29 to the Financial Statements.
The Greenhouse Gas Emissions (Directors’ Reports) Regulations 2013 and Part 7 of The Companies Act 2006
(Strategic Report and Directors’ Reports) Regulations 2013
In accordance with Part 7 of The Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013, each year LSL
reports on targets and KPIs approved by the Board within the Directors’ Report in the Annual Report and Accounts. For the 2014
results, see pages 37 and 38 of this Report.
Directors
The current Directors are listed with their biographies in the Board at pages 40 and 41 of this Report. At the end of 2014, Simon
Embley became a Non Executive Director and Chairman (with effect from 1st January 2015) following the retirement of Roger Matthews
from the Board and its Committees on 31st December 2014.
In addition Steve Cooke (with effect from 19th December 2014) and David Newnes (with effect from 31st December 2014) departed
from the Board and Adrian Gill changed his role from Non Executive Director to Executive Director on 24th November 2014.
At the same time Adrian Gill retired from the Board’s Committees, Helen Buck joined the Remuneration and Nominations Committees.
On 7th January 2014, Mark Pain stepped down as a Non Executive Director and Chairman of the Remuneration Committee and
was replaced in these roles by Bill Shannon, who also took on the role of Chairman of the Nominations Committee and Senior
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Independent Director with effect from 1st January 2015. Mark Morris, who remains as the Audit Committee Chairman, ceased as the
Senior Independent Director on 31st December 2014.
Full details of the current Directors are also detailed within the Directors’ Remuneration Report.
Re-election and Election
All of the current Directors will each retire at the AGM and, being eligible, all existing Directors intend to stand for re-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. As all of the Directors were elected at the 2014 AGM, they will also stand for re-election at the 2015 AGM.
LSL may by ordinary resolution elect or re-elect any individual as a Director. In addition, by an amendment to the Nominations
Committee’s Terms of Reference, LSL has confirmed its commitment to annual elections of its Directors. Accordingly all of the Directors
will stand for re-election at the AGM.
The biographical details for all LSL Directors are set out on pages 40 and 41 of this Report.
During the 2014 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 76. During the period
between 31st December 2014 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 current Non Executive Directors’ letters of appointment are set out in the
Director’s Remuneration Report on pages 69 and 70 of this Report.
Auditors
Ernst & Young LLP, the external auditor of the Group has advised of its willingness to continue in office and a resolution to re-appoint
them to this role and the authority for their remuneration to be determined by the Directors will be proposed at the AGM. See also the
Audit Committee Report contained at page 55.
Details of LSL’s policy designed to safeguard the independence and objectivity of the external auditors is included in the Audit
Committee Report contained at page 60.
Share Capital
LSL 0.2 pence Ordinary Shares are listed on the London Stock Exchange and are the only class of shares in issue.
Rights and Obligations Attached to Shares
Each issued share has the same rights attached to it as every other issued share: the rights of each Shareholder include the right to vote
at general meetings, to appoint a proxy or proxies, to receive dividends and to receive circulars from LSL.
Details of share capital are set out in Note 24 to the Financial Statements. There have been no changes to the share capital during 2014. A
renewal of the authority for the Directors to allot unissued Ordinary Shares and a renewal of their power to dis-apply statutory pre-emption
rights will be proposed at the AGM. Full details of the deadline for exercising voting rights in respect of the resolutions to be considered at
the AGM are set out in the Notice of Meeting.
Employee Share Schemes
LSL has 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
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Report of the Directors continued.
this Trust operate both the LSL Property Services plc Employee Share Incentive Plan (Buy As You Earn or 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 25 to
the Financial Statements. The Trustees have waived the right to any dividend payment in respect of each Share held by them in 2014 and
to all future payments.
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
some of these shares were acquired by members of the current management team of Marsh & Parsons in 2012 and 2013. This was in
accordance with the previously stated objective that current and future managers at Marsh & Parsons apply for Growth Shares, as part
of a package of measures designed to incentivise the management of Marsh & Parsons. The 2011 EBT does not currently hold any LSL
shares.
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 section of the Strategic Report on pages 18 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 sections of the Strategic Report
on pages 26 to 27. Details of the Group’s borrowing facilities are set out in Note 21 to the Financial Statements. Note 29 to the Financial
Statements describes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. A description of the Group’s
principal risks and uncertainties and arrangements to manage these risks are detailed within the Strategic Report on pages 29 to 31.
As explained in Note 29 to the Financial Statements, the Group meets its day to day working capital requirements through a revolving
credit facility, which was renewed in June 2013 and the Group currently has a £100.0m facility which is committed for a period up to
August 2017. As stated in Note 21 to the Financial Statements as at 31st December 2014 the Group had available £66.0m 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 considered the future profitability of the Group, forecast of future cash flows, banking covenants, liquidity of
investments and joint ventures and the ability of the Group to re-finance any loans due to mature in the next 18 months (including the
Group’s facility which due to mature in August 2017) where necessary. Further the Directors considered the key judgments, assumptions
and estimates underpinning the review.
After making enquiries, the Directors consider that the Group has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this Report.
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 2014, LSL’s issued share capital comprised 104,158,950 0.2 pence Ordinary Shares. The authorised share capital is
500,000,000 Ordinary Shares of 0.2 pence each.
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Ordinary Shares
On a show of hands at a general meeting of LSL every holder of Ordinary Shares present in person and entitled to vote shall have one vote
and on a poll, every member present in person or by proxy and entitled to vote shall have one vote for every Ordinary Share held.
The notice of the AGM which accompanies this Report specifies deadlines for appointing a proxy in relation to resolutions to be passed at
a general meeting. Where the Chairman of the AGM is appointed as proxy, such proxy votes are counted and the numbers for, against or
withheld in relation to each resolution are announced at the AGM and published on LSL’s website after the meeting (www.lslps.co.uk).
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 FCA 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.
LSL has the authority under section 701 of the Companies Act to make market purchases of the Ordinary Shares of the Group on such
terms and in such manner that the Directors determine. The maximum shares to buy back is capped at 10% of the Ordinary Share capital
of the Group being 10,415,895 Ordinary Shares.
Company Share Schemes
As at 31st December 2014, the Trust held 2.2% (2013: 1.4%) 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.
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.
Compensation for Loss of Office – Change of Control
There are no agreements between LSL and its Directors or employees providing for compensation for loss of office or employment
(whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid.
Post Balance Sheet Event
Subsequent to the year end, LSL acquired Thomas Morris a multi award winning estate agency and lettings business with seven branches
in Cambridgeshire, Bedfordshire and Hertfordshire for an initial consideration of £4.0m, and six small lettings book acquisitions for a total
initial consideration of £1.8m. In addition, via LSLi, LSL acquired the remaining shares in JNP for a consideration of £53,625 and following
the transaction, LSL holds 100% of the shares in JNP.
Management is in the process of allocating the purchase price in accordance with IFRS 3. As a result the initial accounting for the
acquisition is currently incomplete, so a fair value table of the identifiable assets and liabilities has not been presented.
Directors’ Responsibility Statement
Each of the Directors who are listed in the Corporate Governance Report at page 49 and who hold office at the date of this Report,
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;
• the Strategic Report (including the Strategy, the Business Model, the Business Reviews, the Financial Review, the Principal Risks and
Uncertainties, Corporate Social Responsibility Report and the Board) and the Directors’ Report (including the Corporate Governance
Reports) 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; and
• the Report (including the Financial Statements), taken as a whole, is fair, balanced and understandable and provides the information
necessary for Shareholders to assess LSL’s performance, business model and strategy.
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Substantial Shareholding
As at 31st December 2014 and as at 11th March 2015, the Shareholders set out below have notifi ed LSL of their interest under DTR 5:
Institution
Kinney Asset Management, LLC
First Pacifi c Advisers, LLC
Harris L.P
The Capital Group Companies Inc
Henderson
SFM UK Management
Nature of
holding
Benefi cial
Benefi cial
Benefi cial
Benefi cial
Benefi cial
Benefi cial
31st December 2014
11th March 2015
Number of
0.2 pence
Ordinary
Shares
4,222,888
5,684,471
11,585,233
6,160,282
4,182,818
5,119,902
% of
issued
shares
4.05
5.46
11.12
5.92
4.01
4.91
Number of
0.2 pence
Ordinary
Shares
4,222,888
5,684,471
11,585,233
6,160,282
4,182,818
5,119,902
% of
issued
shares
4.05
5.46
11.12
5.92
4.01
4.91
The Report of the Directors has been approved by and is signed on behalf of the Board of Directors
Sapna B FitzGerald
Company Secretary
12th March 2015
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Corporate Governance Report
UK Corporate Governance Code (September 2012) (the 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 how LSL has complied
with the Code during 2014 and the corporate governance arrangements that are in place for 2015.
During 2014, LSL complied with the provisions of the Code in all respects.
During 2015, LSL will not comply with the following provisions of 2014 edition of the Code, which both relate to the appointment of Simon
Embley as Chairman only:
a. A.3.1, which states that a chairman should on appointment meet the independence criteria set out in B.1.1. Further a chief executive
should not go on to be chairman of the same company. However, if by exception the board decided that a chief executive should
become chairman, the board should consult major shareholders in advance and set out its reasons to shareholders both at the time of
the appointment and in the next annual report.
b. B.1.1, which stipulates the criteria for determining ‘independence’, namely that a director is not deemed independent if he has been an
employee of the company/group within the last 5 years; has a significant shareholding; has participated in the company’s share option/
performance related pay scheme; or is a member of the pension scheme.
Prior to his appointment as Chairman, Simon Embley was an Executive Director in his roles as the Group’s Chief Executive Officer and
then Deputy Chairman. The changes in Simon’s roles reflect the Board’s continued desire to implement an orderly succession and their
wish to retain Simon’s knowledge and experience of the residential property market, maintain contacts with key stakeholders and benefit
from his track record of delivering Shareholder value. Prior to Simon Embley’s appointment as Chairman, LSL has consulted with major
Shareholders and their feedback was taken into account. Looking forward and in accordance with the provisions of the 2014 Code, whilst
Simon did not meet the independence criteria on appointment, following appointment the test of independence is not appropriate in
relation to the role of chairman.
The Board
At the date of this Report, the Board has six members, whose details are set out below. Details of changes to the Board in 2014 and 2015
are set out below.
Director Name
Position(s)
Helen Buck
Ian Crabb
Simon Embley
Adrian Gill
Mark Morris
Bill Shannon
Independent Non Executive Director – member of Nominations Committee and Remuneration
Committee
Executive Director – Group Chief Executive Officer
Non Executive Director – Chairman
Executive Director – Estate Agency
Independent Non Executive Director – Chairman of the Audit Committee and a member of the
Nominations Committee and Remuneration Committee
Independent Non Executive Director – Deputy Chairman, Senior Independent Director, Chairman
of the Remuneration Committee, Chairman of the Nominations Committee and a member of Audit
Committee
During the year, the Nominations Committee and the Board considered at length a number of aspects regarding its composition and
has had to respond to a number of changes. These changes comprise the departures of Mark Pain in January 2014, followed by Roger
Matthews, David Newnes and Steve Cooke in December 2014.
Mark Pain retired on 7th January 2014 and was replaced by Bill Shannon, who joined the Board at that time as an independent Non-
Executive Director and Chairman of the Remuneration Committee. Bill subsequently became Deputy Chairman, Chairman of the
Nominations Committee (position held during 2014 by Roger Matthews) and the Senior Independent Director (position held during 2014
by Mark Morris) with effect from 1st January 2015.
With effect from 24th November 2014, Adrian Gill moved from his role as an independent Non Executive Director into the role of Executive
Director, Estate Agency to ensure an orderly transition from David Newnes, who retired from the Board on 31st December 2014 having
served the Group for over 20 years.
With effect from 1st January 2015, Simon Embley moved into the role of Chairman, having been Deputy Chairman during 2014. He
replaced Roger Matthews, who retired from the LSL Board on 31st December 2014. The Board wish to put on record their appreciation to
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Corporate Governance Report continued.
Roger who has served the Group as Chairman since LSL listed on the London Stock Exchange in 2006.
Finally, Steve Cooke left the Board on 19th December 2014 as Group Finance Director and a process is on-going to appoint a suitable
successor. In addition, as announced in November 2014 at the time of Adrian Gill’s change of role, LSL has also commenced a process to
appoint an additional independent non executive director to the Board.
Further details on all Board changes are set out in this Corporate Governance Report (see pages 49 to 54) and all of the Directors are
listed with their biographies in the Board at pages 40 and 41 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.
Excluding the Chairman, all of the Non Executive Directors are independent of management and are determined to be independent in
accordance with B.1.1 of the Code. The current Non Executive Directors together have a range of experience which is described in more
detail overleaf in the Nominations Committee section.
As stated above, Simon Embley was not deemed to be independent prior to this appointment as Chairman. Other than an appointment to
a small estate management company, Simon does not hold any other directorships.
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 and race) to ensure that the Directors remain individually and collectively
effective.
The evaluation process in 2014 involved discussions between each Director and the Chairman, meetings of the Board and discussions
between the Non Executive Directors. As in previous years the Non Executive Directors have also evaluated the Chairman’s performance,
after taking into account the views of the Executive Directors and this evaluation exercise included the evaluation of the performance of
Roger Matthews, as the Chairman during 2014.
Whilst no significant issues requiring action arose from the 2014 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 will continue to review the composition of the
Board and its meeting arrangements to ensure that the Board is able to focus on the development and execution of LSL’s strategy in a
recovering housing market, as well as monitoring performance and governance matters.
LSL continues to recognise the benefits of diversity (including gender and race) and the current Board composition includes one female
Director, Helen Buck, who is an independent Non Executive Director. Whilst the Directors remain of the view that the setting of targets for
the number of female directors on the Board is not necessary and that it will continue to appoint on merit, both the Chairman of the Board
and the Chairman of the Nominations Committee ensure that all searches take into account diversity, including gender and race.
Copies of the Executive Directors’ service agreements and of the Non Executive Directors’ letters of appointment are available for
inspection at the Registered Office during normal business hours and at each AGM.
All Directors may receive independent professional advice at LSL’s expense, if necessary, for the performance of their duties. This is in
addition to the access every Director has to the Company Secretary and her team. The Company Secretary is responsible for advising the
Board on all matters of corporate governance, ensuring that all Board procedures are followed and facilitating training.
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 and any training needs are also discussed as part of
the annual evaluation exercise.
During 2014 the Board held 12 scheduled meetings (including a three year planning meeting). 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 2015 the Board is scheduled to meet 12 times, including a strategy meeting
and additional meetings will be held as required.
During 2014 the Non Executive Directors collectively met three times without the Executive Directors being present and it is the intention
that this will be repeated in 2015. In addition, the Non Executive Directors intend to meet at least once in the year without the Chairman
being present.
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Board and Committee Attendance 2014
Director
Helen Buck
Steve Cooke
Ian Crabb
Simon Embley
Adrian Gill
Roger Matthews
Mark Morris
David Newnes
Mark Pain
Bill Shannon
Board (including
3 year planning
meeting)
10
11
12
12
12
12
12
11
-
11
Audit
Committee
-
-
-
-
2
-
3
-
-
3
Remuneration
Committee
1
-
-
-
2
3
3
-
-
3
Nominations
Committee
2
-
-
-
3
7
7
-
-
6
Notes
1
2
3
4
5
Notes:
1 Helen Buck joined the Remuneration and Nomination Committees on 24th November 2014 and therefore her attendance is only
recorded for meetings taking place after her appointment.
2 Adrian Gill became an Executive Director on 24th November 2014 and retired from the Audit, Remuneration and Nominations
Committees at the same time. Adrian did not participate in any Nomination Committee meetings where his change of role was
discussed and further he did not attend any Committee meetings following his change of role.
3 David Newnes was not present at one of the scheduled Board meetings during 2014. He received the papers and provided his
comments and queries to the Chairman and the Group Chief Executive Officer for raising at the meeting.
4 Mark Pain retired from the LSL Board on 7th January 2014.
5 Bill Shannon was not present at one of the scheduled Board and Nominations Committee meetings during 2014. He received the
papers and provided his comments and queries to the Chairman and the Group Chief Executive Officer for raising at the meetings.
In accordance with LSL’s Articles of Association, all of the Directors appointed since the previous AGM and circa one-third of the
remaining Directors, including any Director who has not been elected or re-elected at either of the two preceding AGMs, are required to
retire and seek election/re-election (as appropriate). Notwithstanding this, since 2012 LSL has in accordance with best practice and by an
amendment to the Nominations Committee Terms of Reference, chosen to adopt annual elections for all Directors and in accordance with
this policy, all of the Directors will stand for re-election at the forthcoming AGM.
The Board is primarily responsible for the overall management of the Group and for decisions on Group strategy, including approval
of the Group’s strategy, its annual business plans and budgets, the interim and full year financial statements and reports, any dividend
proposals, the accounting policies, any major capital projects, any investments and disposals, its succession plans and the monitoring of
financial performance against budget and forecast. In accordance with best practice, LSL has adopted a policy of Matters Reserved for
the Board which is annually reviewed by the Board and any items not included within the policy (such as responsibility for implementing
the Board’s strategy and managing the business) are delegated to the Management Team(s).
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 interests (including human rights and ethical issues). 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
(ESG) when making decisions. Further details of LSL’s CSR objectives can be found in the CSR or report at pages 32 to 39 of this Report.
The Board has adopted principles of good boardroom practice which set out procedures on how Directors are given accurate, timely
and clear information and how they can seek and obtain information or advice necessary for them to discharge their duties and these
arrangements are reviewed annually as part of the 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 both annually and following the
appointment of any new Director. 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.
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Corporate Governance Report continued.
Board Committees
The Board has delegated specific responsibilities to three standing committees of the Board: Nominations, Remuneration and Audit. 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 2014, the Board reviewed the Terms of Reference for each of the
Committees. It is the intention that Bill Shannon as Chairman of the Nominations Committee and Remuneration Committee and Mark Morris
as Chairman of the Audit Committee will both attend the AGM to answer any questions.
Nominations Committee
Bill Shannon is the Chairman of the Nominations Committee and, as at the date of this Report the other members of the Committee are
Helen Buck (appointed 24th November 2014) and Mark Morris.
During 2014, the Committee members also included Roger Matthews (retired on 31st December 2014), Adrian Gill (until 24th November
2014) and, Mark Pain (retired on 7th January 2014).
The Committee met seven times in 2014 and the Group Chief Executive Officer, Deputy Chairman, Group HR Director and Company
Secretary also attended some of these meetings and assisted the Nominations Committee in its deliberations during this period.
The duties of the Nominations Committee are governed by its Terms of Reference, which was updated on 1st January 2015 to reflect the
September 2014 edition of the Code and its role includes:
a. to regularly review the structure, size and composition (including skills, knowledge and experience) required of the Board and make
recommendations to the Board with regard to any changes;
b. prior to recommending any appointments, evaluate the balance of skills, experience, independence and knowledge on the Board, its
diversity, including gender and race and in light of this evaluation, prepare a description of the role and capabilities required for each
particular appointment;
c. to give full consideration to succession planning for the Directors and senior management (as specified by the Board), 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 orderly succession for appointments to the Board and to senior management, so that LSL
maintains an appropriate balance of skills and experience within the Group and on the Board to ensure progressive refreshing of the
Board;
d. to recommend to the Board as a whole 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 race;
e. report on the nomination of all new Board appointments and undertake an annual performance evaluation to ensure that all members
of the Board have devoted sufficient time to their duties;
f. to keep under 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;
g. to ensure that as part of the process for nominating candidates for any appointments, details are obtained and reviewed of any
interests that the candidate may have which conflict or may conflict with the interest of LSL; and
h. to ensure that prior to the appointment of the Chairman, a job description is prepared which includes an assessment of the time
commitment expected for the role.
As part of its discussions in 2014, the Nominations Committee considered the composition of the Board and the balance of skills and
experience required. These discussions included diversity, and in particular gender and race. In particular the Nominations Committee
considered and, where appropriate made recommendations to the Board on the following matters during 2014:
a. The appointment of Simon Embley into the role of Non Executive Chairman with effect from 1st January 2015 to replace Roger
Matthews, who retired from the Board on 31st December 2014. The changes in Simon’s roles reflect the Board’s continued desire
to implement an orderly succession and their wish to retain Simon’s knowledge and experience of the residential property market,
maintain contacts with key stakeholders and benefit from his track record of delivering Shareholder value;
b. The appointment of Adrian Gill as Executive Director, Estate Agency, who has relevant industry experience, on 24th November 2014 to
effect an orderly transition from David Newnes, who retired from the Board on 31st December 2014;
c. The appointment of Bill Shannon as Non Executive Deputy Chairman, Senior Independent Director and Chairman of the Nominations
Committee, all with effect from 1st January 2015. These appointments are in addition to Bill Shannon’s existing roles as a member of
the Audit Committee and chairman of the Remuneration Committee; and
d. The departure of Steve Cooke with effect from 19th December 2014.
Whilst an executive search agency assisted in the recruitment of Adrian Gill and is assisting in the recruitment of the Group Finance
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Director, the Nominations Committee did not require the services of any agency in the appointment of Simon Embley as Chairman nor did
it consider any other candidates for this role. The Committee conducted a series of consultations with major Shareholders which began
prior to Simon Embley moving from the role of Group Chief Executive Officer to Deputy Chairman, and was repeated by Roger Matthews,
prior to Simon’s appointment as Non Executive Chairman.
Following the changes in 2014, the LSL Board has expertise in strategy, estate agency, surveying, financial services, the residential
housing sector, retail and marketing, operations, business services, entrepreneurial private and public companies, finance, customer and
employee matters, and corporate governance.
LSL is committed to promoting diversity throughout the Group. In previous years, LSL has reported on studies undertaken in relation to
gender diversity. Whilst the recommendations flowing from these studies continue to be implemented in 2014, LSL undertook an age and
gender analysis of its employee opinion survey which revealed that whilst feedback from employees is consistent regardless of gender,
there are differences in relation to age groups. This feedback will be taken into account in Group employee initiatives going forward.
Further details of the study together with key performance indicators are set out in LSL’s CSR statements on pages 32 to 39.
Remuneration Committee
The Remuneration Committee is chaired by Bill Shannon and at the date of this Report its other members are Mark Morris and Helen Buck.
Helen Buck joined the Committee in November 2014 and replaced Adrian Gill. Mark Pain and Roger Matthews were also members of the
Committee during 2014.
The Committee met three times during the year and the Group Chief Executive Officer, the Deputy Chairman (Simon Embley), the Group HR
Director and the Company Secretary were also invited to attend meetings and assist the Remuneration Committee in its deliberations during
this period.
The duties of the Remuneration Committee are governed by its Terms of Reference, which were updated on 1st January 2015 following the
publication by the FRC of the revised Code in September 2014. The Terms of Reference of the Remuneration Committee are available from
the Company Secretary or LSL’s website www.lslps.co.uk.
The Remuneration Committee has responsibility for determining LSL’s policy on the remuneration of Executive Directors and selected
senior managers, including pension rights and any 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 62 of this Report.
The Remuneration Committee is responsible for ensuring that the Executive Directors’ and selected senior managers remuneration is
designed to promote the long-term success of LSL and for 2015 they have again recommended performance-related elements which
are transparent, stretching and rigorously applied. In discharging its duties, the Remuneration Committee considers LSL’s peers and 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.
During 2014, the Remuneration Committee’s overall purpose was to ensure that the levels of remuneration were sufficient to attract,
retain and motivate Directors of the quality required to run LSL successfully. In addition, it was responsible for reviewing and making
recommendations to the Board on any remuneration arrangements for Executive Directors departed from the Board during the year.
Details of any remuneration consultants engaged by the Remuneration Committee during the year are set out in the Directors’ Remuneration
Report on pages 62 to 79.
None of the current Remuneration Committee members have and nor did the 2014 Remuneration Committee members have any personal
financial interest (other than as Shareholders), any conflicts of interest arising from cross directorships; or any day to day involvement in
running the business. The Remuneration Committee recognises and manages conflicts of interest when receiving views from the Executive
Directors (including the Group Chief Executive Officer) or senior managers about any proposals. The Remuneration Committee makes
recommendations to the Board and no Director is permitted to participate in any discussion about their remuneration.
The Remuneration Committee may, in exercising its discretion in relation to the remuneration of Executive Directors and selected senior
managers, take into account LSL’s performance on governance (including regulatory compliance) and CSR related issues and it ensures
that the incentive schemes put in place do not raise any environmental, social or governance issues by inadvertently motivating irresponsible
behaviour.
Audit Committee
The Audit Committee is chaired by Mark Morris and at the date of this Report, its other member is Bill Shannon. During the year, Roger
Matthews was also a member of the Committee (until 31st December 2014). The Board is satisfied that Mark Morris, the Committee
Chairman, has recent and relevant financial experience as is required by the Code.
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Corporate Governance Report continued.
The Committee met on three occasions in 2014. 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 twice during 2014.
Further details of the duty and responsibilities of the Audit Committee are shown on page 56 of this Report.
Shareholder Relations
LSL places a great deal of importance on communication with its stakeholders and is committed to establishing constructive relationships
with investors and potential 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 strategy, performance
and governance 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.
During the latter part of 2014, Roger Matthews consulted with a number of major Shareholders regarding the future composition of the
Board and specifically, to discuss the appointment of Simon Embley as Non Executive Chairman and Bill Shannon as Non Executive Deputy
Chairman and Senior Independent Director.
In addition each year all of the Non Executive Directors, including the Chairman and the Senior Independent Director, are offered the
opportunity to attend meetings with all Shareholders as they require. If any Shareholder or any Shareholder representative groups would like
to discuss any issues or concerns with the Non Executive Directors, they can be contacted through the Company Secretary’s office (see
Shareholder Information at page 153 of this Report for details).
With regard to individual Shareholders, the Board considers that the main forum for communication is at the AGM and all of the current
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.
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 Report of the Directors. Please refer to page 46 of the
Report of the Directors.
The Corporate Governance Report is approved by and signed on behalf of the Board of Directors
Sapna B FitzGerald
Company Secretary
12th March 2015
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Audit Committee Report
Dear Shareholder
I am pleased to report on the activities of the Audit Committee during the 2014 financial year. The Audit Committee, on behalf of the
Board, has ensured that the Annual Report, taken as a whole, is fair, balanced and understandable.
In this report I have detailed how the Audit Committee has discharged its responsibilities.
Members of the Audit Committee have continued to take an active role in understanding the business and the risks and challenges
it faces, including participating in key discussions on areas of financial judgement (such as the estimation of the PI provision); the
continued review of LSL’s valuation controls; and the controls around the more acquisitive parts of the Group.
Also set out below are details on the processes we have in place to safeguard the independence and objectivity of our relationship
with the external auditor and the role played by the Risk and Internal Audit Team to ensure we have in place effective control and risk
management processes.
Mark Morris
Chairman of the Audit Committee
12th March 2015
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Audit Committee Report continued.
Roles and Responsibilities of the Audit Committee
The duties of the Audit Committee include:
a. to make recommendations to the Board (for it to put to the Shareholders for their approval 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;
b. 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 ;
c. to ensure that the Group’s accounting and financial policies and controls are regularly reviewed, proper, effective and adequate;
d. 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;
e. to review the effectiveness of the internal control and risk management systems (including the overall risk management framework
and its underlying financial, operational and compliance related controls);
f. to oversee the composition of the Internal Audit programme and to assess the effectiveness of the Risk and Internal Audit function
(including the appointment/removal of the Group’s Head of Risk and Internal Audit);
g. 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;
h. to review procedures for handling any internal allegations involving potential misconduct;
i. to keep under review the nature and extent of non-audit services provided by the external auditors, taking into account LSL’s Auditor
Independence Policy; and
j. to report to the Board on how it has discharged its responsibilities.
In carrying out its duties, the Audit Committee takes into account the requirements of the Listing Rules (together with any requirements issued
by the FCA), the Code and the Guidance on Audit Committees issued by the FRC, together with any requirements of the Board, which are all
incorporated into the Audit Committee’s Terms of Reference by reference to them.
The Audit Committee has an established programme of work to ensure that each of its responsibilities is covered adequately during the year.
What the Audit Committee did in 2014:
The Audit Committee met three times in 2014, during which time the Committee:
a. reviewed the interim and year end results and preliminary announcement;
b. received and considered, as part of the review of the interim and annual financial statements, reports from the external auditor in
respect of their review of the interim results and annual financial statements, the audit plan for the year and the results of the annual
audit. These reports included the scope of the interim review and annual audit, the approach to be adopted by the external auditor to
address and conclude upon key estimates and other key audit areas, the basis on which the auditor assesses materiality, the terms of
engagement for the external auditor and an on-going assessment of the impact of future accounting developments on the Group;
c. considered this Report, including the Financial Statements in the context of fairness, balance and understandability to ensure that the
Committee was in a position to report to the Board that the 2014 Report when taken as a whole is fair, balanced and understandable
on the basis that the description of the business agrees with the Audit Committee’s own understanding, the risks reflect the issues
that concerned the Audit Committee, appropriate weight has been given to the ‘good and bad’ news, the discussion of performance
properly reflects the ‘story’ of the year and that there is a clear and well-articulated link between all areas of disclosure;
d. considered the effectiveness and independence of the external audit and recommended to the Board for approval by Shareholders at
the forthcoming AGM, the re-appointment of Ernst & Young as external auditor;
e. considered the effectiveness of internal audit and agreed the annual Risk and Internal Audit plan, including compliance with
both internal standards and external regulatory requirements, plus engagement with external consultants on specialist areas as
appropriate;
f. received and considered regular reports from the Risk and Internal Audit Team with regard to the control environment of the Group;
g. considered the review of material business risks, including reviewing internal control processes used to identify and monitor principal
risks and uncertainties. An update of the Group’s principal risks and uncertainties was presented to the Audit Committee for
discussion at each meeting;
h. reviewed a Group Risk Framework policy which was developed to articulate and support the continuation of a ‘3-lines of defence’
model of risk management within the Group, and following approval of this reviewed and recommended to the Board for adoption a
Risk Appetite Statement for the Group;
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i. evaluated areas for further development within financial control structures, with particular emphasis on the reporting of PI claims; the
role and effectiveness of the group finance function; and the resourcing and control suite in the finance function of LSLi;
j. reviewed the appropriateness of the systems and controls in place with regard to valuations carried out by the Surveying Division,
including a review of the effectiveness of second-line structures;
k. reviewed the effectiveness of the Group’s whistleblowing policy, including logs of any whistleblowing-related incidents;
l. reviewed the Audit Committee’s composition and confirmed that there is sufficient expertise and resource for the Audit Committee to
fulfil its responsibilities effectively;
m. reviewed the Audit Committee’s Terms of Reference; and
n. carried out an annual review of the Audit Committee’s performance.
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Audit Committee Report continued.
Significant issues considered in relation to the Financial Statements
During the year the Audit Committee, the Management Team, the Head of Risk and Internal Audit together with the external auditor
considered and concluded on what the significant risks and issues were in relation to the Financial Statements and how these would be
addressed. Areas of particular focus during the year have been:
Significant Judgments in
Financial Reporting for 2014
Appropriateness of the provision
for PI Costs relating to valuation
services
Other Financial Statement
Matters considered by the
Committee
Going concern
Impairment of intangible
and tangible assets
How the Audit Committee Addressed these Judgments
Given the materiality of the PI provision, the Board receives monthly updates on the status of the provision which
includes the status of existing claims and the number and nature of new claims.
In light of the deteriorating claims experience relating to the 2004 to 2008 high risk lending period during the final
quarter of 2014, the Management Team undertook a detailed review on a case-by-case basis of all notifications and
claims relating to this period and a number of material issues were identified.
The review has included an assessment of the claims and notifications on a case by case basis by specialist
external legal counsel and it has identified that a greater proportion of existing notifications are deteriorating into
claims, that the average cost per claim is greater than anticipated due to higher legal costs and that a higher
number of larger notifications and claims had been received than previously estimated.
Additionally, despite the end of the primary limitation period and the fact that the run rate of new notifications has
reduced significantly and in line with expectations, LSL now expects to receive new notifications and claims relating
to the high risk period in 2015 and beyond.
The Committee also commissioned an internal audit review of this work.
It also became apparent that the reporting of the status of claims and notifications, whilst comprehensive, required
further improvements, which have been implemented.
The results of the review were discussed at length at the December 2014 Board meeting and at the February 2015
Audit Committee and Board meetings.
In particular the Committee’s focus was on the key judgements made on assessing the current level of the
provision, and on the sensitivities of three key risk factors:
• average cost per claim;
• the rate of future claims being received; and
• the rate of deterioration of notifications into claims.
Following the reviews, the Audit Committee resolved to recommend to the Board the inclusion of an additional
exceptional charge in the Group’s financial accounts for the year ending 31st December 2014 of £24.6m and this is
included in the Financial Statements which have been approved by the Board.
How the Audit Committee Addressed these Judgments
The Management Team provided the Audit Committee with a paper on the ability of the Group to continue as a
going concern. This paper considered the future profitability of the Group, forecast of future cash flows, banking
covenants, liquidity of investments and joint ventures and the ability of the Group to re-finance any loans (including
the Group’s facility which due to mature in August 2017) where necessary.
The key judgments, assumptions and estimates underpinning this review were discussed and considered.
Following the review, the Audit Committee was able to conclude that the adoption of the going concern principle
was justified for the foreseeable future.
The Management Team provided the Audit Committee with a paper supporting the carrying value of the intangible and
tangible assets in each cash generating unit of the Group. The key assumptions and estimates underpinning the model,
including the discount rate used, were discussed and considered by the Audit Committee. The Management Team
also provided a number of different scenarios where growth rates and discount rates were varied to demonstrate the
robustness of the carrying value of the assets.
Based on the work performed, the Audit Committee was able to conclude that no impairment was necessary to the
intangible or tangible assets as at 31st December 2014. Further information is provided in the Notes to the Financial
Statements.
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Other Financial Statement
Matters considered by the
Committee
Revenue recognition
Treatment of client accounts with
regard to the Lettings business
How the Audit Committee Addressed these Judgments
Revenue recognition is considered to be material to the Group although the nature of the revenue recognised in the
Group is not considered complex. LSL’s Risk and Internal Audit Team performed financial control audits on all key
subsidiaries in 2014 which included focus on the revenue cycle with findings reported to the Audit Committee for
discussion.
The Lettings income of the Group has grown significantly, both organically and by acquisitions, resulting in an
increase in the aggregate client account balance to £82.6m as at 31st December 2014 (31st December 2013 - £73.7
million). 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. The Group
does have a responsibility to ensure that the money held in the client accounts is appropriate and if required, the
Group would make good any shortfall. Given the size of these balances, the client accounts for each subsidiary are
now reconciled at regular intervals including daily for larger businesses. The Risk and Internal Audit Team perform
regular client account audits and findings were reported to the Audit Committee. In addition, as required by ARLA,
some of these accounts were audited externally in 2014.
Acquisition accounting including
both the fair values of assets
acquired and the treatment
of associated contingent
consideration
In 2014, the Board approved a number of acquisitions including Hawes & Co and ten lettings books. Subsequent to the
2014 year end, the Board has approved the acquisition of Thomas Morris and six small lettings books. During the year, in
relation to the acquisition accounting, the Audit Committee has reviewed the way in which intangibles have been identified
in the allocation of consideration and reviewed the basis of the calculation (including the underlying assumptions) of
contingent consideration.
A review of the accounting
treatment of the Zoopla financial
asset
In June 2014, Zoopla completed its IPO on to the London Stock Exchange. Disposal of shares by LSL resulted
in profits of £19.8m before tax, which has been disclosed as an exceptional item. At 31st December 2014, the
remaining holding was revalued in line with the quoted price for the Zoopla shares as at that date. In relation to
these transactions, the Audit Committee reviewed the accounting treatment and concluded that it was appropriate.
Appointment of External Auditor
Whilst the Audit Committee has not undertaken a tendering exercise in 2014, it has conducted a review of the auditor’s effectiveness,
independence and objectivity. In making its assessment of the effectiveness of the external audit, the Audit Committee reviewed the external
audit findings and the Management Team’s responses to these findings. In addition, discussions were held with the Risk and Internal Audit
Team and Management Teams with regard to the effectiveness of the audit process.
Based on the above the Audit Committee, acting on behalf of the Directors, concluded that Ernst & Young is effective, independent and
objective. Based on this conclusion, the Board will recommend to Shareholders the reappointment of Ernst & Young as external auditor at
the forthcoming AGM and seek authority for the Directors to agree the external auditor’s remuneration.
Ernst & Young have acted as LSL’s external auditors since 2004 with a tendering exercise undertaken in 2007. Going forward, LSL has
decided to adopt the FRC’s recommendations on audit firm tendering taking place at least once every ten years and has amended the Audit
Committee’s Terms of Reference to reflect this.
During 2014, the European Parliament and Council adopted measures which will reform the statutory audit market and impact all UK listed
companies. The new Directive (which amends the existing 2006 Directive), must be implemented into UK law by 16th June 2016, requiring
UK listed companies to change their external auditor every 10 years with effect from 2016. Under this scenario, LSL’s re-tendering exercise
undertaken in 2007 is disregarded for the purposes of calculating the maximum permitted term resulting in a requirement to re-tender earlier
than 2018.
Further, in its implementation, the new Directive permits transitional provisions which, BIS is currently consulting on. These could allow a
company to permit an appointment to continue for up to 20 years, provided that retendering takes place at least every ten years. The BIS
consultation (issued in December 2014) closes on 19th March 2015. The FRC also issued a consultation in December 2014 (“Auditing and
Ethical Standards”) which closes on 20th March 2015.
As a result, LSL’s re-tendering plans are subject to the implementation of the new Directive. For example, in the event that the UK adopts
transitional arrangements as per the BIS consultation, LSL would be obliged to tender before 16th June 2016, and to appoint a new firm to
replace Ernst & Young as its external auditor for the audit of the next period commencing after that date (being 1st January 2017 onwards).
LSL will continue to monitor the legislative reform and ensure it complies with any change of law.
The purpose of the audit tendering exercise will be to benchmark the quality and effectiveness of the services provided by the incumbent
auditor against those offered by other firms, with the aim of obtaining the best quality and most effective audit.
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Audit Committee Report continued.
Auditor Independence Policy
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 (Auditor Independence Policy). The Audit Committee is kept regularly informed of the fees
paid to the auditor in all capacities.
Under the terms of the Auditor Independence Policy, which takes into account the relevant ethical guidance regarding the provision of non-
audit services by external audit firms, the following categories of fee need pre approval from the Audit Committee:
a. any fee for specific non-audit services which exceed £25,000;
b. any fee which has a contingent element; and
c. where the total of the fees for non-audit services in any particular year is likely to exceed the audit fee for the year.
The Auditor Independence Policy stipulates restrictions and procedures in relation to the potential allocation of non-audit work to the auditor.
These include categories of work which may and may not be allocated to the auditor, subject to certain provisions as to materiality, nature of
and competency to perform work.
A copy of the Auditor Independence Policy is available at LSL’s website: (www.lslps.co.uk).
The split between audit and non-audit fees for 2014 appears at Note 9 to the Financial Statements. The non-audit fees amount to £83,000
(2013: £82,000) compared with audit fees and other assurance related services fees of £271,000 (2013: £336,000). This is line with the
provisions of the Auditor Independence Policy. The non-audit fees for the current and prior year relate to taxation services.
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 on-going process of change and improvement, and was originally designed in accordance with the guidance of the Turnbull
Committee on Internal Controls and it is regularly reviewed and updated to ensure that it remains in line with FRC Guidance.
The arrangements in place for 2014 sought to identify, evaluate and manage significant risks faced by LSL. The system aimed 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 both Shareholder investment and LSL’s
assets.
In order to discharge this responsibility, the Board has established the procedures necessary to apply both the Code and relevant FRC
guidance, including clear operating procedures, distinct lines of responsibility and delegated authorities. LSL’s risk management and internal
control procedures and framework has continually evolved since LSL was listed on the London Stock Exchange in 2006 and is regularly
reviewed by the Board and the Audit Committee and continues to be in place up to the date of this Report.
During 2015 LSL will take into account the guidance set out in the September 2014 FRC “Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting”.
LSL’s risk management and internal control framework is made up of the following parts:
a. Risk assessment
b. Control environment
c. Control activities
d. Monitoring
e. Information and communication
In particular, the Group has in place internal control and risk management systems in relation to LSL’s financial reporting procedures and
the process for preparation of consolidated accounts. These systems include policies and procedures to facilitate the maintenance of
records that accurately and fairly reflect transactions, provide reasonable assurance that transactions are recorded as necessary to permit
the preparation of financial statements in accordance with IFRS or UK Generally Accepted Accounting Principles, as appropriate, and that
require reported data to be reviewed and reconciled.
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 latest forecast, budget and to the previous year
on a monthly basis. In addition, the Executive Directors receive daily information on sales activity and weekly information on key result areas.
All capital expenditure and other purchases are subject to appropriate authorisation procedures.
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During 2014 the Executive Directors have continually identified, evaluated and managed the principal risks and uncertainties 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 2014 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, operational and compliance controls. In addition, LSL’s Risk and 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.
During the year, the significant issues considered by the Audit Committee, included detailed reviews of:
a. The reporting, monitoring and management of valuation claims and, in conjunction with the Board, a review of the current suite of
valuation controls;
b. The Group’s acquisition framework, covering both pre- and post-acquisition arrangements and the financial controls relating to the
same; and
c. The effectiveness of the control regime exercised by the Group finance function;
Recommendations arising from the reviews referred to above are being implemented and will be monitored by the Audit Committee during
2015.
The principal risks and uncertainties facing LSL together with details of key mitigation initiatives is set out in the Strategic Report on pages
30 and 31.
The Audit Committee Report is approved by and signed on behalf of the Board of Directors
Mark Morris
Chairman of the Audit Committee
12th March 2015
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Directors’
Remuneration Report
Annual Statement
Dear Shareholder
This report sets out the remuneration policy for the Directors of LSL and discloses amounts paid to individuals who were members of the
Board over the course of the financial year ended 2014. This Directors’ Remuneration Report is divided into the following three sections:
• Annual Statement: summarising and explaining the major decisions on, and any substantial changes to the Directors’ remuneration in
the year;
• Directors’ Remuneration Policy: setting out the basis of remuneration for the Directors that has applied since 1st January 2014; and
• Annual Report on Remuneration: setting out the remuneration earned by the Directors in the year ended 31st December 2014 and how
the Directors’ Remuneration Policy will be implemented in 2015.
The Directors’ Remuneration Policy (referred to in this Directors’ Remuneration Report as the Policy) is subject to a binding vote every
three years (sooner if changes are made to the Policy) and the Annual Report on Remuneration, which is subject to an annual Shareholder
advisory vote and will be presented to Shareholders at the 2015 AGM.
The Policy was submitted to and was approved by Shareholders at the 2014 AGM and, as no changes to the Policy have been proposed,
it is not being submitted for Shareholder approval at the 2015 AGM although changes introduced by the 2014 Code have been taken into
account in the implementation of the Policy during 2015 (see The Annual Report on Remuneration for further details).
Summary of LSL’s performance in the year
In 2014 LSL made good progress against a backdrop of rapidly changing market conditions and the 2014 Executive Directors’ bonus
awards reflect this. The 2014 bonus scheme was made up of 80% based on LSL’s financial performance plus 20% based on individually
agreed non-financial measures. The Executive Directors bonus scheme is subject to a 100% of basic salary cap.
Based on LSL’s performance in 2014, eligible Executive Directors received an annual bonus equivalent to 40% of salary in respect of the
financial performance element and between 10% and 15% of the available 20% of salary for performance against individual non financial
measures.
Further, Simon Embley and David Newnes are expected to receive 70% of their 2012 LTIP in accordance with the challenging performance
conditions attached to these awards which are based on the EPS and TSR performance conditions of the three years to 31st March 2015.
The 2012 LTIP which is due to vest in April 2015 is expected to deliver based on the EPS element of the targets only. For details of the 2014
bonus arrangements please see page 73 of this Directors’ Remuneration Report.
Summary of key decisions in the year
The Remuneration Committee continually reviews the senior executive remuneration policy to ensure it promotes the attraction, motivation
and retention of the high quality executives who have been key to delivering LSL’s strategy in the past and who will be key to delivering
sustainable earnings growth and Shareholder return in the future. The Remuneration Committee’s most recent conclusions are that the
existing senior executive remuneration policy remains appropriate and should continue to operate for 2015. Specifically, the Remuneration
Committee felt that:
a. base salary levels are considered to be broadly appropriate and in line with the Policy. Details of any base salary adjustments are set
out at the start of the Annual Report on Remuneration;
b. whilst overall the structure and quantum of the annual bonus scheme works well, the Committee have, taking into consideration the
rapidly changing market conditions experienced in 2014, recommended the reduction in the percentage of bonus payable for any
below budget performance in accordance with the Policy; and
c. the long-term incentive grant policy, whereby nil-cost awards are granted annually up to a maximum normal limit of 100% of salary
(200% in exceptional circumstances) with vesting based on Adjusted Basic Earnings Per Share (70%) and relative Total Shareholder
Return (TSR) (30%) performance conditions and continued service provides a strong alignment between the senior executive team
and Shareholders.
In addition to the above, and in relation to the Board changes which took place during 2014, the Remuneration Committee has also dealt
with the remuneration arrangements relating to the retirement and recruitment of Directors, namely
a. The appointment of Adrian Gill as an Executive Director for the Estate Agency Division, who replaced David Newnes, who retired from
the Board on 31st December 2014.
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b. The change in role for Simon Embley from Deputy Chairman to Non Executive Chairman with effect from 1st January 2015, to replace
Roger Matthews who retired from the Board on 31st December 2014.
c. The taking on of additional responsibilities by Bill Shannon, namely the role of Deputy Chairman, Senior Independent Director and
Chairman of the Nominations Committee.
d. The departure of Steve Cooke on 19th December 2014.
Further details of the remuneration packages recommended and received are described in the Annual Report on Remuneration.
In relation to the remuneration arrangements for the Executive Directors and senior managers, the Remuneration Committee ensures that
they are aligned to the LSL’s strategic goals and key performance indicators. Further, the Remuneration Committee believes that the current
remuneration policy continues to promote the long-term success of the Company and to incentivise the delivery of strong yet sustainable
financial results with the creation of Shareholder value.
Bill Shannon
Chairman of the Remuneration Committee
12th March 2015
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Directors’ Remuneration Report continued.
Directors’ Remuneration Policy (Policy)
Introduction and Overview
The Policy, which was approved by Shareholders in 2014, has been developed taking into account the principles of the Code. The Policy
was applied in 2014 based on the 2012 edition of the Code. During 2014 the Code was updated and LSL will take the 2014 edition of
the Code into account when applying the Policy in 2015. In applying the 2014 edition of the Code the Remuneration Committee is not
recommending any amendments to the Policy, which was approved by Shareholders at the 2014 AGM.
The Board recognises that the Directors’ remuneration is of legitimate concern to Shareholders and is committed to following current best
practice. The Group operates within a competitive environment; performance depends on the individual contributions of the Directors and
employees and LSL believes in rewarding vision and innovation.
When setting the Executive Directors’ remuneration, the Remuneration Committee endeavours to ensure that all Executive Directors are
provided with appropriate profit related pay and an element of pay relates to non-financial performance measures to encourage enhanced
performance and that they are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Group.
LSL’s policy is to provide executive remuneration packages designed to attract, motivate and retain Executive Directors of the calibre
necessary to maintain and improve the Group’s profitability and effectiveness and to reward them for enhancing shareholder value and
return. To do this, it aims to provide a market competitive (but not excessive) package of pay and benefits. The Group’s general policy is
to set basic salaries around mid-market levels and set performance pay levels which are at the upper quartile of market practice but with
stretching goals that accord with the Group’s general policy of seeking to make bonuses self-financing wherever possible. Remuneration
packages will also reflect the Executive Director’s responsibilities and contain incentives to deliver the Group’s objectives.
As noted in the Remuneration Committee Chairman’s Letter on page 62, the Policy has not been updated from that approved by
Shareholders at the 2014 AGM, but it is included here for information; and minor factual changes have been made to the wording to assist
comprehension:
a. the chart showing remuneration scenarios on page 68 has been updated to reflect proposed 2015 remuneration levels;
b. details of external appointments of Executive Directors on page 69 has been updated to reflect current appointments; and
c. the tables summarising the terms of Directors’ service contracts have been updated to reflect changes to the composition of the
Board during 2014.
Consideration of Shareholder Views
The Remuneration Committee considers Shareholder feedback received in relation to LSL’s Annual Report and Accounts, including the
Directors’ Remuneration Report each year at a meeting following publication of the Report. This feedback, plus any additional feedback
received during any meetings from time to time, is then considered as part of the Group’s annual review of the Policy. In addition, the
Remuneration Committee will seek to engage directly with institutional Shareholders and their representative bodies should any material
changes be made to the Policy. Details of votes cast for and against the resolution to approve last year’s Directors’ Remuneration Report
and any matters discussed with Shareholders during the year are set out in the Annual Report on Remuneration. For further details of
the way in which LSL communicates with its Shareholders, please see the Shareholder Relations section of the Corporate Governance
Report.
Consideration of Employment Conditions Elsewhere in the Group
The Remuneration Committee considers the general basic salary increase for the broader UK employee population when determining the
annual salary increases for the Executive Directors. The Remuneration Committee did not consult with other employees with regard to
remuneration of the Executive Directors.
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Summary of Remuneration Policy
Element
How component supports
corporate strategy
Basic salary
• Reflects the value of the
individual and their role.
Operation
Maximum
Performance
metrics
and period
• Reviewed annually, normally
• There is no prescribed
• Not applicable.
effective 1st January.
• Reflects skills and experience
• Takes periodic account
over time.
• Provides an appropriate level
of basic fixed income avoiding
excessive risk arising from over
reliance on variable income.
against companies with similar
characteristics and sector
comparators.
maximum annual basic salary
increase.
• The Remuneration Committee
is guided by the general
increase for the broader
employee population but
may decide to award a
lower increase for Executive
Directors or indeed exceed this
to recognise, for example, an
increase in the scale, scope or
responsibility of the role and/
or to take account of relevant
market movements.
• Current salary levels are set
out in the Annual Report on
Remuneration.
Annual
bonus
• Incentivises annual delivery of
financial and strategic goals.
• Maximum bonus only payable
for achieving demanding
targets.
Long-term
incentive
plan
(approved by
Shareholders
in 2006)
• Aligned to main financial
measures of delivering
sustainable profit growth and
shareholder return.
• Targets reviewed annually.
• Maximum: 100% of salary.
• Performance
• Bonus level is determined by
the Remuneration Committee
after the end of the relevant
financial year, subject to
performance against targets
set at the start of the year.
• Paid in cash.
• Not pensionable.
• Bonus is subject to a clawback
mechanism.
• Awards of nil-cost or
conditional shares are
made annually with vesting
dependent on the achievement
of performance conditions
over the subsequent three
years.
• The Remuneration Committee
reviews the quantum of awards
annually and monitors the
continuing suitability of the
performance measures.
• LTIP award is subject to a
clawback mechanism.
• 100% of salary or grants up to
200% of salary may be made
in exceptional circumstances.
period: one year.
• Performance
metrics: Group
Underlying
Operating Profit
(majority); and
• Non financial
measures
(minority).
• Performance
period: normally
three years.
• Adjusted Basic
EPS growth
targets; and/or
• Relative TSR
targets.
• 25% vests at
threshold (35% for
TSR) increasing to
100% at maximum.
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Directors’ Remuneration Report continued.
Summary of Remuneration Policy continued
Element
How component supports
corporate strategy
Operation
Maximum
Performance
metrics
and period
All-
employee
sharesave
(SAYE,
SIP/BAYE
and CSOP)
Share
ownership
• Encourages long-term
shareholding in LSL.
• Invitations made by the
Committee under the
approved SAYE, SIP (BAYE)
and CSOP.
• As per HMRC limits.
None.
• To provide alignment between
• Executive Directors are
• 100% of salary.
None.
Executive Directors and
Shareholders.
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 from date of
appointment if later) through
the retention of vested share
awards or through open
market purchases.
Benefits
• Provides insured benefits to
support the individual and
their family during periods of ill
health, accidents or death.
• Access to car allowance to
facilitate effective travel.
• Includes car allowance, life
• At cost.
None.
assurance and private medical
insurance. Other benefits
may be provided where
appropriate.
Pension
• Provides modest retirement
• Defined contribution.
benefits.
• Opportunity for Executive
Directors to contribute to their
own retirement plan.
• HMRC approved arrangement.
None.
• New employees are offered a
pension in accordance with
auto enrolment minimums.
The Remuneration Committee
may use its discretion on the
appointment of new executive
directors to recommend a 5%
match of basic salary.
Non
Executive
Directors
• To provide fees reflecting
time commitments and
responsibilities of each role,
in line with those provided by
similarly sized companies.
• Cash fee paid on a monthly
• There is no prescribed
None.
basis.
maximum annual fee increase.
• Fees are normally reviewed
• The Remuneration Committee
from time to time.
is guided by the general
increase for the broader
employee population scale,
scope or responsibility of the
role and/or to take account of
relevant market movements.
• Current fee levels are set
out in the Annual Report on
Remuneration.
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Notes to the Remuneration Policy Summary:
1. A description of how LSL implements the Policy set out in the table from the 2014 AGM is set out in the Annual Report on
Remuneration.
2. The following differences exist between LSL’s Policy for the remuneration of Executive Directors as set out in the table and its approach
to the payment of Group employees generally:
a. A lower level of maximum annual bonus (or no bonus) opportunity may apply to employees other than the Executive Directors.
b. Participation in the long term incentive plan (LTIP) is limited to the Executive Directors and certain selected senior managers. All
employees are eligible to participate in LSL’s share save schemes: save as you earn (SAYE), self invested plan/ buy as you earn (SIP/
BAYE) and/or company share ownership plan (CSOPs), upon invitation.
c. Benefits that are offered to other employees generally comprise of paid holidays and voluntary benefits such as childcare vouchers, a
health cash plan, life assurance and, for more senior managers, private medical insurance.
d. LSL offers a stakeholder pension scheme with employee and employer contributions for new members calculated at a level which
is compliant with automatic enrolment minimums (increasing over time as required by legislation) and based on a band of qualifying
earnings which may vary month by month as variable pay fluctuates.
In general, the above listed differences arise from the development of remuneration arrangements that are market competitive for the
various categories of individuals, together with the fact that remuneration of the Executive Directors and selected senior managers
typically has a greater emphasis on performance-related pay.
3. The choice of the performance metrics applicable to the annual bonus scheme reflect the Remuneration Committee’s belief that any
incentive compensation should be appropriately challenging and tied to both the delivery of profit and non-financial measures.
4. The TSR and EPS performance conditions applicable to the LTIP were selected by the Remuneration Committee on the basis that they
reward the delivery of long-term returns to Shareholders and the Group’s financial growth, and they are consistent with LSL’s objective
of delivering superior levels of long-term value to Shareholders. The TSR performance condition is monitored on the Remuneration
Committee’s behalf by NBS whilst the Group’s EPS growth is derived from the audited financial statements.
5. The Remuneration Committee operates the LTIP in accordance with the plan rules and the Listing Rules of the FCA and the
Remuneration Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and
administration of the plan.
6. While LTIP awards currently vest after three years subject to continued service and performance targets, the Remuneration Committee
will consider developments in best practice when setting future long-term incentive grant policies.
7. The employee sharesave schemes (SAYE, SIP/BAYE and CSOP) do not include any performance conditions.
8. For the avoidance of doubt, in approving the Policy, authority is given to LSL to honour any commitments entered into with current
or former Directors (such as the payment of a pension, payment of last year’s annual bonus or the vesting/exercise of share awards
granted in the past) that have been disclosed in previous remuneration reports. Details of any payments to former Directors will be set
out in the Annual Report on Remuneration as they arise.
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Directors’ Remuneration Report continued.
Reward Scenarios (Illustration of Application of Remuneration Policy)
The charts below show how the composition of each of the remuneration packages, as applicable for each of the Executive Directors who
are currently holding offi ce and how each varies at different levels of performance under the Policy set out overleaf, as a percentage of
total remuneration opportunity and as a total value:
£1,200
£1,000
0
0
0
’
£
£800
£600
£400
£200
£
£383
100%
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£1,083
Fixed Pay
Bonus
LTIP
£768
32%
27%
23%
32%
£296
50%
35%
100%
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Group Chief Executive Offi cer
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£716
20%
39%
41%
m
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x
a
M
i
£520
16%
27%
57%
t
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a
T
Executive Director
Notes to the Reward Scenarios:
1. The minimum performance scenario comprises the fi xed elements of remuneration only, including:
a. salary, applying from 1st January 2015;
b. pension, as per the Policy; and
c. estimated benefi ts.
2. The on-target level of bonus is taken to be 60% of the maximum bonus opportunity (100% of salary), and the on-target level of LTIP
vesting is assumed to be 50% of the face value assuming a normal grant level (100% of salary). These values are included in addition to
the components/values of minimum remuneration.
3. Maximum remuneration assumes full bonus payout (100% of salary) and the full face value of the LTIP (100% of salary), in addition to
fi xed components of remuneration.
4. No share price growth has been factored into the calculations.
5. As a result of rounding some numbers may not add up to 100%.
Approach to Recruitment and Promotions
The remuneration package for a new Executive Director would be set in accordance with the terms of LSL’s prevailing approved
remuneration policy at the time of appointment and take into account the skills and experience of the individual, the market rate for a
candidate of that experience and the importance of securing the relevant individual.
Salary would be provided at such a level as required to attract the most appropriate candidate and may be set initially at a below mid-
market level on the basis that it may progress towards the mid-market level once expertise and performance has been proven and
sustained. The annual bonus potential would be limited to 100% of salary and grants under the LTIP would be limited to 100% of salary
or 200% of salary in exceptional circumstances. Further, in exceptional circumstances the Remuneration Committee may offer additional
cash and/or share-based elements to replace deferred or incentive pay forfeited by an individual leaving a previous employer. It would
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seek to ensure, where possible, that these awards would be consistent with any awards forfeited in terms of vesting periods, expected
value and performance conditions.
For an internal candidate being appointed as an Executive Director, any variable pay element awarded in respect of the prior role may
be allowed to pay out according to its terms. In addition, any other on-going remuneration obligations existing prior to appointment may
continue, provided that they are put to Shareholders for approval at the earliest opportunity.
For external and internal candidate appointments, the Remuneration Committee may agree that LSL will meet certain relocation and/or
incidental expenses as appropriate.
In exceptional circumstances the Remuneration Committee may also agree, on the recruitment of a new Executive Director, a notice
period in excess of nine months but with the intention to reduce this to nine months over a specified period.
Service Contracts for Executive Directors
The service contracts for each of the Executive Directors in place at the date of this Report are not fixed term and are terminable by either
LSL or the Executive Director on the following bases:
Director
Ian Crabb
Adrian Gill
Commencement of Current Service Contract
Notice Period
9th September 2013
24th November 2014
9 months
9 months
At the Remuneration Committee’s recommendation and at the Board’s discretion, early termination of an Executive Director’s service
contract can be undertaken by way of payment of salary and benefits in lieu of the required notice period. A summary of the main
contractual terms surrounding termination are set out below:
Provision
Notice Period
Termination Payment
Remuneration entitlements
Change of control
Detailed Terms
9 months
Payment in lieu of notice based on basic salary, fixed benefits and pension
A bonus may be payable (pro-rated where relevant) and outstanding share awards may vest
(see below)
No Executive Director’s service contract contains additional provisions in respect of change of
control
At the Remuneration Committee’s recommendation and at the Board’s discretion early termination of a service contract can be
undertaken by way of payment of nine months’ salary and benefits. An annual bonus may be payable with respect to the period of the
financial year served although it will be pro-rated for time and paid at the normal payout date.
Any share-based entitlements granted to an Executive Director under LSL’s share plans will be determined based on the relevant plan
rules. However, in certain prescribed circumstances under the LTIP rules, such as death, injury, disability, redundancy, retirement or
cessation by reason of the employing company/business ceasing to be a member of the Group, or other circumstances at the discretion
of the Remuneration Committee, a “good leaver” status may be applied.
In exceptional circumstances for good leavers, all or part of unvested LTIP awards may vest at the date of cessation of employment. In
all other circumstances the awards will vest at the original specified vesting date, unless specifically determined by the Remuneration
Committee that the award(s) for an individual will lapse. In exercising its discretion to the extent to which and when an award shall vest the
Remuneration Committee will, under the LTIP rules, take into account:
1. the progress made towards meeting the performance conditions;
2. the extent to which it considers the performance condition would have been satisfied by the end of the vesting period;
3. the proportion of the vesting period elapsed; and
4. any other factors which it considers to be relevant.
The Board permits Executive Directors to accept appropriate outside commercial non executive director appointments provided that
the aggregate commitment is compatible with their duties as an Executive Director. The Executive Directors concerned may (subject to
Board approval) retain fees paid for these services. During 2014, other than Simon Embley’s appointment to a small estate management
company for which no remuneration is paid, and Adrian Gill’s appointment as a non executive director of Lifetime Legal Limited for which
he receives a fee, none of the Executive Directors held any non executive directorships of any other companies other than to represent the
minority interests of the Group or to participate in representative trade bodies.
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Directors’ Remuneration Report continued.
Non Executive Directors
The Group’s policy is to appoint Non Executive Directors to the Board with a breadth of skills and experience that is relevant to the
Group’s business. Appointments are made by the Board upon the recommendations and advice from the Nominations Committee.
Non Executive Directors, including the Chairman, have letters of appointment which set out their duties and responsibilities. The Non
Executive Directors and Chairman are not eligible to participate in incentive arrangements or receive pension provision. The following table
shows details of the terms of appointment for the Non Executive Directors in place at the date of this Report:
Director
Date Original Term Commenced
Date Current Term Commenced
Expected Expiry Date of
Current Term
Helen Buck
1st December 2011
1st December 2014
30th November 2017
Simon Embley
1st January 2015
–
31st December 2018
Mark Morris
Bill Shannon
21st November 2006
21st November 2012
20th November 2015
7th January 2014
–
6th January 2017
Annual Report on Remuneration
Implementation of the Remuneration Policy for the year ending 31st December 2015 (unaudited information)
This section of the Directors’ Remuneration Report sets out how the Policy will be implemented for the year ending 31st December 2015.
Basic Salary
Executive Directors’ basic salaries are reviewed annually by the Remuneration 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.
Following the departure of the Group Finance Director in December 2014, LSL has commenced a process to appoint a successor into
this role and the remuneration arrangements for the role, which will be set in accordance with the Policy, are expected to be in line with
previous arrangements subject to prevailing market conditions.
Basic salary levels as at 1st January 2015 and 2014 for the current Executive Directors are set out below:
Director
Role
From 1st January 2015 (or effective
from date) (£)
From 1st January 2014
(or date of appointment) (£)
Ian Crabb
Adrian Gill
Group Chief Executive Officer
370,0001
Executive Director, Estate Agency
280,000
350,000
280,000
1 Ian Crabb’s 2015 salary is effective from 1st April 2015, in line with salary reviews for Group employees.
Adrian Gill’s salary is from the date of his appointment as an Executive Director and has not been increased for 2015. At appointment Ian
Crabb’s salary was positioned at the lower end of the market to reflect his experience with the intention to be brought up to market over
time. Based on this and Ian’s performance in 2014, the Remuneration Committee has approved an increase to £370,000 from 1st January
2015. The Remuneration Committee is satisfied that the Executive Directors basic salaries are in line with the Policy.
Annual Bonus Payments 2015
The Remuneration Committee will operate an annual bonus plan for Executive Directors during 2015 in line with that operated in 2014. The
maximum bonus continues to be capped at 100% of base salary.
For 2015, whilst the overall structure of the annual bonus will remain broadly similar to that operated in 2014, with sliding scale
performance targets based on LSL’s budgeted Group Underlying Operating Profit (after the payment of bonuses) for 80% of the potential
with the remaining 20% of the potential based on challenging non-financial performance measures, the Committee has recommended a
reduced percentage of bonus to be payable for any below budget performance.
LSL has not disclosed any specific non financial measures or targets (and the relative weighting within the 20%) because these details are
considered to be commercially sensitive. However, taking into account best practice, the Remuneration Committee supports some limited
disclosure of the types of measures that are included in the applicable scheme, being regulatory compliance and divisional performance.
Further, the Remuneration Committee has confirmed that it is satisfied that individual measures are challenging and demanding, and
reflect LSL’s on-going business expectations and have a clear link to LSL’s strategy. The financial performance element of the scheme
require LSL’s performance to be significantly better than budget for full payout.
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Long-Term Incentive Plan
The LTIP continues to be LSL’s primary long-term incentive. Awards to be granted in 2015 to the Executive Directors and selected senior
management will be made over shares worth up to 100% of salary.
Awards will be subject to a range of normalised earnings per share growth targets (70% of an award) and a TSR condition (for 30% of an
award), each applying to separate parts of an award and measured over a period of three years as follows:
1. 25% of the Adjusted Basic EPS part of the award will vest for threshold Adjusted Basic EPS growth increasing pro-rata to full vesting for
stretch Adjusted Basic EPS growth. The precise targets will be disclosed in full when the awards are granted.
2. 35% of the TSR part of the award will vest if LSL’s TSR for the three years from date of grant is equal to the TSR of the median company
increasing pro-rata to full vesting of this part of the award for top quartile performance as measured against the constituents of the
FTSE 250 (excluding investment trusts). For any of the TSR part of the award to vest, the Remuneration Committee must also be
satisfied that there has been an improvement in LSL’s underlying financial performance.
Benefits
Taxable benefits for the Executive Directors will continue to include a car allowance, life assurance and private medical insurance.
Benefits in kind are not pensionable and are not taken into account when determining basic salary for performance-related remuneration.
Pension
The Executive Directors are members of a stakeholder pension scheme. LSL matches Executive Directors’ contributions of up to 5% of
base salary.
Non Executive Directors
The remuneration of the Non Executive Directors is a matter for the Chairman and Executive Directors whilst the remuneration of the
Chairman is a matter for the Remuneration 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.
Following Adrian Gill’s change of role on 24th November 2014, LSL has commenced a process to appoint an additional non executive
director to the Board. The remuneration arrangement for the role will be set in accordance with the Policy and subject to prevailing market
conditions.
A summary of fees for the current Non Executive Directors is as follows:
Director
Helen Buck
Simon Embley
Mark Morris
Bill Shannon
Notes
1
2
3
2015 (£)
40,000
130,000
47,000
70,000
2014 (£)
40,000
–
47,000
45,000
Notes to summary of fees for the Non Executive Directors:
1 Simon Embley became Non Executive Chairman on 1st January 2015. For details of the remuneration received in 2014 for his previous
role as Deputy Chairman, see the Directors’ Remuneration table.
2 Mark Morris’ fee reflects his role as both Non Executive Director and Chairman of the Audit Committee.
3 Bill Shannon’s 2015 fee reflects increased responsibilities in his roles as Senior Independent Director and Chairman of the Nominations
Committee and the Remuneration Committee. He is also a member of the Audit Committee.
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Directors’ Remuneration Report continued.
Audited Information
Directors’ Remuneration
The Remuneration of the Directors for 2014 was as follows:
Notes
Basic salary
or fees
£
Pension
Benefits8 contributions
£
£
Annual Gain on share
Awards10 & 11
bonus9
£
£
Other12
£
Total
£
Chairman
Roger Matthews
Executive Directors
Steve Cooke
Ian Crabb
Simon Embley
Adrian Gill
David Newnes
Non Executive Directors
Helen Buck
Mark Morris
Mark Pain
Bill Shannon
Total
1
2
3
4
5
6
7
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
100,000
100,000
240,000
226,600
350,000
109,035
150,000
239,583
64,571
40,000
210,000
175,000
40,000
40,000
47,000
46,667
3,750
44,667
45,000
-
1,250,321
1,021,552
-
-
16,597
16,572
15,000
4,654
15,946
29,682
1,538
-
16,032
14,233
-
-
-
-
-
-
-
-
65,113
65,141
-
-
12,000
11,330
17,500
5,833
7,500
11,979
-
-
10,500
8,493
-
-
-
-
-
-
-
-
47,500
37,635
-
-
-
-
-
-
100,000
100,000
-
207,717
189,000
-
-
219,618
-
-
101,500
160,417
-
-
-
-
-
-
-
-
290,500
587,752
-
-
-
-
174,416
-
-
-
97,672
-
-
-
-
-
-
-
-
-
272,088
-
5,126
-
-
-
5,126
-
-
-
5,126
-
273,723
462,219
571,500
119,522
352,988
500,862
66,109
40,000
440,830
358,143
-
-
-
-
-
-
-
-
40,000
40,000
47,000
46,667
3,750
44,667
45,000
-
15,378 1,940,900
- 1,712,080
Notes to Directors Remuneration table:
1. Steve Cooke departed from the Board on 19th December 2014. For details of Steve Cooke’s remuneration arrangements following his
departure, see Payments for Loss of Office.
2. Ian Crabb was appointed as Group Chief Executive Officer on 9th September 2013.
3. Simon Embley moved from Group Chief Executive Officer to Deputy Chairman on 9th September 2013 and then into the role of Non-
Executive Chairman on 1st January 2015. Simon’s bonus for 2013 was calculated on a pro rata basis to reflect his lower salary from 1st
November 2013.
4. Adrian Gill was appointed to the Board as an Executive Director on 24th November 2014. His 2013 fee and £35,854 of his 2014
remuneration relate to his role as a Non Executive Director. The 2014 fee includes £1,079 paid in respect of consultancy services to the
Estate Agency Division. There were no additional consultancy fees in 2013.
5. David Newnes retired from the Board on 31st December 2014. For details of David Newnes’ remuneration arrangements relating to his
retirement, see Payments for Loss of Office.
6. Mark Pain retired from the Board on 7th January 2014 and continued to provide assistance in relation to the 2013 year-end and the
finalising of the 2013 Annual Report & Accounts.
7. Bill Shannon was appointed to the Board on 7th January 2014.
8. “Benefits” refers to benefits in kind, which excludes pension provision and is comprised of private medical cover and company car.
Further in respect of Simon Embley, it includes a taxable relocation allowance of £15,000 for 2013 and 2014.
9. LSL’s performance in 2014 results in the Executive Directors earning an annual bonus of 40% of their basic salary in relation to the
financial performance element of the scheme. In comparison, LSL’s performance in 2013 resulted in the Executive Directors at the
time, earning the maximum annual bonus for the financial performance element of the scheme and total bonuses were capped at
100% of basic salary. See the Directors’ Remuneration table for a summary of the 2014 and 2013 bonus payments.
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10. The gain on share award values for 2014 presented in the table were based on the 2012 LTIP award, which will vest in part during
2015 based on performance of the EPS for the three years ended 31st December 2014. As disclosed in the 2013 Annual Report on
Remuneration, the gain on share award values for 2013 presented in the table were based on the 2011 JSOP award, which lapsed
during 2014 based on performance for the three years ended 31st December 2013.
11. The figure shown for the gain on share award values for 2014 reflects the expected level of vesting for the 2012 LTIP award, at
LSL’s average share price from 1st October 2014 to 31st December 2014 (299 pence). Based on EPS performance for the three-
year performance to 31st December 2014, 100% of this element (representing 70% of the award) will vest on 2nd April 2015. TSR
performance will be tested over the three-year period to 30th March 2015; based on TSR performance to 30th March 2015 it is
expected that 0% of this element (representing 30% of the award) will vest on 2nd April 2015. These figures will be restated in the 2015
Directors’ Remuneration Report to reflect the actual level of vesting. As disclosed in the 2013 Directors’ Remuneration Report, the
gain on share award values for 2013 presented in the table were based on the 2011 JSOP award, which lapsed during 2014 based on
performance for the three years ended 31st December 2013.
12. SAYE 2011 awards became exercisable on 1st May 2014. The value shown in the table reflects the difference between the exercise
price of the SAYE option (257 pence) and LSL’s Share price on the date they became exercisable (403 pence).
Annual Bonus
Annual Bonus Payments 2014 – audited
Set out in the table below is a summary of the Executive Directors’ bonus scheme for 2014 (excluding the Deputy Chairman and Adrian
Gill, who did not participate in the bonus scheme):
Bonus Element
Targets for 2014
Performance against targets for 2014
Bonus Achieved for 2014
Group Underlying
Operating Profit up to
80% of base salary
Sliding scale from threshold of
£40.9m (20%) of this part is payable
increasing to £49.8m (100%) of this
part is payable.
A bonus of 50% of this element
(based on Underlying Operating
Profit of £42m) was awarded to Ian
Crabb and David Newnes (i.e. 40%
of basic salary) and no payment was
made to Steve Cooke.
Ian Crabb received a total
bonus of 54% of base
salary.
David Newnes received a
total bonus of 48% of base
salary.
Non financial measures up
to 20% of base salary
Four targets aligned to the longer
term goals of the group.
A bonus of 14% of this element was
awarded to Ian Crabb and 8% to
David Newnes, with regard to these
measures, and no payment was
made to Steve Cooke.
Whilst LSL has not disclosed specific targets for (and the relative weighting within the 20%) or actual outcomes for the 2014 non-
financial measures as they are considered to be commercially sensitive, the Remuneration Committee supports the disclosure of the
types of measures, which include regulatory compliance and divisional performance. In relation to these measures, the Remuneration
Committee confirms that it is satisfied that the measures were demanding and the financial performance element of the schemes require
performance significantly better than budget for full payout. Further, the Remuneration Committee supports disclosure of these measures
in the event that they are no longer commercially sensitive.
2011 JSOP Awards
Director
Date of grant
Vesting date
Shares under
award
Pre-tax gain per
share1
Vesting % in
20142
Pre-tax gain
Steve Cooke
Simon Embley
David Newnes
31st March 2011
30th March 2014
31st March 2011
30th March 2014
31st March 2011
30th March 2014
89,613
203,665
57,026
£1.92
£1.92
£1.92
Nil
Nil
Nil
Nil
Nil
Nil
Notes to 2011 JSOP Awards:
1 Based on the share price at 3 month average share price to 31st December 2013 (437 pence) less the effective exercise price
(245 pence).
2 Actual EPS growth for the three years ended 31st December 2013 was 6.6% compared to a minimum threshold of 10% and so no
options vested during the year.
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Directors’ Remuneration Report continued.
2012 LTIP Awards (nil cost options)
Director
Date of grant Basis of
award
(% of salary)
Steve
Cooke4
Simon
Embley5
David
Newnes6
30th March
2012
100
90,909
£246,363
50,909
£137,963
25% (EPS)
35% (TSR)
100%
Number of
share options
Face value
of awards at
grant date1
80,000
£216,800
Vesting at
threshold
Vesting at
maximum
Performance
period
Expected
vesting % in
20152
Expected
gain on share
awards 3
Nil
70
70
TSR: three
years from
grant date
EPS: three
years to 31st
December
2014
Nil
£174,416
£97,672
Notes to 2012 LTIP Awards
1 Based on the number of shares granted multiplied by the share price at the grant date (271 pence).
2 Actual EPS growth for the three years ended 31st March 2015 was 12% (the maximum vesting criteria) and the TSR element is currently
not expected vest, therefore resulting in 70% of the award vesting in 2015.
3 The expected gain on share award for the 2012 LTIP is calculated using LSL’s average share price from 1st October 2014 to 31st
December 2014 (299 pence).
4 For details of Steve Cooke’s remuneration arrangements following his departure, see Payment for Loss of Office.
5 Simon Embley’s shares awards have been pro-rated to reflect his change of role on 1st January 2015 and his ‘good leaver’ status under
the scheme rules as at the 31st December 2014.
6 David Newnes shares awards are being pro-rated to reflect his departure on 31st December 2014 and his ‘good leaver’ status under the
scheme rules (see Outstanding Shares Awards table for further details).
Share Awards Granted During 2014
2014 LTIP Awards (nil cost options)
Details of LTIP awards granted in 2014 are as follows:
Director
Date of grant
Basis of award
(% of salary)
Number of share
options
Face value at
grant date 1
Vesting at
threshold
Vesting at
maximum
Performance period
Steve Cooke2
10th April 2014
Ian Crabb
10th April 2014
David Newnes3 10th April 2014
100%
100%
100%
55,813
81,395
48,837
£239,995
£349,998
£209,999
25% (EPS)
35% (TSR)
100%
TSR: three years
from grant date
EPS: three years to
31st December 2016
Notes to 2014 LTIP Awards
1 Based on the number of shares granted multiplied by the share price at grant date (430 pence).
2 For details of the Steve Cooke’s remuneration arrangements following his departure, see Payment for Loss of Office.
3 David Newnes shares awards are being pro-rated to reflect his departure on 31st December 2014 and his ‘good leaver’ status under the
scheme rules (see Outstanding Shares Awards table for further details).
For awards presented above:
1. For 70% of awards: 25% of this part of an award will vest for Adjusted Basic EPS growth of 12.5% p.a. increasing pro-rata to 100% of
this part of an award vesting for Adjusted Basic EPS growth of 20% p.a. for the three years ending 31st December 2016. There is no
vesting for Adjusted Basic EPS growth less than 12.5% p.a.
2. For 30% of awards: 35% of this part of an award will vest for a median TSR for the three years from date of grant, increasing to 100%
vesting of this part of an award for an upper quartile TSR, measured against the FTSE 250 (excluding investment trusts). For the TSR
part of an award to vest, the Remuneration Committee must also be satisfied that there has been an improvement in LSL’s underlying
financial performance.
Payments to Past Directors
There were no payments made during the year to past Directors.
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Payments for Loss of Office
No payments were made to any Directors relating to loss of office during the year ended 31st December 2014. For details of all payments
received by Directors who held office during the year, see the Directors’ Remuneration Table.
Steve Cooke left the Board on 19th December 2014 and he continued to receive his basic salary, pension contribution and benefits until 31st
December 2014. No amounts have been paid in respect of the 2014 bonus, share awards or other payment in lieu of notice or for loss of office.
David Newnes received contractual payments in lieu of notice of £80,000 and £7,922 in relation to holiday pay in December 2014 and no
amounts have been paid for loss of office.
Outstanding Share Awards
Options granted to Executive Directors to acquire Ordinary Shares in LSL are as follows:
Director
Award
type
Date of grant
Share Exercise As at 1st Awards Awards
price January granted
price
2014
on grant
Awards Awards As at 31st
vested December
2014
lapsed exercised
Steve Cooke
JSOP
31st March 2011
245.00p 280.00p
89,613
–
(89,613)
–
SAYE
5th April 2011
245.00p 257.00p
3,502
LTIP
2nd April 2012
271.00p
nil 80,000
LTIP
2nd April 2013
337.00p
nil 75,533
–
–
–
LTIP
10th April 2014
430.00p
nil
–
55,813
Ian Crabb
LTIP
23rd September 2013
479.00p
nil 73,684
–
LTIP
10th April 2014
430.00p
nil
–
81,395
Simon Embley
JSOP
1st June 2010
271.00p 280.00p 83,929
CSOP
11th June 2010
237.50p 240.00p
12,500
–
–
–
–
–
–
–
–
–
–
JSOP
31st March 2011
245.00p 280.00p 203,665
–
(203,665)
(3,502)
–
–
–
–
–
–
–
SAYE
5th April 2011
245.00p 257.00p
3,502
LTIP
LTIP
2nd April 2012
271.00p
nil 90,909
2nd April 2013
337.00p
nil 85,833
David Newnes JSOP
1st June 2010
271.00p 280.00p 39,286
CSOP
11th June 2010
237.50p 240.00p
12,500
JSOP
31st March 2011
245.00p 280.00p
57,026
SAYE
5th April 2011
245.00p 257.00p
3,502
–
(3,502)
(7,576)
(38,148)
–
–
(57,026)
–
–
–
–
–
–
(3,502)
–
–
–
–
–
–
–
–
–
83,928
83,928
1st June 2013 to
Exercise
period
31st March 2014 to
31st March 2021
5th April 2014 to
5th October 2014
–
–
80,000
2nd April 2015 to
2nd April 2022
75,533
2nd April 2016 to
2nd April 2023
55,813
10th April 2017 to
10th April 2024
73,684 23rd September 2016 to
23rd September 2023
81,395
10th April 2017 to
10th April 2024
–
–
–
–
–
–
–
12,500
12,500
11th June 2013 to
1st June 2020
–
–
–
–
–
–
11th June 2020
31st March 2014 to
31st March 2021
5th April 2014 to
5th October 2014
83,333
2nd April 2015 to
2nd April 2022
47,685
2nd April 2016 to
2nd April 2023
39,286
39,286
1st June 2013 to
12,500
12,500
11th June 2013 to
1st June 2020
–
–
–
–
11th June 2020
31st March 2014 to
31st March 2021
5th April 2014 to
5th October 2014
LTIP
LTIP
2nd April 2012
271.00p
nil 50,909
(4,243)
2nd April 2013
343.50p
nil 58,333
–
(25,926)
LTIP
10th April 2014
430.00p
nil
–
48,837
(37,985)
–
–
–
–
46,666
2nd April 2015 to
2nd April 2022
–
–
32,407
2nd April 2016 to
2nd April 2023
10,852
10th April 2017 to
10th April 2024
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Directors’ Remuneration Report continued.
Notes Outstanding Share Awards
1. All of the above are scheme interests. Details of long-term incentive awards granted in 2014 are presented in a separate paragraph
while details of past awards are presented in last year’s Directors’ Remuneration Report and are included in Note 12 to the Financial
Statements.
2. The aggregate of gains made by the Executive Directors on the exercise of any options in the year was £15,378 (2013: £159,355).
3. The Ordinary Share mid-market price ranged from 270 pence to 480 pence and averaged 381 pence during 2014. The share price on
31st December 2014 was 298 pence compared to 449.75 pence on 1st January 2014.
4. David Newnes shares awards have been pro-rated to reflect his departure on 31st December 2014 and his ‘good leaver’ status under
the scheme rules at that date.
5. Simon Embley’s shares awards have been pro-rated to reflect his change of role on 1st January 2015 and his ‘good leaver’ status under
the scheme rules as at the 31st December 2014.
6. For details of Steve Cooke’s remuneration arrangements following his departure, see Payment for Loss of Office.
Directors’ Interests in Shares
The interests of the Directors who served on the Board during the year are set out in the table below:
Shareholdings
Share Awards
Director
31st December 2014
31st December 2013
Unvested
Roger Matthews2
Ian Crabb3
Steve Cooke4
Simon Embley5
David Newnes6
Mark Pain7
Mark Morris
Helen Buck
Adrian Gill
Bill Shannon8
86,882
531
43,511
6,069,509
3,458,259
-
53,972
-
-
20,561
86,882
59
40,000
6,065,998
3,454,748
-
53,972
-
-
-
-
155,079
-
131,019
89,925
-
-
-
-
-
Vested but
unexercised
-
-
-
96,428
51,786
-
-
-
-
-
Total
Executive Director
Shareholding guideline1
31st December 2014
(% of base salary)
86,882
155,079
43,511
6,213,028
3,560,684
-
53,972
-
-
20,561
NA
0.4
54
12,058
4,907
NA
NA
NA
Nil
NA
Notes on Directors’ Interest in Shares
1. 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 from date of appointment if later) through the retention of vested share awards or through
open market purchases (shareholding guidelines). Calculated based on shares owned at 31st December 2014, share price at 31st
December 2014 of 298 pence per share and the Executive Director’s base salary at 31st December 2014.
2. Roger Matthews holding includes shares held by his wife. Roger Matthews retired from the Board on 31st December 2014.
3. Ian Crabb joined the Board on 9th September 2013 and shares have been purchased by Ian as a participant in LSL’s BAYE/SIP. The
shares specified in the table were purchased by the Trust at the prevailing market value.
4. Steve Cooke departed from the Board on 19th December 2014 and his percentage of base salary is as at 19th December 2014.
5. Simon Embley’s shares awards have been pro-rated to reflect his change of roles on 1st January 2014 and 1st January 2015 and his
‘good leaver’ status under the scheme rules as at the 31st December 2014.
6. David Newnes shares awards have been pro-rated to reflect his departure on 31st December 2014 and his ‘good leaver’ status under
the scheme rules as at that date.
7. Mark Pain retired from the Board on 7th January 2014.
8. Bill Shannon joined the Board on 7th January 2014.
All of the interests detailed above are beneficial. Apart from the interests disclosed above no Directors were interested at any time in the
year in the share capital of any other Group company.
There have been no changes in the interests of any Director between 1st January 2015 and the date of this Report.
No Director has or has had any interest, direct or indirect, in any transaction, contract or arrangement (excluding service agreements),
which is or was unusual in its nature or conditions or significant to the business of the Group during the current or immediately preceding
financial year.
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Unaudited Information
Performance Graph and Table
The following graph shows the value, by the 31st December 2014, 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. During the period LSL has outperformed both indices.
Total shareholder return
Source: Thomson Reuters Datastream
Value [£]
900
800
700
600
500
400
300
200
100
0
31 Dec 08
31 Dec 09
31 Dec 10
31 Dec 11
31 Dec 12
31 Dec 13
31 Dec 14
LSL Property Services
FTSE 250 [excluding investment trusts] Index
FTSE SmallCap [excluding investment trusts] Index
Chief Executive Offi cer’s Total Remuneration
The total remuneration fi gures for the role of Group Chief Executive Offi cer during each of the last six fi nancial years are shown in the
table below. The total remuneration fi gure includes the annual bonus based on that year’s performance and share awards (excluding any
SAYE/BAYE (SIP) awards in the interests of simplicity) based on three year performance periods ending in/just after the relevant year.
The annual bonus payout and share vesting level as a percentage of the maximum opportunity are also shown for each of these years.
Year ending in
Simon Embley (to 9th September 2013)
Ian Crabb (from 9th September 2013)
2009
2010
2011
2012
2013
2013
2014
£373,754
£517,716
£308,747
£525,018
£500,8621
£119,522
£571,500
100%
N/A
97.5%
N/A
9.6%
N/A
60%
55%
91.7%
0%
N/A
N/A
54%
N/A
Total
remuneration
Annual bonus
LTI vesting
1 The salary disclosed is Simon Embley’s total remuneration for the year ended 31st December 2013 but he ceased being Group Chief
Executive Offi cer and became Deputy Chairman on 9th September 2013.
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Directors’ Report and Corporate Governance Reports
LSL Property Services plc
LSL Property Services plc
Annual Report and Accounts 2014
Annual Report and Accounts 2014
78
Directors’ Remuneration Report continued.
Percentage Change in Group Chief Executive Officer’s Remuneration
The table below shows the percentage change in the Group Chief Executive Officer’s salary, benefits and annual bonus between the
financial year ending 31st December 2013 and 2014, compared to that of the total remuneration for all employees of the Group for each of
these elements of pay.
Salary change
Benefits change
Bonus change (%)
Group Chief Executive Officer
All employees1
Average number of employees2
+8%
+2%
5,137
Nil
Nil
(17.5)
(52)
Notes on Percentage Change in Group Chief Executive Officer’s Remuneration:
1 Refers to staff outside the commission structure.
2 Refers to a subset of employees outside the commission structure.
Relative Importance of Spend on Pay
The following table shows LSL’s actual spend on pay (for all employees) relative to dividends.
2014 (£m)
2013 (£m)
Change (%)
Staff cost1
Dividends (excluding the special
dividend)
Profit after tax
Adjusted Profit after tax (see Note
10 to the Financial Statements)
167.6
12.3
25.2
31.2
1 See Note 12 of the Financial Statements for calculation of staff costs.
150.2
10.8
14.0
26.1
10.4
13.6
44.2
16.3
Statement of shareholder voting
The Directors’ Remuneration Report for the financial year ending 31st December 2013 and the forward-looking Directors’ Remuneration
Policy were put to Shareholders at the AGM held on 24th April 2014. The voting outcomes were as follows:
Directors’ Remuneration Report
Directors’ Remuneration Policy
Votes cast in favour
Votes cast against
Total votes cast
Abstentions
81,281,392
3,992,496
85,273,888
2,000
95.40%
84,325,873
4.60%
100%
–
878,015
85,203,888
2,000
98.97%
1.03%
100%
–
•••LSL AR 2014•••.indd 80
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Directors’ Report and Corporate Governance Reports
LSL Property Services plc
Annual Report and Accounts 2014
79
Remuneration Committee
Role and membership
Details of the Remuneration Committee’s composition and responsibilities are set out in the Corporate Governance Report at page 53 of
this Report. During 2014 the Remuneration Committee was chaired by Bill Shannon and its other members were Adrian Gill, Mark Morris,
Roger Matthews, Mark Pain and Helen Buck. Adrian Gill ceased to be a member on 24th November 2014 and was replaced by Helen
Buck. Mark Pain retired from the Committee on 7th January 2014 and Roger Matthews retired from the Committee on 31st December 2014.
The terms of reference of the Committee are available from the Company Secretary or LSL’s website at: www.lslps.co.uk.
Committee’s advisers
The Remuneration Committee took independent advice from New Bridge Street (NBS) on matters relating to senior executive
remuneration. NBS was appointed by the Remuneration Committee with regard to the disclosures required in the annual report. NBS
provided no other advice to LSL during the year and their fee for 2014 was £13,716. NBS are considered to be independent and objective.
The Directors’ Remuneration Report is approved by and signed on behalf of the Board of Directors
Bill Shannon
Chairman of the Remuneration Committee
12th March 2015
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Financial Statements
LSL Property Services plc
Annual Report and Accounts 2014
80
Financial Statements
In this section
81
Independent Auditors’ Report to the
Members of LSL Property Services plc
86 Group Income Statement
87 Group Statement of Comprehensive Income
88 Group Balance Sheet
89 Group Statement of Cash Flows
91 Group Statement of Changes in Equity
92
137 Statement of Directors’ Responsibilities in
Relation to the Parent Company Financial
Statements
Notes to the Group Financial Statements
138 Parent Company Balance Sheet
139 Notes to the Parent Company Financial
Statements
Reeds Rains Catford
•••LSL AR 2014•••.indd 82
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Independent Auditor's Report
for the year ended 31st December 2014
81
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LSL PROPERTY SERVICES PLC
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31st December
2014 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
What we have audited
We have audited the financial statements of LSL Property Services plc for the year ended 31st December 2014 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, the related Notes to the Group Financial Statements 1 to 34, the Parent Company Balance
Sheet and the related notes to the Company Financial Statements 1 to 14. The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the
European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements 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 auditor
As explained more fully in the Directors’ Responsibilities Statements set out on page 43 and on page 137, the Directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the Group’s and 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. In addition, we read all the financial and non-financial information in the Annual Report and
Accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware
of any apparent material misstatements or inconsistencies we consider the implications for our report.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014 Strategic Report OverviewDirectors’ Report and Corporate Governance Reports
Independent Auditor's Report continued.
for the year ended 31st December 2014
82
Our assessment of risk of material misstatement and response to that risk
The table below shows the risks we identified that have had the greatest effect on the overall audit strategy; the allocation of resources in
the audit; and directing the efforts of the engagement team together with our audit response to the risk:
Risk
Recognition and measurement of professional indemnity
(“PI”) liabilities for inaccurate valuations
Response
This is an area of significant judgement and estimation. In
particular the Group has historically experienced a high level
of claims relating to the 2004 to 2008 period, and valuations
work undertaken during this period continues to result in claims
being made against the Group. There is a risk that the provision
for these claims is significantly different as a result of variations
from key assumptions, in particular the incidence of claims, the
propensity for claims to result in financial loss and the resultant
loss per claim.
During the year, the Group has recognised an additional £26.1m
charge for provision for PI claims/notifications (of which £24.6m,
which relates to the high risk 2004 to 2008 period is reported as
an exceptional charge)
Refer also to page 55 (Audit Committee Report), page 92
(Accounting policies – Judgments and Estimates), page
104 (Note 7 – Exceptional Items) and page 123 (Note 22 –
Provisions for liabilities).
Revenue recognition
The Group offers a number of different services and products
and operates in multiple locations throughout the UK. There is
therefore a risk that revenue is not appropriately recognised.
In addition the Group earns commissions acting as an agent
for the sale of financial services policies. If these policies are
subsequently cancelled by the customer then an element of the
commission earned has to be repaid. The Group is required to
make an estimate based on historical experience of the amount
of commission earned that it expects to be repaid as a result of
the lapse of policies that have been sold, which is recognised as
a reduction in revenue.
We understood and performed procedures to understand key
processes used to determine the PI provision; including an
understanding of the assistance management had received from
PI lawyers and the nature of review work undertaken by Group
internal audit.
We picked a sample of cases and agreed the information in
management’s claims database to source documentation
including letters of claim, external legal correspondence and
bordereaux submissions received from the law firms dealing with
the claims. This work also included reperforming a sample of
the procedures undertaken by Group internal audit to verify the
integrity of the claims database.
We held discussions with the Group’s PI lawyers to understand
the work that they had undertaken to assist management in
determining the best estimate of each individual claim liability
based on the likelihood of a claim succeeding, their assessment
of the amount claimed, the actual loss incurred and the likely
claimants costs. These discussions included consideration of
specific cases and groups of cases that were selected for testing
and was supplemented by review of legal documentation for
certain claims.
We reviewed the current run rate of new claims being received
based on those received in the period prior to the year end,
which together with our understanding of the average cost
of settling closed claims allowed us to assess management’s
assumptions about the level of provision that was required for
incurred but not reported cases (IBNR).
We also agreed a sample of claim settlements in the year to bank
statements and to legal invoices and claims settlements.
We assessed the accuracy of amounts provided by reference to
post year end settlements where applicable.
We assessed the appropriateness of the key sensitivities
disclosed within Note 22 and verified the quantum of the
disclosed financial consequence.
We understood and performed procedures to understand key
processes used to record revenue transactions.
At certain locations we identified and performed testing over key
revenue controls.
We performed substantive analytical review of revenue,
comparing amounts recognised with our expectations.
We examined material journal entries that were posted to
revenue accounts.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014 83
We performed detailed cut off testing of revenue transactions
either side of the Balance Sheet date.
For the estimate of repayable commissions we obtained
management’s workings and checked the underlying calculations
for arithmetical accuracy. Inherent in these workings was a
historical lapse rate, which we tested the integrity of by selecting
a sample of policies that had lapsed and vouching them to
claims from the lender and bank statements. We then ensured
that each item in our sample had been correctly included in the
historical lapse rate calculation.
Accounting for acquisitions
The Group is acquisitive in nature, and acquisitions frequently
include earn-out arrangements in respect of key employees.
For acquisitions in the period we obtained and understood sales
and purchase agreements.
There is a risk that the accounting for acquisitions, including
the allocation of the purchase price, the recognition of
intangible assets and goodwill and the treatment of contingent
consideration and earn-out arrangements is not performed in
accordance with IFRS 3.
During the year the Group made a number of acquisitions,
including the acquisition of Hawes & Co and a number of
smaller lettings businesses.
At 31st December 2014, the Group holds £13.7m as contingent
consideration on the balance sheet.
Refer also to page 104 (Note 7 – Exceptional items and
contingent consideration), page 121 (Note 21 – Financial
Liabilities) and page 125 (Note 27 – Acquisitions during the
year).
Client monies
We ensured the appropriateness of the allocation of the purchase
price and the recognition of intangible assets.
We also challenged the accounting treatment of contingent
consideration, including that related to employment, to
ensure that it was appropriate. We validated the contingent
consideration calculations performed by management with
reference to sale and purchase agreements, actual and forecast
financial results.
For acquisitions that arose in prior periods we tested the
subsequent measurement of contingent consideration liabilities
with reference to sale and purchase agreements, actual and
forecast financial results.
At 31st December 2014, the Group held cash balances on
behalf of Estate Agency clients of £82.6m. These amounts do
not belong to the Group and are held on behalf of clients. There
is a risk of loss or misappropriation of monies held which, if it
arose, would result in a financial cost to the Group.
We performed testing on client account reconciliations and
followed up any material reconciling items. This included
vouching the amounts held on behalf of clients to underlying
lettings records and obtaining bank confirmations in order to
confirm the amounts being held.
Refer also to page 129 (Note 28 – Client monies)
We performed cash book reviews of the trading bank accounts,
with a particular focus on the appropriateness and cut off of
transfers to and from client accounts.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014 Strategic Report OverviewDirectors’ Report and Corporate Governance Reports
Independent Auditor's Report continued.
for the year ended 31st December 2014
84
Our application of materiality
We determined materiality for the Group to be £0.5 million (2013 – £0.8 million), which is approximately 5% (2013 – 5%) of adjusted pre-tax
profit. We used pre-tax profits adjusted for the non-recurring gain on the disposal of Zoopla shares (disclosed as exceptional in the financial
statements), as we determined this to be the most relevant measure of profitability. This provided a basis for determining the nature, timing
and extent of risk assessment procedures, identifying and assessing the risk of material misstatement and determining the nature, timing
and extent of further audit procedures.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that
overall performance materiality (i.e. our tolerance for misstatement in an individual account or balance) for the Group should be 50% (2013
– 75%) of planning materiality, namely £0.3 million (2013 – £0.6 million). Our objective in adopting this approach was to ensure that total
uncorrected and undetected audit differences in all accounts did not exceed our materiality level.
Audit work at individual components is undertaken based on a percentage of our total performance materiality. The performance materiality
set for each component is based on the relative size of the component and our view of the risk of misstatement at that component. In the
current year the range of performance materiality allocated to components was £0.1 million to £0.2 million.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.03 million (2013 – £0.04
million), as well as differences below that threshold that, in our view warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in the light of other
relevant qualitative considerations.
An overview of the scope of our audit
Following our assessment of the risk of material misstatement to the Group financial statements, we selected 11 components which
represent the principal business units within the Group’s two reportable segments and account for 98% of the Group’s total revenue, 97%
of the Group’s profit before tax and 92% of the Group’s profit before tax adjusted for the Zoopla gain. 6 of these were subject to a full audit,
whilst at the remaining 5 specific audit procedures were performed including full audit of the accounts that were impacted by our assessed
risks of material misstatement and the materiality of the Group’s business operations at those locations. They were also selected to provide
an appropriate basis for undertaking audit work to address the risks of material misstatement identified above.
The audit work at the 11 locations where full or specific audit procedures were performed was executed at levels of materiality applicable to
each individual entity which were lower than Group materiality and which reflected the risk and relative size of each location.
In addition to performing full audit or specific audit procedures at 11 components, we also performed review procedures at the remaining
6 components to confirm there were no significant risks of material misstatement in the Group financial statements. These account for a
further 2% of the Group’s total revenue, 3% of the Group’s profit before tax and 8% of the Group’s profit before tax adjusted for the Zoopla
gain.
All of the locations subject to audit are based in the United Kingdom and are the responsibility of the Group audit team.
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 Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements;
• the information given in the Corporate Governance Statement(s) set out on pages 49 to 54 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.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014 85
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
— materially inconsistent with the information in the audited financial statements; or
— apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of
performing our audit; or
— is otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit
and the directors’ statement that they consider the Annual Report and Accounts is fair, balanced and understandable and whether the
Annual Report and Accounts appropriately discloses those matters that we communicated to the Audit Committee which we consider
should have been disclosed.
Under the Companies Act 2006 we are required 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; or
• a Corporate Governance Report has not been prepared by the Company.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 46, in relation to going concern; and
• the part of the Corporate Governance Report relating to the Company’s compliance with the nine provisions of the UK Corporate
Governance Code specified for our review.
Signature
Alistair Denton
For and on behalf of Ernst & Young LLP, (Senior statutory auditor)
Leeds
12th March 2015
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014 Strategic Report OverviewDirectors’ Report and Corporate Governance Reports
Group Income Statement
for the year ended 31st December 2014
Revenue
Operating expenses:
Employee and subcontractor costs
Establishment costs
Depreciation on property, plant and equipment
Other
Other operating income
Gain on sale of property, plant and equipment
86
Note
3
12
15
3
2014
£’000
2013
£’000
287,498
258,603
(167,581)
(18,852)
(4,918)
(57,938)
(249,289)
(150,158)
(19,386)
(3,977)
(52,125)
(225,646)
2,404
13
2,376
38
Group’s share of profit after tax in joint ventures
17
1,383
1,731
Group operating profit before contingent consideration, exceptional items,
amortisation and share-based payments
42,009
37,102
Share-based payments
Amortisation of intangible assets
Exceptional gains
Exceptional cost
Contingent consideration
Group operating profit
Finance income
Finance costs
Exceptional finance credits
Net financial costs
Profit before tax
Taxation
– related to exceptional items and contingent consideration
– 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
12
14
7
7
7
4
5
6
7
8
13
10
10
10
10
(1,775)
(565)
19,841
(26,035)
405
33,880
14
(2,181)
230
(1,937)
(1,323)
(375)
134
(13,124)
(2,793)
19,621
7
(3,154)
606
(2,541)
31,943
17,080
1,146
(7,931)
(6,785)
2,879
(5,945)
(3,066)
25,158
14,014
25,103
55
14,001
13
24.5
24.3
30.5
30.2
13.6
13.5
25.3
25.2
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Group Statement of Comprehensive Income
for the year ended 31st December 2014
87
Profit for the year
Items to be reclassified to profit and loss in subsequent periods:
Reclassification adjustments for disposal of financial assets
Income tax effect
Revaluation of financial assets
Income tax effect
Net other comprehensive income to be reclassified to profit and loss in
subsequent periods:
Total 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
16
13
16
13
2014
£’000
25,158
(20,568)
4,114
6,903
(1,381)
2013
£’000
14,014
–
–
23,806
(4,380)
(10,932)
19,426
(10,932)
14,226
14,171
55
19,426
33,440
33,427
13
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014 Strategic Report OverviewDirectors’ Report and Corporate Governance Reports
Group Balance Sheet
for the year ended 31st December 2014
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Financial assets
Investments in joint ventures
Total non-current assets
Current assets
Trade and other receivables
Current tax receivables
Cash and cash equivalents
Total current assets
Non-current assets held for sale
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
Total Liabilities
Net assets
Equity
Share capital
Share premium account
Share-based payment reserve
Treasury shares
Fair value reserve
Retained earnings
Equity attributable to owners of parent
Non-controlling interests
Total equity
The Financial Statements were approved by and signed on behalf of the Board by:
Ian Crabb
Group Chief Executive Officer
12th March 2015
88
Company No. 05114014
2014
£’000
2013
£’000
131,560
20,110
20,272
23,033
9,121
204,096
36,165
–
–
36,165
–
240,261
(4,659)
(50,336)
(373)
(16,539)
(71,907)
125,642
19,080
16,230
36,574
3,239
200,765
35,340
771
469
36,580
276
237,621
(5,113)
(54,090)
–
(8,458)
(67,661)
(56,420)
(6,462)
(22,372)
(85,254)
(157,161)
(43,749)
(9,014)
(17,881)
(70,644)
(138,305)
83,100
99,316
208
5,629
3,498
(7,922)
16,715
64,835
82,963
137
83,100
208
5,629
2,475
(4,292)
27,647
67,567
99,234
82
99,316
Note
14
14
15
16
17
18
19
15
21
20
22
21
13
22
24
25
25
25
25
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Group Statement of Cash Flows
for the year ended 31st December 2014
89
Cash generated from operating activities
Profit before tax
Adjustments to reconcile profit before tax to net cash
from operating activities
Exceptional operating items and
contingent consideration (non-cash)
Amortisation of intangible assets
Finance income
Finance costs
Exceptional finance (credit)
Share-based payments
Total adjustments
Group operating profit before amortisation and share-
based payments
Depreciation
Dividend income
Share of results of joint ventures
Gain on sale of property, plant and equipment
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Decrease in provisions
Cash generated from operations
Interest paid
Payment of contingent consideration relating to remuneration
Loan refinance costs paid
Tax paid
Net cash generated from operating activities
31st December 2014
31st December 2013
Note
£’000
£’000
£’000
£’000
31,943
17,080
7
14
5
6
7
12
15
8
4,324
565
(14)
2,181
(230)
1,775
4,918
(1,579)
(1,383)
(48)
(449)
(4,263)
(12,075)
(1,764)
(1,426)
–
(1,339)
15,491
375
(7)
3,580
(606)
1,323
3,977
(1,141)
(1,731)
(172)
(4,656)
4,881
(11,544)
(2,142)
–
(1,128)
(2,537)
8,601
40,544
1,908
(16,787)
25,665
(4,529)
21,136
20,156
37,236
933
(11,319)
26,850
(5,807)
21,043
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014 Strategic Report OverviewDirectors’ Report and Corporate Governance Reports
Group Statement of Cash Flows continued.
for the year ended 31st December 2014
90
Cash flows from investment activities
Cash acquired on purchase of subsidiary
undertaking
Acquisitions of subsidiaries and other businesses
Payment of contingent consideration
Investment in joint venture
Investment in financial assets
Cash received on sale of financial assets
Tax on Sale of Zoopla
Dividends received from joint venture
Dividends received from financial assets
Interest received
Purchase of property, plant and equipment and
intangible assets
Proceeds from sale of property, plant and
equipment
Net cash generated/(expended) on investing
activities
Cash flows from financing activities
Drawdown of loans
Payment of deferred consideration
Purchase of LSL shares by the employee benefit
trust (EBT) (Treasury Shares)
Proceeds from exercise of share options
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the
year
Cash and cash equivalents at the end of the year
31st December 2014
31st December 2013
Note
£’000
£’000
£’000
£’000
27
27
17
16
5
250
(4,963)
–
(2,422)
(1,155)
20,838
(4,015)
1,302
1,579
14
14,15
(9,244)
15
195
24
(3,515)
(520)
–
(847)
–
805
1,141
7
(7,859)
1,475
2,379
(9,289)
8,233
–
(5,621)
1,690
(28,286)
510
(494)
(2,625)
1,084
(9,985)
(23,984)
(11,510)
(469)
469
–
244
225
469
11
19
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Group Statement of Changes in Equity
for the year ended 31st December 2014
91
Year ended 31st December 2014
Share capital
£’000
At 1st January 2014
Disposal of financial assets
(net of tax)
Revaluation of financial assets
(net of tax)
Other comprehensive
income for the year
Profit for the year
Total comprehensive
income for the year
Investment in Treasury Shares
Exercise of options
Share-based payments
Tax on share based payments
Dividend payment
At 31st December 2014
208
–
–
–
–
–
–
–
–
–
–
208
Share
premium
account
£’000
5,629
Share-based
payment
reserve
£’000
Treasury
shares
£’000
Fair value
Reserve
£’000
Retained
earnings
£’000
Total equity
£’000
Non-
controlling
interests
£’000
Total
£’000
2,475
(4,292)
27,647
67,567
99,234
82
99,316
–
–
–
–
–
–
–
–
–
–
5,629
–
–
–
–
–
–
–
–
(16,454)
5,522
–
–
(16,454)
5,522
–
–
(16,454)
5,522
(10,932)
–
–
25,103
(10,932)
25,103
–
55
(10,932)
25,158
–
–
(752)
1,775
–
–
3,498
–
(5,621)
1,991
–
–
–
(7,922)
(10,932)
–
–
–
–
–
16,715
25,103
–
451
–
–
(28,286)
64,835
14,171
(5,621)
1,690
1,775
–
(28,286)
82,963
55
–
–
–
–
–
137
14,226
(5,621)
1,690
1,775
–
(28,286)
83,100
During the year ended 31st December 2014, the Trust acquired 1,485,000 LSL Shares for £5,621,000. In addition, during the period
669,077 share options were exercised relating to LSL’s various share option schemes resulting in the Shares being sold by the Trust.
LSL received £1,690,000 on exercise of these options.
Year ended 31st December 2013
Share capital
£’000
208
Share
premium
account
£’000
5,629
Share-based
payment
reserve
£’000
1,526
Treasury
shares
£’000
(2,691)
Fair value
Reserve
£’000
Retained
earnings
£’000
Total equity
£’000
Non-
controlling
interests
£’000
Total
£’000
8,221
63,117
76,010
69
76,079
At 1st January 2013
Revaluation of financial assets
(net of tax)
Other comprehensive
income for the year
Profit for the year
Total comprehensive
income for the year
Investment in Treasury Shares
Exercise of options
Share-based payments
Dividend payment
At 31st December 2013
–
–
–
–
–
–
–
–
208
–
–
–
–
–
–
–
–
5,629
19,426
–
19,426
–
19,426
–
–
–
–
–
–
19,426
–
–
14,001
19,426
14,001
–
–
(374)
1,323
–
2,475
–
(2,625)
1,024
–
–
(4,292)
19,426
–
–
–
–
27,647
14,001
–
434
–
(9,985)
67,567
33,427
(2,625)
1,084
1,323
(9,985)
99,234
–
13
13
–
–
–
–
82
19,426
14,014
33,440
(2,625)
1,084
1,323
(9,985)
99,316
During the year ended 31st December 2013, the Trust acquired 640,485 LSL Shares for £2,625,000. In addition, during the period 442,625
share options were exercised relating to LSL’s various share option schemes resulting in the Shares being sold by the Trust.
LSL received £1,084,000 on exercise of these options.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014 Strategic Report OverviewDirectors’ Report and Corporate Governance Reports
Notes to the Group Financial Statements
for the year ended 31st December 2014
92
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 2014 were authorised for issue by the Board
of the Directors on 12th March 2015 and the balance sheet was signed on the Board’s behalf by Ian Crabb. LSL is a listed company, in
London, incorporated and domiciled in England and 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 financial assets 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 2014. 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
During the year ended 31st December 2014, the Group has adopted a number of new IFRS, IAS or amendments issued by the IASB or
interpretations issued by the IFRS Interpretations Committee which have had a significant impact on the Group’s consolidated financial
statements. These are as follows:
IFRS 10 Consolidated Financial Statements
IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included
within the consolidated financial statements of the parent company. The standard provides additional guidance in circumstances where
control is difficult to assess. The standard has had no impact on the Group’s financial position or performance.
IFRS 11 Joint Arranagements
IFRS 11 focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint
arrangement; joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for
the liabilities of the arrangement and is accounted for by the investor recognising its share of the assets and liabilities. A joint venture arises
where the investor has a right to a share of the assets of the arrangement and is accounted for under the equity method. Proportional
consolidation is no longer allowed. The standard has had no impact on the Group’s financial position or performance.
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 includes the disclosure for all interests in other entities including joint arrangements, associates, structured entities and other off
balance sheet vehicles. The standard has had no impact on the Group’s financial position or performance.
The issuance of IFRS 10,11 and 12 has resulted in the revision of IAS 27 Separate Financial Statements and IAS 28 Investments in
Associates and Joint Ventures. Again the adoption of these standards has had no impact on the Group’s financial position or performance.
IFRIC 21 Levies
IFRIC 21 sets out the accounting for an obligation to pay a levy that is not income tax. The Group is not subject to significant levies and so
adoption of this standard has had no impact on the Group’s financial position or performance.
Amendments to IAS 32 Offsetting Financial Assets and Liabilities
The revised standard sets out under what circumstances financial assets and liabilities can be offset and disclosed on a net basis. Again the
adoption of these standards has had no impact on the Group’s financial position or performance.
Judgements and estimates
The preparation of financial information in conformity with IFRS as adopted by European Union requires management to make judgements,
estimates and assumptions that affect the application of policies and reporting amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014 93
2. Accounting policies (continued)
The estimates and underlying assumptions are reviewed on an on going 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:
Professional indemnity claims
Significant judgement is required when provisioning for professional indemnity claims. Details of key assumptions in these areas are
disclosed in Notes 7 and 22 to these Financial Statements. A sensitivity calculation which illustrates the impact of different assumptions on
the required PI provision is included in Note 22.
Valuations in acquisitions
The measurement of intangible assets other than goodwill on a business combination involves the estimation of future cashflows 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
cashflows 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.
Contingent consideration
The Group has acquired a number of businesses over the last few years. With regard to a number of these businesses, the Group has
a put and call option to buy, or require to buy, the remaining interest in these businesses at some point in the future. In accordance with
the accounting standards, estimates have been made with regard to the future profitability of these acquisitions and a provision for the
cost of acquiring these interests has been recognised. The provisions are disclosed in Note 21 to these Financial Statements. A sensitivity
calculation which shows the impact of changes in assumption is shown in Note 29.
Valuation of financial assets
The Group owns minority interests in a number of listed and unlisted entities. In accordance with the accounting standards, these
investments are held at fair value and significant judgment is required in assessing this. Further details of the methodology used are
disclosed in Note 16 to these Financial Statements. A sensitivity calculation which shows the impact of changes in assumption is shown in
Note 29.
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 is achieved when the Group is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls
an investee if, and only if, the Group has:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
• Exposure, or rights, to variable returns from its involvement with the investee
• The ability to use its power over the investee to affect its returns.
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.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
94
2. Accounting policies (continued)
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction.
Non-controlling interests:
Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Parent Company; and is presented
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 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 interests represent the portion of profit or loss and net assets in subsidiaries that is not held by the group and is presented
separately within equity in the consolidated balance sheet, separately from parent shareholder’s equity.
Acquisitions of non-controlling interests, prior to 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 2010 were not
reallocated between non-controlling interest and the parent shareholders. The carrying value of such non-controlling interests at 2010 has
not been restated. The purchase method of accounting was used for all acquisitions of subsidiaries. All intra-Group transactions, balances,
income and expenses were eliminated on consolidation.
Interest in Joint Ventures
The Group’s investments in its joint ventures are accounted for using the equity method. Under the equity method, the investment in a
joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share
of net assets of the joint venture since the acquisition date. Goodwill relating to the joint venture is included in the carrying amount of the
investment and is not tested for impairment individually.
The statement of profit or loss reflects the Group’s share of the results of operations of the joint venture. In addition, when there has
been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in
the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture are
eliminated to the extent of the interest in the joint venture.
The aggregate of the Group’s share of profit or loss of a joint venture is shown on the face of the statement of profit or loss outside
operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the joint venture. The financial
statements of the joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring
the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its
joint ventures. At each reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is
impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the
joint venture and its carrying value, and then recognises the loss as ‘Share of profit of a joint venture’ in the statement of profit or loss.
Upon loss of significant influence over the joint control over the joint venture, the Group measures and recognises any retained investment
at its fair value. Any difference between the carrying amount of the joint venture upon loss of significant influence or joint control and the fair
value of the retained investment and proceeds from disposal is recognised in profit or loss.
Intangible assets
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.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014 95
2. Accounting policies (continued)
Intangible assets (continued)
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 contingent consideration is linked to a service condition
then expected payments are recognized as remuneration in the profit or loss over the earn-out period.
Where a put and call option is transacted over a non-controlling interest independently of a business combination, the present value of the
exercise price of the put and call option is recorded as a liability with a debit to equity. Subsequent movements in the assessment of the
exercise price are taken to profit and loss. If the put option lapses, the liability is derecognised with a corresponding adjustment to equity.
Goodwill is initially measured at cost being the excess of the aggregate of the acquisition-date fair value of the consideration transferred
and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-
date fair value of the acquirer’s previously held equity interest in the acquiree) over the net identifiable amounts of the assets acquired and
the liabilities assumed in exchange for the business combination. Assets acquired and liabilities assumed in transactions separate to the
business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements are accounted
for separately from the business combination in accordance with their nature and applicable IFRSs. Identifiable intangible assets, meeting
either the contractual-legal or separability criteria 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 2010
Business combinations are 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 31stDecember 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 is recognised if, and only if, the Group had a present obligation, the economic outflow is more likely than not and
a reliable estimate is 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 of changes in circumstances indicate that the carrying value maybe 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 represents the lowest level within the entity at which the
goodwill is monitored for internal management purposes and is not 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.
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.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
96
2. Accounting policies (continued)
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
Lettings contracts
Order book:
Estate Agency pipeline
Surveying pipeline
Estate Agency register
Others:
Franchise agreements
In-house software
– three to ten years
– between three and five years
– up to 36 months
– six months
– one week
– twelve months
– ten years
– between three and five years
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The amortisation period and the amortisation method are reviewed at least at each financial
year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is
accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.
Brand names are not amortised as the Directors are of the opinion that they each 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 each of the assets are 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 brands, 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 nor 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.
Impairment
Intangible assets with indefinite useful lives are not amortised but tested for impairment annually either individually or at the cash generating
unit level. The useful life of such intangible assets 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.
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists,
or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s
recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use, and is determined
for an individual asset unless the asset does not generate cash inflows that are largely independent of those from other assets or Groups
of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down
to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses
of continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired
asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously
recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the assets’ or
cash generating unit’s recoverable amount.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
97
2. Accounting policies (continued)
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 fifty 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 asset’s 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 AGM.
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. The Management Team 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.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
98
2. Accounting policies (continued)
Share-based payment transactions
Equity-settled transactions
The equity share option programmes allow Group employees to acquire LSL Shares. The fair value of the options granted is recognised
as an employee expense with a corresponding increase in equity in the 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).
Treasury shares
The Group has an employee share trust (ESOT) and an employee benefit trust (Trust) for the granting of LSL Shares to Executive
Directors and selected senior employees. Shares in LSL held by the ESOT and 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 ESOT and the Trusts are
charged to the income statement. Dividends earned on shares held in the ESOT and 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.
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.
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.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014 99
2. Accounting policies (continued)
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 in other comprehensive income and as a separate component of equity until the investment
is de-recognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity
is included in the income statement. Where a reliable indicator of fair value cannot be obtained the assets are valued at cost.
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.
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.
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.
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 re-measured 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. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.
Assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value
cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.
Assets carried at amortised cost
In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or
significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the
invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are de-recognised when
they are assessed as uncollectable.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
100
2. Accounting policies (continued)
Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably
measured. Revenue is measured at the fair value of the consideration receivable, net of 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.
Revenue from lettings, asset management and conveyancing fees is recognised on completion of the service being provided.
Financial services income
Revenue from mortgage procuration fees is recognised by reference to the completion date of the mortgage on the housing transaction.
Revenue from policy sales is recognised by reference to the date that the policy is accepted by the insurer.
Interest income
Revenue is recognised as interest accrues (using the effective interest method - that is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial instrument to the net carrying amount of the financial asset).
Rental income
Rental income including the effect of lease incentives from sub-let properties is recognised on a straight line basis over the lease term.
Dividends
Revenue is recognised when the Group’s right to receive the payment is established.
Exceptional items
The Group presents as exceptional items on the face of the income statement those material items of income and expense which, because
of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand
better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in
financial performance.
New standards and interpretations not applied
The 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 2014 and have not been early adopted:
International Accounting Standards (IAS/
IFRSs)
IFRS 9
IFRS 15
Amendment to IAS 1
Financial Instruments: Classification and Measurement
Revenue from Contracts with Customers
Presentation of Financial Statements
Effective date
1st January 2018
1st January 2017
1st January 2016
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.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
101
3. Revenue
The revenue and pre-tax income is attributable to the continuing activity of estate agency and related activities and the provision of
surveying and valuation services on residential property. All revenue arises in the United Kingdom.
Revenue is analysed as follows:
Revenue from services
Operating Revenue
Rental Income
Dividend Income
Other operating income
Finance income
Total revenue
2014
£’000
287,498
287,498
825
1,579
2,404
14
289,916
2013
£’000
258,603
258,603
1,235
1,141
2,376
7
260,986
Dividend income was received in the year from the Group’s investments in Zoopla, VEM and GPEA Limited. Further details of LSL’s
investments are shown in Note 16.
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 residential properties. It operates a
network of high street branches. As part of this process, the Estate Agency Division also provides marketing and arranges conveyancing
services. In addition, it provides repossession asset management services to a range of lenders. It also arranges mortgages for a
number of lenders and arranges pure protection and general insurance policies for a panel of insurance companies via the estate agency
branches, Pink Homes Loans, First Complete, Embrace Mortgage Services, First2Protect and Linear Financial Services. The financial
services segment included within the Estate Agency division includes two mortgage and insurance distribution networks providing
products and services for sale via financial intermediaries. The results of this financial services segment, does not meet the quantitative
criteria for separate reporting under IFRS and has therefore been aggregated with those of Estate Agency and Related Services.
• The Surveying and Valuation Services segment provides a valuations and professional survey service of residential properties to various
lenders and individual customers.
Each segment has various products and services and the revenue from these products and services are disclosed on pages 16 to 17
under the Business Review section of the Strategic Report.
The Management Team 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 2014 and financial year ended 31st December 2013 respectively:
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
102
4. Segment analysis of revenue and operating profit (continued)
Year ended 31st December 2014
Income statement information
Segmental revenue
Segmental result:
– before exceptional costs, contingent consideration, amortisation and
share-based payments
– after exceptional costs, contingent consideration, amortisation and
share-based payments
Finance income
Finance costs
Exceptional finance credits
Profit before tax
Taxation
Profit for the year
Balance sheet information
Segment assets – intangible
Segment assets – other
Total Segment assets
Total Segment liabilities
Net assets/(liabilities)
Other segment items
Capital expenditure including intangible assets
Depreciation
Amortisation of intangible assets
Share of results of joint venture
Professional indemnity claim provision
Onerous leases provision
Share based payment
Estate
Agency and
Related
Services
£’000
Surveying
and Valuation
Services
£’000
Unallocated
£’000
Total
£’000
225,274
62,224
–
287,498
33,892
13,331
(5,214)
42,009
52,310
(12,611)
(5,819)
33,880
14
(2,181)
230
31,943
(6,785)
25,158
Estate
Agency and
Related
activities
£’000
140,786
77,317
218,103
(47,507)
170,596
(9,063)
(4,425)
(559)
1,383
–
217
(683)
Surveying
and Valuation
Services
£’000
Unallocated
£’000
Total
£’000
10,884
10,319
21,203
(52,711)
(31,508)
(181)
(493)
(6)
–
(26,126)
–
(653)
–
955
955
(56,943)
(55,988)
–
–
–
–
–
–
(439)
151,670
88,591
240,261
(157,161)
83,100
(9,244)
(4,918)
(565)
1,383
(26,126)
217
(1,775)
Unallocated net liabilities comprise certain property, plant and equipment (£31,000), other assets (£924,000), accruals (£2,329,000),
financial liabilities (£13,060,000), deferred and current tax liabilities (£6,836,000), overdraft of (£718,000), Revolving Credit Facility
(£34,000,000).
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
103
4. Segment analysis of revenue and operating profit (continued)
Year ended 31st December 2013
Income statement information
Segmental revenue
Segmental result:
– before exceptional costs, contingent consideration, amortisation and
share-based payments
– after exceptional costs, contingent consideration, amortisation and
share-based payments
Finance income
Finance costs
Exceptional finance credits
Profit before tax
Taxation
Profit for the year
Balance sheet information
Segment assets – intangible
Segment assets – other
Total Segment assets
Total Segment liabilities
Net assets/(liabilities)
Other segment items
Capital expenditure including intangible assets
Depreciation
Amortisation of intangible assets
Share of results of joint venture
Professional indemnity claim provision
Onerous leases provision
Share based payment
Estate
Agency and
Related
Services
£’000
Surveying
and Valuation
Services
£’000
Unallocated
£’000
Total
£’000
198,170
60,433
–
258,603
29,116
13,096
(5,110)
37,102
25,966
204
(6,123)
20,047
7
(3,580)
606
17,080
(3,066)
14,014
Estate
Agency and
Related
activities
£’000
133,840
79,907
213,747
(61,209)
152,538
7,029
(3,531)
(375)
1,731
–
56
(545)
Surveying
and Valuation
Services
£’000
Unallocated
£’000
Total
£’000
10,882
10,640
21,522
(39,444)
(17,922)
824
(429)
–
–
(16,146)
–
(227)
–
2,352
2,352
(37,652)
(35,300)
6
(17)
–
–
–
–
(551)
144,722
92,899
237,621
(138,305)
99,316
7,859
(3,977)
(375)
1,731
(16,146)
56
(1,323)
Unallocated net liabilities comprise certain property, plant and equipment (£28,000), cash and bank balances (£469,000), other assets
(£1,084,000), other taxes and liabilities (£219,000), accruals (£1,642,000) financial liabilities (£26,548,000), deferred and current tax liabilities
(£8,243,000), interest rate swap (£230,000).
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
5. Finance income
Interest receivable on funds invested
6. Finance costs
Interest on revolving credit facility and overdraft
Interest on loan notes
Unwinding of discount on professional indemnity provision
7. Exceptional items and contingent consideration
Exceptional costs:
Branch closure and restructuring costs including redundancy costs
Acquisition related costs
Provision for professional indemnity claims/notifications
Contingent consideration on acquisitions
Exceptional gains:
Gain on disposal of freehold properties
Gain on disposal of financial assets
Exceptional finance credits:
Movement in fair value of interest rate swap
104
2014
£’000
14
2014
£’000
1,764
342
75
2,181
2013
£’000
7
2013
£’000
2,142
329
683
3,154
2014
£’000
2013
£’000
1,092
373
24,570
26,035
(405)
(35)
(19,806)
(19,841)
924
200
12,000
13,124
2,793
(134)
–
(134)
(230)
5,559
(606)
15,177
Contingent consideration
The expense for contingent consideration on the acquisition (in 2011) of Marsh & Parsons amounted to £2,281,000 (2013: £352,000). The
exceptional contingent consideration credit recognised in the year relating to other acquisitions, primarily by LSLi, is £2,686,000 (2013:
expense of £2,441,000). See Notes 21 and 27 for more details.
Provision for professional indemnity (PI) claims/notifications
Since early 2012 the Group has experienced a high level of claims relating to the 2004 to 2008 period, which was a period of relatively high
risk lending characterised by higher house prices, high loan-to-value ratios and considerable levels of buy-to-let and sub-prime lending.
As a result the provision for PI Costs was increased by £17.3m in June 2012, by £12.0m in November 2013 and again by £24.6m in
December 2014.
The PI Costs provision at 31st December 2014 was made up of a ‘Specific Provision’ and ‘Incurred But Not Reported’ (IBNR). The Specific
Provision was based on the Group’s review of notifications or claims that had been made against the Group as at 31st December 2014,
where a loss has been quantified and where activity is current. The main factors considered in quantifying the Specific Provision were the
likelihood that a claim would be successful; an assessment of the likely cost for each claim, including any associated interest legal costs,
and whether any reduction in the claim is considered likely due to contributory negligence of the lender.
The IBNR provision was based on the Directors estimates of the number of notifications and claims which would be received in the future
with regard to work completed before 31st December 2014. The Directors have then applied an average cost per case, based on historical
averages, to estimate the IBNR provision.
A number of risks and uncertainties remain, in particular the actual monthly run rate of new claims and the average cost per case both for
existing open claims and for claims yet to be received. The cost of these factors could differ materially from the Directors’ estimates, which
could result in a further provision being required.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
105
7. Exceptional items and contingent consideration (continued)
At 31st December 2014 the total provision for PI Costs was £38.7m, of which 90% relates to the high risk lending period. The Directors
have considered sensitivity analysis on the key risks and uncertainties discussed which is set out in note 22. The Group has continued to
maintain a provision for estimated PI Costs relating to valuations completed since 2009, and an income statement charge has been made
in these results, which has been considered as an operating expense rather than as an exceptional cost.
Freehold properties
During the period, freehold properties with a book value totalling £30,000 (2013: £1,227,000) were sold for net proceeds of £65,000 (2013:
£1,361,000) resulting in a gain on disposal of £35,000 (2013: £134,000).
Gain on disposal of financial assets
On 18th June 2014, Zoopla underwent an IPO and successfully completed a listing on the London Stock Exchange. The total gain on the
sale of shares during the period was £19.8m, net of associated costs. LSL estimates that it will pay tax of £4.0 on sale of these shares.
Further details on the transaction are disclosed in Note 16.
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
(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
Audit of subsidiaries
Total Audit
Audit related assurance services (interim results review fee)
Other assurance services
Tax compliance services
Tax advisory services
2014
£’000
354
11,440
4,661
(48)
2013
£’000
418
10,767
3,908
(172)
2014
£’000
46
222
268
16
3
59
8
354
2013
£’000
43
290
333
16
3
66
418
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
106
10. Earnings per share (EPS)
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
Weighted average
number of shares
2014
Per share amount
Pence
25,103 102,479,989
925,536
25,103 103,405,525
–
24.5
–
24.3
Profit after tax
£’000
Weighted average
number of shares
14,001 102,955,662
410,999
14,001 103,366,661
–
2013
Per share amount
Pence
13.6
–
13.5
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 contingent consideration, exceptional items, share-based payments and
amortisation (excluding non-controlling interest):
Net finance costs (excluding exceptional items)
Normalised taxation
Adjusted profit after tax1 before exceptional items, share-based payments and amortisation
2014
£’000
2013
£’000
41,954
(2,167)
(8,554)
31,233
37,089
(3,147)
(7,892)
26,050
Adjusted basic and diluted EPS
Adjusted Basic EPS
Effect of dilutive share options
Adjusted Diluted EPS
Adjusted profit
after tax1
£’000
Weighted
average number
of shares
2014
Per share amount
Pence
Adjusted profit
after tax1
£’000
Weighted average
number of shares
2013
Per share amount
Pence
31,233 102,479,989
925,536
31,233 103,405,525
–
30.5
–
30.2
26,050 102,955,662
410,999
26,050 103,366,661
–
25.3
–
25.2
1 This represents adjusted profit after tax attributable to equity holders of the parent. Effective tax rate considered to calculate normalised taxation in 2014 is 21.5% (2013: 23.25%).
Financial Statements LSL Property Services plc Annual Report and Accounts 2014 11. Dividends paid and proposed
Declared and paid during the year:
Equity dividends on ordinary shares:
2012 Final: 6.4p
2013 Interim: 3.3p
2013 Final: 7.2p
2014 Interim: 4.0p
2014 Special dividend: 16.5p
Dividends on Ordinary Shares proposed (not recognised as a liability as at 31st December):
Equity dividends on Ordinary Shares:
Dividend: 8.3p per share (2013: 7.2p)
12. Directors and employees
Remuneration of Directors
Directors’ remuneration (short-term benefits)*
Contributions to money purchase pensions schemes (post-employment benefits)
Share-based payments
107
2014
£’000
2013
£’000
–
–
7,406
4,074
16,806
28,286
6,584
3,401
–
–
9,985
8,453
7,395
2014
£’000
1,625
47
397
2,069
2013
£’000
1,685
38
419
2,142
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* included within this amount is accrued bonuses of £291,000 (2013: £588,000).
The number of Directors who were members of Group money purchase pension schemes during the year totalled 4 (2013:4). During the
year the Directors exercised nil (2013: 11,870) CSOP options, nil (2013: 70,764), JSOP options 10,506 (2013: nil), SAYE options and made
a gain of £15,378 (2013: £159,355) on exercise of these options.
In addition to the above, David Newnes received a payment in lieu of notice of £80,000.
Employee numbers and costs
The Group employs staff in its branches and head offices. Aggregate payroll costs of these employees were:
Wages and salaries
Social security costs
Pension costs
Total employee costs
Subcontractor costs
Total employee and subcontractor costs1
Share-based payment expense (see below)
2014
£’000
147,754
15,238
2,335
165,327
2,254
167,581
1,775
2013
£’000
132,488
13,213
1,745
147,446
2,712
150,158
1,323
1 The total employee and subcontractor costs exclude employees redundancy costs of £1,032,000 (2013 – £932,000), which have been shown under Exceptional costs (see Note 7).
The monthly staff numbers (including Directors) during the year averaged 4,760 (2013 – 4,327).
Estate Agency and Related Services
Surveying and Valuation Services
2014
3,923
837
4,760
2013
3,547
780
4,327
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
108
12. Directors and employees (continued)
Share-based payments
Long Term Incentive Plan
The Group operates a LTIP (an equity-settled share-based remuneration scheme) for certain employees. Under the LTIP, the options vest if
the individual remains an employee of the Group after a three year period, unless the individual has left under certain ‘good leaver’ terms in
which case the options may vest earlier and providing the performance conditions are met.
LTIP 2014 vesting conditions
30% of the options vest based on the TSR of LSL as compared to the FTSE 250 index (excluding investment trusts) over the three year
performance period:
• If the Group is in the top 25% percentile, all of these options will vest;
• If the Group is at the median 25% will vest;
• Straight line vesting between median and top 25% percentile; and
• Below the median no options vest.
70% of the options are based on the adjusted EPS performance over the three financial years starting with the financial year in which the
LTIP award is granted:
• If growth >20% pa – 100% vest;
• If growth is 12.5% pa – 25% vest;
• Straight line vesting between 12.5% pa and 20% pa; and
• If growth is below 12.5% pa no options vest.
LTIP 2013 vesting conditions
30% of the options vest based on the TSR of LSL as compared to the FTSE 250 index (excluding investment trusts) over the three year
performance period:
• If the Group is in the top 25% percentile, all of these options will vest;
• If the Group is at the median 25% will vest;
• Straight line vesting between median and top 25% percentile; and
• Below the median no options vest.
70% of the options are based on the adjusted EPS performance over the three financial years starting with the financial year in which the
LTIP award is granted:
• If growth is over 10% pa – 100% vest;
• If growth is 7% pa – 25% vest;
• Straight line vesting between 7% pa and 10% pa; and
• If growth is below 7% pa no options vest.
LTIP 2012 vesting conditions
30% of the options vest based on the TSR of LSL as compared to the FTSE 250 index (excluding investment trusts) over the three year
performance period:
• If the Group is in the top 25% percentile, all of these options will vest;
• If the Group is at the median 35% will vest;
• Straight line vesting between median and top 25% percentile; and
• Below the median no options vest.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014 109
12. Directors and employees (continued)
70% of the options are based on the adjusted EPS performance over the three financial years starting with the financial year in which the
LTIP award is granted:
• If growth is over 12% pa – 100% vest;
• If growth is 8% pa – 25% vest;
• Straight line vesting between 8% pa and 12% pa; and
• If growth is below 8% pa no options vest.
Outstanding at 1st January
Granted during the year
Lapsed during the year
Outstanding at 31st December
2014
2013
Weighted
average
exercise
price
£
–
–
–
–
Number
1,019,483
419,970
(303,882)
1,135,571
Weighted
average
exercise
price
£
–
–
–
–
Number
435,622
599,739
(15,878)
1,019,483
There were no options exercisable at the end of the year or the prior year. The weighted average remaining contractual life is 1.27 years
(2013: 1.84 years). The weighted average fair value of options granted during the year was £3.92 (2013: £3.31).
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 of an interest in jointly owned shares (i.e. Ordinary Shares held in co-ownership with the Trust) and a stock appreciation right.
A key feature of the JSOP is that individuals are required to purchase their interest in the jointly owned shares and have thereby put their
personal capital at risk.
The vesting of JSOP awards granted in 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.
The EPS performance of LSL for the three years ended 31st December 2013 is such that the vesting criteria of the 2011 JSOP was not met
and as such these options did not vest in March 2014.
Outstanding at 1st January
Exercised during the year
Lapsed during the year
Outstanding at 31st December
2014
2013
Weighted
average
exercise
price
£
3.20
3.20
3.20
3.20
Number
829,836
–
(700,372)
129,464
Weighted
average
exercise
price
£
3.20
3.20
3.20
3.20
Number
1,099,306
(89,246)
(180,224)
829,836
There were 129,464 options exercisable at the end of the year (2013: 129,464). The weighted average remaining contractual life is nil (2013:
0.21 years). The average market value at the date of exercise was £nil (£4.37).
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
110
12. Directors and employees (continued)
Company Stock Option Plan (CSOP)
The Group operates a CSOP (an equity-settled share-based remuneration scheme) for certain employees. Under the CSOP, the options
vest if the individual remains an employee of the Group after a three year period, unless the individual has left under certain ‘good leaver’
terms in which case the options may vest earlier.
Outstanding at 1st January
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at 31st December
2014
2013
Weighted
average
exercise
price
£
2.60
4.16
2.49
2.75
3.72
Number
607,594
930,839
(206,512)
(17,675)
1,314,246
Weighted
average
exercise
price
£
2.53
–
2.40
2.54
2.60
Number
1,114,077
–
(348,825)
(157,658)
607,594
There were 128,078 options exercisable at the end of the year (2013: 66,660). The average market value at the date of exercise was £4.32
(£3.68).
The weighted average fair value of options granted during the year was £2.44 (2013: Nil). The weighted average remaining contractual life is
1.75 years (2013: 0.67 years).
Save-As-You-Earn scheme
The Group has offered options under the SAYE scheme in each of 2011 to 2014 years. All these offers were open to all qualifying
employees and provide for an exercise price equal to the daily average market price on the date of grant. 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.
Outstanding at 1st January
Granted during the year
Exercised
Lapsed during the year due to employees withdrawal
Outstanding at 31st December
2014
2013
Weighted
average
exercise
price
£
2.69
4.16
2.57
2.84
3.56
Number
1,008,008
567,052
(462,565)
(95,368)
1,017,127
Weighted
average
exercise
price
£
2.59
3.00
2.58
2.59
2.69
Number
887,842
238,155
(4,554)
(113,435)
1,008,008
The weighted average fair value of options granted during the year was £2.45 (2013: £1.68) and the weighted average remaining
contractual life was 1.6 years (2013: 1.41 years). The average market value at the date of exercise was £4.00 (2013: £4.64).
There were nil (2013: nil) options exercisable at the end of the year.
Equity-settled transactions
The assumptions used in the estimation of the fair value of equity settled options were as follows:
LTIP
2014
SAYE
2014
CSOP
2014
Option pricing model used
Weighted average share price at grant date (£)
Exercise price (£)
Expected life of options (years)
Expected volatility
Expected dividend yield
Risk free interest rate
BlackScholes BlackScholes BlackScholes
4.16
4.16
3 years
100%
3.0%
1.84%
4.30
–
3 years
100%
3.0%
1.84%
4.35
4.16
3 years
100%
3.0%
1.84%
Financial Statements LSL Property Services plc Annual Report and Accounts 2014 111
LTIP
2013
SAYE
2013
BlackScholes Black Scholes
3.435
3.00
3 years
80%
3.0%
1.68%
3.614
–
3 years
80%
3.0%
1.68%
2014
£’000
1,775
2013
£’000
1,323
12. Directors and employees (continued)
Option pricing model used
Weighted average share price at grant date (£)
Exercise price (£)
Expected life of options (years)
Expected volatility
Expected dividend yield
Risk free interest rate
The total cost recognised for equity settled transactions is as follows:
Share-based payment charged during the year
A charge of £439,000 (2013: £551,000) relates to employees of the Company.
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.
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
Adjustment in respect of prior year
Total deferred tax expense/(credit)
Total tax charge in the income statement
2014
£’000
6,460
144
6,604
98
83
181
6,785
2013
£’000
4,474
(574)
3,900
(814)
(20)
(834)
3,066
The UK standard corporation tax rate has reduced from 28% as at 1st January 2011 to 21% from 1st April 2014 with a further reduction
to 20% occurring on 1st April 2015. The effective rate of corporation tax for the year was 21.1% (2013: 21.4%) excluding prior year
adjustments. The effective tax rate for 2014 and 2013 was impacted by non-taxable income for joint ventures and dividends, the impact
of a rate change on the deferred tax liability, contingent consideration and the impact of temporary differences on certain non-qualifying
properties no longer being recognised. Excluding these impacts the effective tax rate is 22.0% (2013: 24.0%). Income tax credited directly
to other comprehensive income is £2.7m (2013: charge of £4.4m); this is comprised of a credit of £4.1m and a charge of £1.4m and relates
to the disposal and revaluation of financial assets (see Note 16 to the Financial Statements). Income tax credited directly to the share based
payment reserve is £nil (2013: £nil).
In March 2013, the UK government announced proposals to reduce the main rate of corporation tax to 20% from 1st April 2015. As of
31st December 2014 reductions to the main rate of corporation tax to 20% had been enacted. Accordingly, this is the rate at which deferred
tax has been provided.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
112
13. Taxation (continued)
(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is lower (2013: 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 21.5% (2013 – 23.25%)
Non taxable goodwill
Non taxable income from joint ventures and dividends
Benefit of deferred tax asset and brought forward losses not previously recognised
Disallowable expenses
Impact of movement in contingent consideration (credited)/charged to the Income Statement
Share-based payment relief
Temporary differences on non-qualifying properties no longer recognised
Impact of rate change on deferred tax
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:
Losses
2014
£’000
31,943
6,868
–
(641)
(249)
394
(87)
281
–
(8)
6,558
144
83
6,785
2014
£’000
2,500
2,500
2013
£’000
17,080
3,971
(127)
(667)
(62)
248
650
62
(94)
(321)
3,660
(574)
(20)
3,066
2013
£’000
2,810
2,810
Nil (2013: £nil) unrecognised deferred tax on losses carried forward relates to acquisitions during the year. The deferred tax assets 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 at 1st January
Deferred tax liability arising on business combinations
Deferred tax (credit)/charge recognised directly in other comprehensive income
Deferred tax expense/(credit) in income statement for the year (Note 13a)
Net deferred tax liability at 31st December
2014
£’000
9,014
–
(2,733)
181
6,462
2013
£’000
5,464
4
4,380
(834)
9,014
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
13. Taxation (continued)
Analysed as:
Accelerated capital allowances
Deferred tax liability on separately identifiable intangible assets on business combinations
Deferred tax on financial assets
Deferred tax on share options
Deferred tax on interest rate swap
Other short-term temporary differences
Trading losses recognised
Deferred tax (expense)/credit in income statement relates to the following:
Intangible assets recognised on business combinations
Accelerated capital allowance
Deferred tax on share options
Other temporary differences
Trading losses recognised
113
2013
£’000
(754)
3,554
6,836
(346)
(46)
(119)
(111)
9,014
2013
£’000
584
167
191
(219)
111
834
2014
£’000
(702)
3,583
4,105
(225)
–
(188)
(111)
6,462
2014
£’000
(11)
(55)
(121)
6
–
(181)
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
2014
£’000
2013
£’000
125,642
5,918
–
131,560
120,361
5,339
(58)
125,642
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
14. Intangible assets (continued)
Carrying amount of goodwill by operating unit
Estate Agency and Related Services companies
Marsh & Parsons
Your Move
Reeds Rains
LSLi
Pink Home Loans
First Complete
Templeton LPA
Others
Surveying and Valuation Services company
e.surv
114
2014
£’000
2013
£’000
40,307
40,191
16,047
18,160
2,604
3,998
336
348
121,991
9,569
131,560
40,307
39,463
15,279
13,738
2,604
3,998
336
348
116,073
9,569
125,642
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
Pink Home Loans
Surveying and Valuation Services company
e.surv
2014
£’000
2013
£’000
11,724
2,510
1,241
1,413
180
17,068
1,305
18,373
11,724
2,510
1,241
1,136
180
16,791
1,305
18,096
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 Corporate Client Department)
• Reeds Rains
• LSLi, which includes Intercounty, Frosts, JNP, Goodfellows, Davis Tate, Lauristons, Lawlors and Hawes & Co1
• Pink Home Loans
• Templeton LPA
• First Complete
• Surveying and Valuation Services company
• e.surv
1
The Management Team 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.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
115
14. Intangible assets (continued)
Goodwill (continued)
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 cashflow projections based on financial budgets approved by the Board and three year plan. The discount rate applied to cashflow
projections is 10.6% (2013:11.4%) and cashflows beyond the three year plan are extrapolated using a nil (2013: nil) growth rate.
Surveying and Valuation Services company
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 10.6% (2013:11.4%). The growth rate used to extrapolate the cash flows of the Surveying and Valuation Services company beyond the
three-year plan is nil (2013: nil).
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
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 20%) of 10.6%. This is the benchmark used by management to assess operating
performance and to evaluate future acquisition proposals.
Market share and market growth assumptions are important because, as well as using industry data for growth rates (as noted below)
management assess how LSLi’s relative position to its competitors might change over the budget period. The Estate Agency and Surveying
markets both showed significant recovery in the first half of 2014 but the market has softened in the second half of 2014.The calculations
supporting the impairment test are a 5% p.a. decline in the housing market in 2015 and flat thereafter.
Growth rate conservatively estimated at nil (2013: nil) after the end of the three year plan. Given the housing and mortgage markets are
currently considered to be at a low point in the cycle, with transaction volumes at approximately half the long term average, this estimate is
considered conservative.
There has been no impairment in respect of the carrying amount of goodwill or brand (an 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.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
116
14. Intangible assets (continued)
Other intangible assets
As at 31st December 2014
Cost
At 1st January 2014
Additions
Arising on acquisition
during the year
At 31st December 2014
Aggregate amortisation
and impairment
At 1st January 2013
Charge for the year
At 31st December 2014
Carrying amount
At 31st December 2014
As at 31st December 2013
Cost
At 1st January 2013
Additions
Arising on acquisition
during the year
At 31st December 2013
Aggregate amortisation
and impairment
At 1st January 2013
Charge for the year
At 31st December 2013
Carrying amount
At 31st December 2013
Brand
Names
£’000
18,287
–
277
18,564
191
–
191
Customer
Contracts
£’000
17,501
–
97
17,598
17,464
122
17,586
Insurance
Renewals
£’000
Lettings
Contracts
£’000
5,612
–
–
5,612
5,612
–
5,612
2,246
–
568
2,814
2,246
158
2,404
Order
Book
£’000
5,451
–
–
5,451
5,451
–
5,451
Other *
£’000
2,105
653
–
2,758
1,158
285
1,443
Total
£’000
51,202
653
942
52,797
32,122
565
32,687
18,373
12
–
410
–
1,315
20,110
Brand
Names
£’000
18,171
–
116
18,287
191
–
191
Customer
Contracts
£’000
17,316
–
185
17,501
17,184
280
17,464
Insurance
Renewals
£’000
Lettings
Contracts
£’000
5,612
–
–
5,612
5,612
–
5,612
2,246
–
–
2,246
2,246
–
2,246
Order
Book
£’000
5,451
–
–
5,451
5,451
–
5,451
Other *
£’000
1,460
645
–
2,105
1,063
95
1,158
Total
£’000
50,256
645
301
51,202
31,747
375
32,122
18,096
37
–
–
–
947
19,080
* Other relates to in-house software and franchise agreements.
The brand value relates to the following:
• Your Move, a network of residential sales and lettings agencies and e.surv, a surveying and valuation company which were acquired by
the Group in 2004;
• Reeds Rains, a network of residential sales and lettings agencies which was acquired in October 2005;
• Intercounty, a network of residential sales and lettings agencies which was acquired in February 2007;
• Frosts, a network of residential sales and lettings agencies which was acquired in July 2007;
• JNP, a network of residential sales and lettings agencies which was acquired in September 2007;
• Goodfellows Estate Agents, a network of residential sales and lettings agencies which was acquired in May 2010;
• Pink Home Loans and intermediary network was acquired in December 2010;
• Marsh & Parsons, a network of residential sales and lettings agencies which was acquired in November 2011;
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
117
14. Intangible assets (continued)
Other intangible assets (continued)
• Davis Tate, a network of residential sales and lettings agencies which was acquired in February 2012;
• Lauristons, a network of residential sales and lettings agencies which was acquired in July 2012;
• Walker Fraser Steele, a surveying business which was acquired in June 2013;
• Lawlors, a network of residential sales and lettings agencies which was acquired in September 2013;
• Hawes & Co, a network of residential sales and lettings agencies which was acquired in March 2014;
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.
15. Property, plant and equipment
As at 31st December 2014
Cost
At 1st January 2014
Acquisitions during the year
Additions
Transfer from assets held for sale
Disposals
At 31st December 2014
Depreciation and impairment
At 1st January 2014
Charge for the year
Disposals
At 31st December 2014
Carrying amount
At 31st December 2014
As at 31st December 2013
Cost
At 1st January 2013
Acquisitions during the year
Additions
Transfer to assets held for sale
Disposals
At 31st December 2013
Depreciation and impairment
At 1st January 2013
Charge for the year
Acquisitions during the year
Disposals
At 31st December 2013
Carrying amount
At 31st December 2013
Freehold land and
buildings
£’000
Leasehold
improvements
£’000
Motor
vehicles
£’000
Fixtures, fittings
and computer
equipment
£’000
1,712
180
–
246
–
2,138
300
–
–
300
8,416
–
2,490
–
–
10,906
4,137
716
–
4,853
244
–
–
–
(72)
172
14
53
(57)
10
30,647
60
6,101
–
(745)
36,063
20,338
4,149
(643)
23,844
Total
£’000
41,019
240
8,591
246
(817)
49,279
24,789
4,918
(700)
29,007
1,838
6,053
162
12,219
20,272
Freehold land and
buildings
£’000
Leasehold
improvements
£’000
Motor
vehicles
£’000
Fixtures, fittings
and computer
equipment
£’000
2,118
–
–
(406)
1,712
300
–
–
–
300
7,350
–
1,075
–
(9)
8,416
3,665
477
–
(5)
4,137
262
–
159
–
(177)
244
97
35
–
(118)
14
24,777
113
5,905
–
(148)
30,647
16,944
3,465
64
(135)
20,338
Total
£’000
34,507
113
7,139
(406)
(334)
41,019
21,006
3,977
64
(258)
24,789
1,412
4,279
230
10,309
16,230
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
118
15. Property, plant and equipment (continued)
Assets held for sale
There are currently no assets held for sale (2013: £276,000). In 2013, the Assets held for sale related to two freehold properties acquired in
2010 which were actively marketed. These assets were part of the Estate Agency and Related Services segment.
During the year, freehold properties with a book value totalling £30,000 (2013: £1,227,000) were sold for net proceeds of £65,000 (2013:
£1,361,000) resulting in a gain on disposal of £35,000 (2013: £134,000).
16. Financial assets
Available-for-sale financial assets
Unquoted shares at fair value
Quoted shares at fair value
Opening balance
Additions
Disposals
Fair value adjustment recorded through reserves
Closing balance
2014
£’000
1,686
21,347
23,033
36,574
1,155
(21,599)
6,903
23,033
2013
£’000
36,574
–
36,574
11,921
847
–
23,806
36,574
The financial assets include unlisted equity instruments which are carried at fair value. Fair value is judgemental given the assumptions
required and have been valued using a level 3 valuation techniques (see Note 29). Financial assets also include shares Zoopla which are
listed on the London Stock Exchange and again are carried at fair value. These shares are valued using a level 1 valuation technique.
Zoopla
On 18th June 2014, Zoopla underwent an IPO. Prior to the IPO, LSL owned 4.91% of Zoopla which was valued at £17.50 per share,
£35.1m. As part of the IPO, LSL received 10 shares in the new company for each share it owned reducing the value to £1.75 per new
share. The IPO price was £2.20 per share so revaluing LSL’s investment prior to the IPO at £44.1m.
As part of the IPO, LSL was invited to acquire an additional 619,318 shares for £1,090,000, which was at a 20% discount to the IPO price
due to its existing customer relationship with Zoopla. A gain of £273,000 was recorded through other comprehensive income to revalue
these shares back to the IPO price.
During the period, LSL sold 48.9% of its stake in Zoopla for £20,838,000, net of associated costs, £16,820,000 net of tax. The gain on
the disposal of the shares recognised in the income statement was £19,806,000 gross, £15,791,000 net of tax, of which £18.0m was
recorded at IPO and a further £1.8m was recorded in July. The Directors decided that a special distribution of 16.5 pence per Share was
declared to return this exceptional gain to Shareholders in September 2014.
Following the above transactions, the Group continues to own 2.60% of Zoopla.
Zoopla’s share price at 31st December 2014 was £1.965 per share. The Directors consider this to be the best estimate of the fair value of
LSL’s investment in Zoopla to be the current share price which values the Group’s stake in Zoopla at £21,347,402. An additional valuation
adjustment of £2,456,000 has been recorded through other comprehensive income to reflect the change in share price since the IPO.
The total revaluation amount of 19,346,000 comprises of:
Opening balance of Zoopla revaluation account
Revaluation of Zoopla shares up to IPO price of £2.20 per share
Revaluation of Zoopla shares bought at a discount on IPO up to IPO price of £2.20
Revaluation of Zoopla shares from £2.20 to £1.965 per share post IPO
Realised on disposal
Closing balance
£’000
33,163
8,934
273
(2,456)
(20,568)
19,346
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
119
16. Financial assets (continued)
The Group acquired additional shares 180 B in VEM during the period, increasing its stake to 16.5% (2013: 15%). The price paid for
the shares was £65,000. The price paid for the VEM shares has been deemed by the Directors to be a good approximation of fair value
as at 30th June 2014 and the Group’s entire stake has been revalued upwards to £824,000 with the movement recorded through other
comprehensive income.
Due to the issue of additional shares to management, the Group’s stake in GPEA was reduced to 16.8% during the period. This resulted in
a small decrease in the fair value of the investment which has been recorded through other comprehensive income. The carrying value of
the investment at 31st December 2014 has been assessed as £862,000.
17. Investments in joint ventures
Investment in joint ventures
Opening balance
Acquisitions
Equity accounted profit
Dividend received
Closing balance
2014
£’000
9,121
3,239
5,801
1,383
(1,302)
9,121
2013
£’000
3,239
2,313
–
1,731
(805)
3,239
The Group has a 33.33% interest in TMG, a joint venture whose principal activity is to provide property searches.
In July 2011, the Group acquired a 33.33% interest in LMS for a total consideration of £671,000. The principal place of business of TMG is
the United Kingdom.
In September 2014, the Group increased its ownership interest to 49.99% for an initial consideration of £2,422,000 with a deferred and
contingent consideration estimated at the date of acquisition of £3,569,000. The contingent consideration element payable of £957,000
will vary based on the future profitability of LMS and is payable in 2016 (see Note 21). The principal activity of LMS is to provide panel
management of conveyancing services. The principal place of business of LMS is the United Kingdom.
The share of the assets, liabilities, income and expenses of the joint ventures 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
Profit before tax
Taxation
Profit after tax
2014
£’000
2013
£’000
6,620
5,384
(2,869)
(14)
9,121
2014
£’000
26,788
(25,122)
1,666
20
1,686
(303)
1,383
1,008
4,991
(2,739)
(21)
3,239
2013
£’000
24,157
(21,847)
2,310
13
2,323
(592)
1,731
Non-Current assets include £5,008,000 (2013: £83,000) in respect of Goodwill arising on the acquisition of shares in LMS.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
18. Trade and other receivables
Current
Trade receivables
Prepayments and accrued income
120
2014
£’000
2013
£’000
24,618
11,547
36,165
24,687
10,653
35,340
Trade receivables are non-interest bearing and are generally on 0-30 day terms.
As at 31st December 2014, trade receivables with a nominal value of £2,184,000 (2013: £2,117,000) 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
At 31st December
As at 31st December, the analysis of trade receivables that were past due but not impaired is as follows:
2014
2013
19. Cash and cash equivalents
Short-term deposits
Total
£’000
24,618
24,687
Neither past due
nor impaired
£’000
19,934
18,785
2014
£’000
2,117
–
572
(505)
2,184
2013
£’000
2,192
–
371
(446)
2,117
Past due but not impaired
0-90 days
£’000
4,173
5,600
2014
£’000
–
>90 days
£’000
511
302
2013
£’000
469
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 £nil (2013: £0.5m). At 31st December 2014, the Group had available
£65.3m of undrawn committed borrowing facilities in respect of which all conditions precedent had been met (2013: £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.
2014
£’000
2013
£’000
10,268
11,078
446
28,544
50,336
9,982
11,505
623
31,980
54,090
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
21. Financial liabilities
Current
Overdraft
2% unsecured loan notes
Contingent consideration
Derivatives carried at fair value
Non-current
Bank loans – Revolving Credit Facility(RCF)
12% unsecured loan notes
Deferred consideration
Contingent consideration
121
2014
£’000
718
63
3,878
–
4,659
34,000
9,681
2,887
9,852
56,420
2013
£’000
2,548
–
2,335
230
5,113
24,000
9,339
446
9,964
43,749
Bank loans – revolving credit facility and overdraft
A £100m loan facility which expires in August 2017 was arranged in June 2013. Loan refinance costs of £1,128,000 were incurred in June
2013 which have been capitalised and are being amortised over the life of the loan facility.
The bank loan totalling £34m (2013: £24.0m) and overdraft totalling £0.7m (2013: £2.5m) are secured via cross guarantees issued from all
of the Group’s subsidiaries excluding the following subsidiaries, Lending Solutions, Homefast, Linear (Linear Mortgage Network and Linear
Financial Services), Templeton LPA, property-careers.com, Chancellors Associates and LSLi and the LSLi subsidiaries.
The utilisation of the revolving credit facility may vary each month as long as this does not exceed the maximum
£100m facility (2013: £100m). The Group’s overdraft is also secured on the same facility but cannot exceed £5m and the combined
overdraft and revolving credit facility cannot exceed £100m (2013: £100m). The banking facility is repayable when funds permit on or by
August 2017.
Interest and fees payable on the RCF facility amounted to £1.8m (2013: £2.1m). The interest rate applicable to the facility is LIBOR plus a
margin rate of 1.50% (2013: LIBOR plus 1.50%). The margin rate is linked to the leverage ratio of the Group and the margin rate is reviewed
at six monthly intervals. An additional fee is charged if the facility is more than 33% drawn with a further fee due if the facility is more than
67% drawn.
The overdraft balance of £0.7m represents the set off of overdraft balances of £29.9m against cash balances of £29.2m which are all part
of the group banking arrangement. These amounts have been set off on the basis that the Group currently has a legally enforceable right to
set-off, and intends to settle these balances on a net basis.
12% unsecured loan notes
12% unsecured loan notes with a face value of £6,146,000 and a fair value of £8,660,000 were issued as part satisfaction of the
consideration for acquisition of Marsh & Parsons in November 2011. These loan notes carry a coupon of 12% which is compounded
every year on 1st January and rolled up to redemption. The 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 they are redeemable
on 31st March 2020. The amounts shown in the table above include accrued interest of £1,021,000 (2013: £679,000).
2% unsecured loan notes
2% unsecured loan notes with a face value of £63,000 were issued in September 2014 for the acquisition of Marsh & Parsons. These loan
notes carry a coupon of 2% and are redeemable at par value.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
122
21. Financial liabilities (continued)
Deferred consideration
Deferred consideration totalling £465,000 is payable at any time between 31st March 2016 and 31st March 2020 at the option of the
management shareholders. Additionally there is £2,422,000 payable in relation to the purchase of LMS during the year (Note 17).
Deferred Consideration
Marsh & Parsons
LMS
Contingent consideration
Marsh & Parsons Growth Shares
LSLi contingent consideration
LMS
Other
Opening balance
Cash paid
Acquisition
Fair value adjustment recorded against goodwill
Amounts recorded though income statement
Closing balance
2014
£’000
(465)
(2,422)
(2,887)
2014
£’000
4,501
7,496
957
776
13,730
12,299
(1,426)
3,262
–
(405)
13,730
2013
£’000
(446)
–
(446)
2013
£’000
2,220
9,206
–
873
12,299
8,088
(520)
1,997
(58)
2,792
12,299
£4,501,000 (2013: £2,220,000) of contingent consideration relates to the Growth Shares acquired by to the 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 Shares 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.
£7,496,000 (2013: £9,206,000) of contingent consideration relates to payments to third parties in relation to the acquisition of LSLi and
certain of its subsidiaries between 2007 and 2014. This is payable between three and five years after the acquisition dates depending on
the profitability of those subsidiaries in the relevant years. In 2014, the contingent consideration has been recalculated using a discount rate
of 6.5% (2013: 6.5%).
£957,000 (2013: nil) of contingent consideration relates to payments to third parties in relation to the acquisition of LMS in September 2014
(see Note 17). This is payable in 2016 and the payout will be vary depending on the profitability of LMS in 2015.
The table below shows the allocation of the contingent consideration balance and income charge between the various categories:
Remuneration
Put options over non-controlling interests
Arrangement under IFRS 3
Closing balance
Contingent consideration profit and loss impact in the period relating to amounts accounted for as:
Remuneration
Put options over non-controlling interests
Arrangement under IFRS 3
(Credit)/charge
2014
£’000
7,463
4,217
2,050
13,730
756
(1,110)
( 51)
(405)
2013
£’000
5,624
4,371
2,304
12,299
1,506
1,223
63
2,792
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
123
22. Provisions for liabilities
Balance at 1st January
Amount utilised
Amount released
Unwinding of discount
Provided in financial year (including
exceptional costs)
Balance at 31st December
Current
Non-current
2014
2013
Professional
indemnity claim
provision
£’000
25,864
(13,271)
–
75
26,051
38,719
16,388
22,331
38,719
Onerous
leases
£’000
475
(66)
(217)
–
–
192
151
41
192
Professional
indemnity claim
provision
£’000
24,163
(14,445)
–
683
15,463
25,864
8,378
17,486
25,864
Total
£’000
26,339
(13,337)
(217)
75
26,051
38,911
16,539
22,372
38,911
Onerous
leases
£’000
1,037
(506)
(90)
–
34
475
80
395
475
Total
£’000
25,200
(14,951)
(90)
683
15,497
26,339
8,458
17,881
26,339
Professional indemnity claim provision
The PI Cost provision is to cover the costs of claims relating to valuation services for clients which are not covered by PI insurance. The PI
Cost provision includes amounts for claims already received from clients, claims yet to be received and any other amounts which may be
payable as a result of legal disputes associated with provision of valuation services.
The provision 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 a significant portion of the provision has been classified as non-
current.
At 31st December 2014 the total provision for PI Costs was £38.7m. The Directors have considered sensitivity analysis on the key risks and
uncertainties discussed above.
Cost per claim
A substantial element of the provision relates to specific claims where disputes are on-going. These specific cases have been separately
assessed and specific provisions have been made. The average cost per claim has been used to calculate the required IBNR. Should the
costs to settle and resolve these claims and future claims increase by 10%, an additional provision of £3.5m would be required.
Rate of claim
The IBNR assumes that the rate of claim for the high risk lending period in particular reduces over time with the expiry of the primary
limitation period as well as the expectation that fewer claims will arise through the passing of time. Should the rate of reduction be lower
than anticipated and the duration extend, further costs may arise. An increase of 30% in notifications in excess of that assumed in the IBNR
calculations would increase the required provision by £0.9m.
Notifications
The company has received a number of notifications which have not deteriorated into claims or loss. Should the rate of deterioration
increase by 50%, an additional provision of £1.6m would be required.
Onerous lease provision
The provision for lease obligations relates to obligations under leases on vacant properties. The provision is expected to be fully utilised by
June 2020. The final outcome depends upon the ability of the Group to sublet or assign the lease over the related properties.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
124
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
7,995
17,304
8,211
33,510
2014
Plant and
machinery
£’000
2,735
3,533
–
6,268
Total
£’000
10,730
20,837
8,211
39,778
Land and
building
£’000
7,888
15,956
6,805
30,649
2013
Plant and
machinery
£’000
3,190
3,688
–
6,878
Total
£’000
11,078
19,644
6,805
37,527
The Group had annual commited revenue in respect of non-cancellable operating leases for which no accrual has been made in these
Financial Statements. Future minimum rentals receivable under non-cancellable operating leases are as follows:
Not later than one year
After one year but not more than five years
After five years
24. Share capital
Authorised:
Ordinary shares of 0.2p each
Issued and fully paid:
At 1st January and 31st December
25. Reserves
2014
Land and
buildings
£’000
253
472
43
768
2013
Land and
buildings
£’000
334
447
382
1,163
2014
2013
Shares
£’000
Shares
£’000
500,000,000
1,000 500,000,000
1,000
104,158,950
208 104,158,950
208
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 Shares purchased in the market and held by the Trust to satisfy future exercise of options under
the Group’s employee share options schemes. At 31st December 2014 the Group held 2,259,117 (2013: 1,444,148) of its own shares at
an average cost of £3.51 (2013: £2.97). The market value of the shares at 31st December 2014 was £6,732,000 (2013: £6,394,000). The
nominal value of each share is 0.2p.
Fair value reserve
The fair value reserve is used to record the changes in fair value of financial assets held for sale. Note 16 gives further details of the
movement in the current year.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
125
26. Pension costs and commitments
The Group operates defined contribution pension schemes for its Executive 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 £2,335,000 (2013: £1,745,000). There was an outstanding amount
of £317,000 in respect of pensions as at 31st December 2014 (2013: £700,000).
27. Acquisitions during the year
Year ended 31st December 2014
The Group acquired the following businesses during the year:
a. Lettings books
During the period the Group acquired ten lettings businesses for a total consideration of £1,828,000. The entire purchase price for the
acquisitions has been assumed to be goodwill except £182,000 assigned to fixed assets.
The combined fair values of the identifiable assets and liabilities at the date of above acquisition have been determined as below:
Property, plant and equipment
Total identifiable net liabilities acquired
Purchase consideration
Goodwill
Purchase consideration discharged by:
Cash
Contingent 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
Fair value
recognised on
acquisition
£’000
182
182
1,828
1,646
1,773
55
1,828
£’000
18
–
1,773
1,791
b. Hawes & Co
In March 2014, the Group acquired 65% of Hawes & Co, a 6 branch estate agency chain based in South West London for an initial
consideration of £3.2m. The remaining 35% is subject to put and call options which are exercisable between 2016 and 2019 dependent
on profit performance. Due to the nature of the payment terms, the contingent consideration is considered to be a capital payment for
accounting purposes.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
126
27. Acquisitions during the year (continued)
b. Hawes & Co (continued)
The fair value of the identifiable assets, except for cash and cash equivalents, and liabilities of Hawes & Co as at the date of acquisition have
been determined as below:
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Total identifiable net liabilities acquired
Purchase consideration
Goodwill
Purchase consideration discharged by:
Cash
Contingent 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
Fair value
recognised on
acquisition
£’000
942
58
384
250
(466)
–
1,168
5,440
4,272
3,190
2,250
5,440
£’000
81
(250)
3,190
3,021
The goodwill of Hawes & Co comprises certain intangible assets that cannot be individually separated and reliably measured from the
acquiree due to their nature. These items include an experienced management team with a good record of delivering a quality service to
customers, the expected value of synergies and the potential to significantly grow the business. No determination has been made yet as to
what proportion, if any, of the goodwill will be tax deductible.
From the date of acquisition to 31st December 2014, the acquisition has contributed to £3.4m of revenue and £0.5m profit before tax of the
Group, excluding the impact of movements in the contingent consideration recorded through the profit and loss. If all of these combinations
had taken place at the beginning of the year, the consolidated revenue would have been higher by £4.3m and the consolidated profit before
tax would have been higher by £0.7m.
Transaction costs have been expensed and are included under exceptional costs (see Note 7).
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
127
27. Acquisitions during the year (continued)
Year ended 31st December 2013
The Group acquired the following businesses during the prior year:
a. Walker Fraser Steele
In June 2013, the Group acquired the trade and assets of Walker Fraser Steele, a Scottish surveying business for an initial consideration of
£25,000 and a contingent consideration, valued based on estimates of the payments due under the contract, calculated to be £1,081,000.
The fair value of the identifiable assets, except for cash and cash equivalents, and liabilities of Walker Fraser Steele as at the date of
acquisition have been determined as below:
Intangible assets
Total identifiable net liabilities acquired
Purchase consideration
Goodwill
Purchase consideration discharged by:
Cash
Contingent 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
Fair value
recognised on
acquisition
£’000
24
24
1,106
1,082
25
1,081
1,106
£’000
54
–
25
79
The goodwill of Walker Fraser Steele comprised certain intangible assets that cannot be individually separated and reliably measured from
the acquiree due to their nature. These items include an experienced management team with a good record of delivering a quality service
to customers against the backdrop of challenging market conditions, the expected value of synergies and the potential to significantly grow
the business. No determination has been made yet as to what proportion, if any, of the goodwill will be tax deductible.
b. Lawlors
In September 2013 the Group acquired 75% of Lawlors, a three branch estate agency chain operating in Essex for a cash consideration of
£2.0m. The remaining 25% is subject to put and call options which are exercisable in two tranches in 2017 and 2019 dependent on profit
performance. Due to the nature of the payment terms, the deferred consideration is considered to be a capital payment for accounting
purposes.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
128
27. Acquisitions during the year (continued)
b. Lawlors (continued)
The fair value of the identifiable assets, except for cash and cash equivalents, and liabilities of Lawlors as at the date of acquisition have
been determined as below:
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Total identifiable net liabilities acquired
Purchase consideration
Goodwill
Purchase consideration discharged by:
Cash
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
Fair value
recognised on
acquisition
£’000
202
23
124
24
(138)
(108)
127
2,870
2,743
2,006
864
2,870
£’000
73
(24)
2,006
2,055
Transaction costs have been expensed and are included under exceptional costs (see Note 7). The goodwill of Lawlors 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 a good 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.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
129
27. Acquisitions during the year (continued)
c. Lettings acquisitions
During the year, Your Move, Reeds Rains and LSLi (through its subsidiaries) acquired five lettings businesses for an aggregate consideration
of £1,536,000 of which £52,000 has been deferred which have then been amalgamated into the existing businesses. The combined fair
values of the identifiable assets and liabilities at the date of above acquisition have been determined as below:
Property, plant and equipment
Current tax liabilities
Total identifiable net liabilities acquired
Purchase consideration
Goodwill
Purchase consideration discharged by:
Cash
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
Fair value
recognised on
acquisition
£’000
26
(4)
22
1,536
1,514
1,484
52
1,536
£’000
73
–
1,484
1,557
Transaction costs have been expensed and are included under exceptional costs (see Note 7) and totalled £200,000 in the year. The
goodwill of the acquired businesses 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.
From the date of acquisition to 31st December 2013, the acquisition has contributed £3.4m of revenue and £0.5m profit before tax of the
Group, excluding the impact of movements in the contingent consideration recorded through the profit and loss. If all of these combinations
had taken place at the beginning of the year, the consolidated revenue would have been higher by £3.4m and the consolidated profit before
tax would have been higher by £0.2m.
28. Client monies
As at 31st December 2014, monies held by subsidiaries in separate bank accounts on behalf of clients amounted to £82,642,000 (2013:
£73,670,000). 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 these amounts.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
130
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;
• liquidity risk; and
• credit risk.
Policy for managing these risks is set up by the Board following recommendations from the Group Finance Director. Certain risks are
managed centrally, while others are managed locally following communications from the centre. The policy for each of the above risks is
described in more detail below.
Cash flow interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating
interest rates.
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 fixed LIBOR to approximately 2.9% until April / May 2014 had expired at 31st December 2014. At 31st December
2014 none of the Group’s RCF is at a fixed rate of interest (2013: 94%).
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.
2014
2013
Increase/
decrease in basis
point
Effect on profit
before tax
£’000
+100
-100
+100
-100
(34)
34
(24)
24
As mentioned above the Group also had an interest rate swap agreement which was 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, the requirement to pay creditors is managed
through future cash generation and if required from the revolving credit facility.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
131
29. Financial instruments – risk management (continued)
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 2014 based on contractual
undiscounted payments:
Year ended 31st December 2014
Interest bearing loans and borrowings
(including overdraft)
Trade payables
Contingent consideration
Deferred consideration
Year ended 31st December 2013
Interest bearing loans and borrowings
(including overdraft)
Trade payables
Contingent consideration
Deferred consideration
Interest rate swap
On demand
£’000
718
–
–
–
718
On demand
£’000
2,548
–
–
–
–
2,548
Less than
3 months
£’000
401
10,268
54
–
10,723
Less than
3 months
£’000
234
9,982
–
–
152
10,368
3 to 12 months
£’000
1 to 5 years
£’000
> 5 years
£’000
Total
£’000
1,012
–
3,917
–
4,929
45,503
–
5,810
2,422
53,735
–
–
6,160
636
6,796
47,634
10,268
15,941
3,058
76,901
3 to 12 months
£’000
1 to 5 years
£’000
> 5 years
£’000
Total
£’000
701
–
2,403
–
81
3,185
36,620
–
11,049
446
–
48,115
–
–
–
–
–
–
40,103
9,982
13,452
446
233
64,216
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 liquidity risk of each Group entity is managed centrally by the Group treasury function. The Group’s cash requirement is monitored
closely.
All surplus cash is held centrally to offset against the Group’s borrowings and reduce the interest payable. The type of cash instrument used
and its maturity date will depend on the Group’s forecast cash requirements. The Group has a revolving credit facility with a syndicate of
major banking corporations to manage longer term borrowing requirements.
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 from this ratio as they are unsecured and
are not relevant to calculate the Group’s banking covenant.
The Group has a current ratio of Net Bank Debt (excluding loan notes) to EBITDA of 0.74 (2013: 0.63), based on Net Bank Debt (excluding
loan notes) of £34.7m (2013: £26.3m) and operating profit before exceptional costs, amortisation and share-based payment charge of
£42.0m (2013: £37.1m). 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 Group 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.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
29. Financial instruments – risk management (continued)
Net Bank Debt is defined as follows:
Interest bearing loans and borrowings (including loan notes and overdraft)
Less: 2% and 12% unsecured loan notes
Add: cash and short term deposits
Less: deferred and contingent consideration
Net Bank Debt (excluding loan notes)
132
2014
£’000
61,079
(9,744)
–
(16,617)
34,718
2013
£’000
48,862
(9,339)
(469)
(12,745)
26,309
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 2014 are as follows:
Fixed rate
Revolving credit facility (RCF)
Floating rate
Cash and cash equivalents
Revolving credit facility
Within 1 year
£’000
1-2 years
£’000
2-3 years
£’000
3-4 Years
£’000
–
–
(34,718)
–
–
–
–
–
–
–
–
–
Total
£’000
–
–
(34,718)
The effective interest rate and the actual interest rate charged on the loans in 2014 are as follows:
Revolving credit facility
2% unsecured loan notes
12% unsecured loan notes
Effective rate
Actual rate
4.3%
2.0%
3.65%
2.0%
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 note 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 2013 are 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
3-4 Years
£’000
Total
£’000
(25,000)
469
25,000
–
–
–
–
–
–
–
(25,000)
–
(1,548)
469
(26,548)
Financial Statements LSL Property Services plc Annual Report and Accounts 2014 133
29. Financial instruments – risk management (continued)
The effective interest rate and the actual interest rate charged on the loans in 2013 are as follows:
Revolving credit facility
12% unsecured loan notes
Effective rate
Actual rate
5.4%
3.65%
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 note is low due to the loan notes being recorded at fair value on initial issue in 2011.
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
Derivative financial liabilities – interest rate swaps
Contingent consideration
Deferred consideration
12% and 2% unsecured loan notes
2014
2013
Book Value
£’000
Fair Value
£’000
Book Value
£’000
Fair Value
£’000
–
23,033
–
23,033
469
36,574
469
36,574
(34,718)
–
(13,730)
(2,887)
(9,744)
(34,718)
–
(13,730)
(2,887)
(9,744)
(26,548)
(230)
(12,299)
(446)
(9,339)
(26,548)
(230)
(12,299)
(446)
(9,339)
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 swaps are determined by reference
to market values for similar instruments.
Fair value hierarchy
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.
The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities.
2014
Assets measured at fair value
Financial assets
Liabilities measured at fair value
Contingent consideration
Deferred consideration
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings:
Floating rate borrowings
Unsecured loan notes
£’000
Level 1
£’000
Level 2
£’000
23,033
21,347
13,730
2,887
34,718
9,744
–
–
–
–
Level 3
£’000
1,686
13,730
2,887
–
–
–
34,718
9,744
–
–
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
134
29. Financial instruments – risk management (continued)
2013
Assets measured at fair value
Financial assets
Liabilities measured at fair value
Interest rate swap
Contingent consideration
Deferred consideration
Liabilities for which fair values are disclosed
Interest-bearing loans and borrowings:
Floating rate borrowings
12% unsecured loan notes
£’000
36,574
230
12,299
446
26,548
9,339
Level 1
£’000
Level 2
£’000
Level 3
£’000
–
–
–
–
–
–
–
36,574
230
–
–
–
12,299
446
26,548
9,339
–
–
As disclosed in Note 16, Zoopla completed an IPO on 18th June 2014. Immediately prior to IPO, the fair value of the investment in Zoopla
was revalued to £44,133,000. These financial assets are now valued based on a price in an active market, representing a transfer from a
Level 3 to a Level 1 valuation technique. At 31st December 2014, the remaining stake in Zoopla was revalued to £21,347,000 based on the
Zoopla share price at that date of £1.965 per share.
The other investments totaling £1,686,000 are still valued using Level 3 valuation techniques. The Directors reviewed the fair value of
the financial assets at 31st December 2014. The methods used to determine the fair value are disclosed in more detail in note 16. The
underlying value of the business will be driven by the profitability of these businesses. If this was to drop by 10%, the implied valuation is
likely to also drop by around 10%, £0.2m.
The contingent consideration relates to amounts payable in the future on acquisitions. The amounts payable are based on the amounts
agreed in the contracts and based on the future profitability of each entity acquired. In valuing each provision, estimates have been made
as to when the options are likely to be exercised and the future profitability of the entity at this date. Further details of these provisions are
shown in note 21. If the future profitability of the entities was to decline by 10%, the size of the contingent consideration would decrease by
approximately £2,423,000.
Fair values of the Group’s interest-bearing borrowings and loans are determined by using DCF methodology using a discount rate that
reflects the issuer’s borrowing rate as at the end of the reporting period. The own non-performance risk as at 31st December 2014 was
assessed to be insignificant.
30. Analysis of Net Bank Debt (excluding loan notes)
Interest bearing loans and borrowings
– Current
– Non-current
Less: Unsecured loan notes
Add: cash and short-term deposits
Less: deferred and contingent consideration
Net Bank Debt at the end of the year
2014
£’000
2013
£’000
4,659
56,420
61,079
(9,744)
–
(16,617)
34,718
5,113
43,749
48,862
(9,339)
(469)
(12,745)
26,309
During the year, the Group has drawn down £10m (2013: repaid £0.5m) 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 £100.0m facility (2013: £100.0m).
Financial Statements LSL Property Services plc Annual Report and Accounts 2014 31. Related party transactions
Transactions with LMS and its subsidiaries
Sales
Purchases
Year-end creditor balance
Transactions with TMG and its subsidiaries
Sales
Purchases
Year-end creditor balance
32. Capital commitments
Capital expenditure contracted for but not provided
135
2013
£’000
113
(12)
–
2013
£’000
934
–
–
2014
£’000
85
(15)
–
2014
£’000
1,266
(23)
(5)
2014
£’000
462
2013
£’000
1,167
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Group Financial Statements continued.
for the year ended 31st December 2014
136
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
Proportion of nominal
value of shares held
Nature of business
Your Move (your-move.co.uk Ltd)
e.surv (e.surv Ltd)*
Marsh & Parsons Ltd
Marsh & Parsons (Marsh & Parsons
Holdings Ltd)*
First Complete (First Complete Ltd)*
LSL Corporate Client Department (LSL
Corporate Client Services Ltd)*
St Trinity (St Trinity Ltd)*
Reeds Rains (Reeds Rains Ltd)*
Linear Financial Services (Linear
Mortgage Network Ltd)
Linear Financial Services
Chancellors Associates (Chancellors
Associates Ltd)
LSLi (LSLi Ltd)*
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
Intercounty (ICIEA Ltd)
Ordinary shares
Davis Tate (Davis Tate Ltd)
Ordinary shares
Lauristons (Lauristons Ltd)
Ordinary shares
Goodfellows (GFEA Ltd)
Barnwoods (Barnwoods Ltd)*
Ordinary shares
Lawlors (Lawlors Property Services Ltd) Ordinary shares
Ordinary shares
Hawes & Co (Hawes & Co Ltd)
Ordinary shares
Frosts (David Frost Estate Agents Ltd)
Non cumulative redeemable
preference shares
Ordinary shares
Ordinary ‘B’ shares
Ordinary ‘C’ shares
Ordinary shares
JNP (JNP (Estate Agents) Ltd)
Albany (Albany Insurance Company
(Guernsey) Ltd)*
Pink Home Loans (Advanced Mortgage
Funding Ltd)*
Templeton LPA (Templeton LPA Ltd)
LMS (Cybele Solutions Holdings Ltd)#
TMG (TM Group (UK) Ltd)#
Ordinary shares
Preference shares
Ordinary shares
Ordinary ‘A’ Shares
Ordinary shares
100%
100%
100%
100%
0%
0%
100%
100%
100%
100%
76%
100%
100%
75%
87.5%
51%
85%
80.1%
100%
75%
65%
100%
Estate Agency and Related Services
Surveying and Valuation Services
Estate Agency and Related Services
Holding Company
Financial Services
Asset Management and Property
Management
Asset Management
Estate Agency and Related Services
Financial Services
Financial Services
Surveying and Valuation Services
Estate Agency and Related Services
holding Company and Financial Services
Estate Agency and Related Services
Estate Agency and Related Services
Estate Agency and Related Services
Estate Agency and Related Services
Surveying and Valuation Services
Estate Agency and Related Services
Estate Agency and Related Services
Estate Agency and Related Services
97.5%
Estate Agency and Related Services
100%
Captive insurer
100%
100%
100%
49.99%
33.33%
Financial Services
LPA receiver
Conveyancing
Property searches
* held directly by the Company
# Joint Ventures
34. Post Balance Sheet Events
Subsequent to the year end, LSL acquired Thomas Morris a multi award winning estate agency and lettings business with seven branches
in Cambridgeshire, Bedfordshire and Hertfordshire for an initial consideration of £4.0m, and six small lettings book acquisitions for a total
initial consideration of £1.8m. In addition, via LSLi, LSL acquired the remaining shares in JNP for a consideration of £53,625 and following
the transaction, LSL holds 100% of the shares in JNP.
Management is in the process of allocating the purchase price in accordance with IFRS 3. As a result, the initial accounting for the
acquisition is currently incomplete, so a fair value table of the identifiable assets and liabilities has not been presented.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Statement of Directors’ Responsibilities in Relation
to the Parent Company Financial Statements
137
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.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
138
Note
2014
£’000
2013
£’000
2
3
4
5
6
9
10
10
10
10
10
31
197,575
197,606
28
201,697
201,725
49,895
33,485
(136,184)
(86,289)
111,317
(42,345)
68,972
(134,612)
(101,127)
100,598
(24,000)
76,598
208
5,629
3,498
(7,922)
19,346
48,213
68,972
208
5,629
2,475
(4,292)
33,163
39,415
76,598
Parent Company Balance Sheet
as at 31st December 2014
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
Fair value reserve
Profit and loss account
Shareholders’ funds
The Financial Statements were approved by and signed on behalf of the Board by:
Ian Crabb
Group Chief Executive Officer
12th March 2015
Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Notes to the Parent Company Financial Statements
for the year ended 31st December 2014
139
1. Accounting policies
Basis of preparation of financial statements
The Financial Statements of the Company have been prepared on a going concern basis and 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 2014. 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. 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.
Investment in subsidiaries
Investments in subsidiaries are stated at cost and reviewed for impairment if there are any indications that the carrying value may not be
recoverable.
Treasury shares
The Company has an employee share trust (ESOT) for the granting of Group shares to Executive Directors and senior employees. Shares
in the Company held by the ESOT are treated as treasury shares and presented in the balance sheet as a deduction from equity. Dividends
earned on shares held in the ESOT have been waived.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
140
1. Accounting policies (continued)
Share-based payment transactions
The share option programme allows Group employees to acquire shares of the Company. The fair value of the options granted is
recognised as an employee expense with the corresponding increase in equity in the case of equity settled schemes. The fair value is
measured at the grant date and spread over the period during which the employees become unconditionally entitled to the options. The
fair value of the options granted is measured using the Black-Scholes model, taking into account the terms and conditions upon which the
options were granted. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to
vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of
options that eventually vest. No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where
vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-
market vested condition is satisfied, provided that all other performance and/or service conditions are satisfied.
The financial effect of awards by the Company of options over its equity shares to employees of subsidiary undertakings are recognised
by the company in its individual financial statements. In particular, the Company records an increase in its investment in subsidiaries with a
credit to equity equivalent to the FRS 20 cost in subsidiary undertakings.
Financial instruments
Financial assets and financial liabilities are recognised in the Company’s Balance Sheet when the Company becomes a party to the
contractual provisions of the instrument. Financial assets are de-recognised when the Company no longer has the rights to cash flows,
the risks and rewards of ownership or control of the asset. Financial liabilities are de-recognised when the obligation under the liability
is discharged, cancelled or expires. All regular way purchases and sales of financial assets are recognised on the trade date, being the
date that the Company commits to purchase or sell the asset. Regular way transactions require delivery of assets within the timeframe
generally established by regulation or convention in the market place. The subsequent measurement of financial assets depends on their
classification.
The Company’s accounting policy for each category of financial instruments is as follows:
Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest-
bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses arising
on repurchase, settlement or otherwise cancellation of liabilities are recognised respectively in investment income and finance costs.
Finance costs comprise interest payable on borrowings calculated at the effective interest rate method and recognised on an accruals
basis.
Borrowing costs are recognised as an expense when incurred.
Derivative financial instruments
The Company uses derivative financial instruments such as interest rate swaps 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 to 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.
Financial Statements LSL Property Services plc Annual Report and Accounts 2014Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2014 2. Tangible fixed assets
As at 31st December 2014
Cost
At 1st January 2014
Additions
At 31st December 2014
Depreciation
At 1st January 2014
Charge for the year
At 31st December 2014
Carrying amount
At 31st December 2014
At 1st January 2014
3. Investments
Subsidiary undertakings
Other investments
Investments in joint ventures
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
Disposals
Adjustments for share-based payment
At 31st December
2014
£’000
2013
£’000
165,163
164,395
2,500
–
1,336
168,999
–
(4)
772
165,163
In 2014, an adjustment of £1,336,000 (2013: £772,000) was made 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. The
total contribution to date is £5,231,000 (2013: £4,104,000).
141
Total
£’000
148
31
179
120
28
148
31
28
Leasehold
improvements
£’000
Fixtures, fittings
and computer
equipment
£’000
55
19
74
35
13
48
26
20
93
12
105
85
15
100
5
8
2014
£’000
168,999
21,343
7,233
197,575
2013
£’000
165,163
35,102
1,432
201,697
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
142
2014
£’000
2013
£’000
35,102
1,090
(21,599)
6,750
21,343
11,769
847
–
22,486
35,102
3. Investments (continued)
Other investments
At Cost
At 1st January
Additions
Disposals
Revaluation uplift
At 31st December
On 18th June 2014, Zoopla underwent an IPO. Prior to the IPO, LSL owned 4.91% of Zoopla which was valued at £17.50 per share,
£35.1m. As part of the IPO, LSL received 10 shares in the new company for each share it owned reducing the value to £1.75 per new
share. The IPO price was £2.20 per share so revaluing LSL’s investment prior to the IPO at £44.1m.
As part of the IPO, LSL was invited to acquire an additional 619,318 shares for £1,090,000, which was at a 20% discount to the IPO price
due to its existing customer relationship with Zoopla. A gain of £273,000 was recorded through other comprehensive income to revalue
these shares back to the IPO price.
During the period, LSL sold 48.9% of its stake in Zoopla for £20,838,000, net of associated costs, £16,820,000 net of tax. The gain on
the disposal of the shares recognised in the income statement was £19,806,000 gross, £15,791,000 net of tax, of which £18.0m was
recorded at IPO and a further £1.8m was recorded in July. The Directors decided that a special distribution of 16.5 pence per Share was
declared to return this exceptional gain to Shareholders in September 2014.
Following the above transactions, the Group continues to own 2.60% of Zoopla.
Zoopla’s share price at 31st December 2014 was £1.965 per share. The Directors consider this to be the best estimate of the fair value of
LSL’s investment in Zoopla to be the current share price which values the Group’s stake in Zoopla at £21,347,402. An additional valuation
adjustment of £2,456,000 has been recorded through other comprehensive income to reflect the change in share price since the IPO.
Investments in joint ventures
At Cost
At 1st January
Additions
At 31st December
2014
£’000
1,432
5,801
7,233
2013
£’000
1,432
–
1,432
Details of the joint ventures held by the Company are shown in Note 33 to the Group Financial Statements.
In September 2014, the Group increased its ownership interest in LMS to 49.99%. The initial consideration was £2,422,000 with a deferred
and contingent consideration estimated at the date of acquisition of £3,379,000. The contingent consideration payable amounts to
£957,000 and will vary based on the future profitability of LMS and is payable in 2016 .
4. Debtors
Deferred tax asset (Note 7)
Group relief receivable
Prepayments
Amounts owed by Group undertakings
2014
£’000
–
13,510
927
35,458
49,895
2013
£’000
142
14,112
1,088
18,143
33,485
Financial Statements LSL Property Services plc Annual Report and Accounts 2014Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2014
5. Creditors: amounts falling due within one year
Bank overdraft (Note 8)
Other taxes and social security payable
Accruals
Contingent consideration
Deferred consideration
Derivative financial liability - interest rate swap
Amounts owed to Group undertakings
6. Creditors: amounts falling due after one year
Deferred Consideration
Contingent Consideration
Loans (Note 8)
143
2014
£’000
26,525
–
1,116
–
–
–
108,543
136,184
2014
£’000
2,887
5,458
34,000
42,345
2013
£’000
23,589
219
1,613
2,220
446
230
106,295
134,612
2013
£’000
–
–
24,000
24,000
Deferred consideration
Deferred consideration of £465,000 (2013: £446,000) relates to 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 Ltd. No interest is payable on this. There
is also a deferred consideration of £2,422,000 relating to LMS acquisition from September 2014 relating to the purchase of an additional
stake in LMS.
Contingent consideration
£4,501,000 (2013: £2,220,000) of contingent consideration relates to the Growth Shares acquired by to the 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 Shares 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.
£957,000 (2013: nil) of contingent consideration relates to payments to third parties in relation to the acquisition of LMS in September 2014.
This is payable in 2016 and the payout will vary depending on the profitability of LMS in 2015.
7. Deferred tax asset
Deferred tax asset at 1st January
Deferred tax (charge) in profit and loss account for the year
Deferred tax asset at 31st December
2014
£’000
142
(142)
–
2013
£’000
203
(61)
142
Deferred tax asset is in relation to a short term timing difference. This relates predominantly to the interest rate swap.
In March 2013, the UK government announced proposals to reduce the main rate of corporation tax to 20% from 1st April 2015. As of
31st December 2014 reductions to the main rate of corporation tax to 20% had been enacted. Accordingly this is the rate at which deferred
tax has been provided.
No provision has been made for deferred tax on gains recognised on revaluing investments. Such tax would become payable only if the
investment were sold. The total amount unprovided for is £3,869,237. At present, it is not envisaged that any tax will become payable in the
foreseeable future.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
8. Loans
Amounts falling due
In more than two years but not more than five years
144
2014
£’000
2013
£’000
34,000
34,000
24,000
24,000
Bank loans - revolving credit facility and overdraft
The Group’s bank loan totals £34m (2013: £24.0m) and the Group’s overdraft total £0.7m (2013: £2.5m). The bank loan is secured via
a cross guarantee issued from all of the Group’s subsidiaries excluding the following subsidiaries, Lending Solutions, Homefast Property
Services, Linear Financial Solutions (including Linear Mortgage Network), Templeton LPA, Pink Home Loans, Barnwoods, Chancellors
Associates and LSLi and its subsidiaries. The parent company overdraft is £26.5m but is offset by positive cash balances in the subsidiaries
listed above.
The 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 £100m facility (2013: £100m). The Group’s overdraft is also secured on the same facility but cannot exceed £5m
and the combined overdraft and revolving credit facility cannot exceed £100m (2013: £100m). The banking facility was renewed in June
2013 for a further period until August 2017.
The interest rate applicable to the facility is LIBOR plus a margin rate of 1.50% (2013:1.50%). The margin rate is linked to the leverage ratio
of the Group and the margin rate is reviewed at six monthly intervals.
9. Called up share capital
Authorised
Ordinary Shares of 0.2p each
Issued and fully paid:
At 1st January and 31st December
2014
2013
Shares
£’000
Shares
£’000
500,000,000
1,000 500,000,000
1,000
104,158,950
208 104,158,950
208
Financial Statements LSL Property Services plc Annual Report and Accounts 2014Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2014
145
10. Reconciliation of movements in Shareholders’ funds
Balance at 1st January
2013
Revaluation of financial
assets
Share-based payments
Purchase of Treasury
shares
Exercise of share options
Dividend paid
Profit for the year
Balance at 1st January
2014
Revaluation of financial
assets
Disposal of financial
assets
Share-based payments
Purchase of Treasury
shares
Exercise of share options
Dividend paid
Profit for the year
Balance at 31st
December 2014
Share capital
£’000
Share premium
account
£’000
Share-based
payment reserve
£’000
Treasury shares
£’000
Fair value reserve
£’000
Profit and loss
account
£’000
Total
£’000
208
5,629
1,526
(2,691)
10,677
43,704
59,053
–
–
–
–
–
–
–
–
–
–
–
–
–
1,323
–
(374)
–
–
–
–
22,486
–
(2,625)
1,024
–
–
–
–
–
–
–
–
–
434
(9,985)
5,262
22,486
1,323
(2,625)
1,084
(9,985)
5,262
208
5,629
2,475
(4,292)
33,163
39,415
76,598
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,775
–
(752)
–
–
–
–
–
6,751
(20,568)
–
–
–
–
(5,621)
1,991
–
–
–
–
–
–
–
451
(28,286)
36,633
6,751
(20,568)
1,775
(5,621)
1,690
(28,286)
36,633
208
5,629
3,498
(7,922)
19,346
48,213
68,972
For a description of the reserves refer to Note 25 to 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 has operated long term incentive plans
(including JSOP and CSOP) and a number of SAYE schemes for the employees in the Company and the Group. See Note 11 to the
Financial Statements for details of the LTIP, JSOP, CSOP, SIP/BAYE and the SAYE schemes.
11. 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 £36,634,000 (2013: profit of £5,262,000).
Remuneration paid to Directors of the Company is disclosed in Note 12 to the Group Financial Statements.
The Company paid £124,434 (2013: £43,000) to its auditors in respect of the audit of the Financial Statements of the Company.
Fees paid to the external 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 9 to the Group Financial Statements.
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
146
12. Pensions costs and commitments
The Company operates defined contribution pension schemes for all its Directors and employees. The assets of the schemes are held
separately from those of the Company in independently administered funds. The Company’s contributions for ‘old’ members of the existing
defined contribution section of the scheme (those members who have always been in this scheme) throughout 2008, were a maximum
of 5% of pensionable salaries where members contribute and the cost of the death-in-service benefits. Contributions to the scheme were
suspended in April 2009 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 £70,217 (2013: £69,696). There were no outstanding amounts in respect of pensions as
at 31st December 2014 (2013: £nil).
13. Capital commitments
The Company had no capital commitments as at 31st December 2014 (2013: none).
14. 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
Linear
2014
2013
Linear Financial Services
2014
2013
LSLi
2014
2013
Intercounty
2014
2013
JNP
2014
2013
Goodfellows
2014
2013
Intercounty Lettings Limited
2014
2013
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
52
277
277
8,035
11,720
425
319
308
–
970
208
29
29
200
–
–
–
–
–
–
–
–
583
–
–
–
–
Financial Statements LSL Property Services plc Annual Report and Accounts 2014Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2014
Financial Statements
LSL Property Services plc
Annual Report and Accounts 2014
147
147
14. Related party transactions (continued)
Marsh & Parsons Holdings Limited
2014
2013
Marsh & Parsons
2014
2013
Frosts
2014
2013
Heal
2014
2013
Lauristons
2014
2013
Davis Tate
2014
2013
Lawlors
2014
2013
Homefast
2014
2013
Home of Choice
2014
2013
Sales to
related
parties
£’000
Purchases from
related
parties
£’000
Amounts owed
by related
parties
£’000
Amounts owed
to related
parties
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,420
1,422
–
–
–
–
12,923
–
29
–
14
–
6
–
4
–
1,120
–
–
–
5,000
5,000
475
1,226
–
–
–
–
–
–
–
–
–
–
–
–
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Financial Statements LSL Property Services plc Annual Report and Accounts 2014
Other Information
Other Information
148
In this section
In this section
149 Definitions
153 Shareholder Information
149 Definitions
153 Shareholder Information
Davis Tate, Goring
•••LSL AR 2014•••.indd 85
23/03/2015 15:36
Other Information LSL Property Services plc Annual Report and Accounts 2013
Definitions
149
“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 to the Financial Statements.
“AGM” Annual General Meeting.
“AMF” and “Advance Mortgage Funding” are trading names of Advance Mortgage Funding Limited.
“AMI” Association of Mortgage Intermediaries.
“ARLA” Association of Residential Lettings Agents.
“ASA” Advertising Standards Authority.
“Asset Management” refers to LSL’s repossessions asset management and property management for multi property landlords services.
“Audit Committee” LSL’s audit committee.
“Auditor Independence Policy” LSL policy relating to non audit services provided by the external auditor.
“Basic Earnings Per Share” is defined at Note 10 to the Financial Statements.
“BIS” Department of Business Innovation and Skills.
“Board” the board of Directors of LSL.
“BSi” British Standards Institute.
“BAYE” ‘buy as you earn’ (also referred to as SIP).
“CMA” Competition and Markets Authority.
“Committees” refers to LSL’s Nominations Committee, the Audit Committee and the Remuneration Committee.
“Companies Act” Companies Act 2006.
“Corporate Client Services” comprising LSL Corporate Client Services Limited, Templeton LPA Limited and St Trinity Limited providing
repossession, asset management and corporate letting services.
“Chancellors Associates” trading name of Chancellors Associates Limited.
“Chairman” or “Non Executive Chairman” from 1st January 2015 Simon Embley; during 2014 Roger Matthews.
“Chairman of the Audit Committee” Mark Morris.
“CML” Council of Mortgage Lenders.
“Code” UK Code of Corporate Governance published by the Financial Reporting Council (FRC) (September 2012 and September 2014
editions as applicable).
“Company Secretary” Sapna B FitzGerald.
“CCAS” Consumer Codes Approval Scheme.
“Connells” Connells Limited.
“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.
“DMGT” trading name of Daily Mail and General Trust plc.
“EBITDA” earnings, before interest, taxes, depreciation and amortisation.
“EPC” energy performance certificate.
“EPS” earnings per share.
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Other Information LSL Property Services plc Annual Report and Accounts 2014
150
Definitions continued.
“Ernst & Young” Ernst & Young LLP.
“ESG” environmental, social and governance.
“ESOS” energy savings opportunity scheme.
“ESOT” LSL’s employee share trust.
“Estate Agency Division” or “Estate Agency” 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” or “e.surv Chartered Surveyors” trading names of e.surv Limited.
“Executive Director(s)” from 1st January 2015 refers to Ian Crabb and Adrian Gill; during 2014 it includes Ian Crabb; Adrian Gill (from
24th November 2014); Steve Cooke (until 19th December 2014); David Newnes and Simon Embley (both until 31st December 2014).
“FCA” Financial Conduct Authority.
“Financial Services” refers to LSL’s financial services (including mortgage, general insurance and protection brokerage and the operation
of intermediary networks.
“First Complete” trading name of First Complete Limited.
“Financial Statements” financial statements contained in this Report.
“FRC” Financial Reporting Council.
“Frosts” trading name of David Frost Estate Agents Limited.
“FSMA” Financial Services and Markets Act 2000.
“Group” LSL Property Services plc and its subsidiaries.
“Group Chief Executive Officer” Ian Crabb.
“Group Finance Director” Steve Cooke for the period up to 19th December 2014.
“Growth Shares” the B1, B2 and C classes of ordinary shares (each £0.001) in Marsh & Parsons (Holdings) Limited.
“Goodfellows” trading name of GFEA Limited.
“GPEA” trading name of Guild of Professional Estate Agents Limited.
“Hawes” or “Hawes & Co” trading name of Hawes and Co Limited.
“HEAL” or “Halifax” Halifax Estate Agencies Limited.
“HEAL Business” HEAL branches and St Trinity Asset Management (formerly HEAL Corporate Services).
“HEAL Corporate Services” the asset management business operated by HEAL.
“HMRC” Her Majesty’s Revenue and Customs.
“Homefast” Homefast Property Services Limited.
“Home of Choice” or “HoC” division within First Complete.
“Home Report” a report which includes a single survey, energy report and property questionnaire and which must accompany all
residential property marketing in Scotland.
“IBNR” incurred but not reported.
“IFRS” International Financial Reporting Standards.
“Intercounty” trading name of ICIEA Limited.
“IPO” initial public offering.
“JNP” trading name of JNP Estate Agents Limited.
Other Information LSL Property Services plc Annual Report and Accounts 2013 151
“JSOP” joint share ownership plan.
“KPI” key performance indicators.
“Lauristons” trading name of Lauristons Limited.
“Lawlors” trading name of Lawlors Property Services Limited.
“Legal Marketing Services” and “LMS” trading names of LMS Direct Conveyancing Limited and Cybele Solutions Holdings Limited.
“Lending Solutions” Lending Solutions Holdings Limited.
“Lettings” refers to LSL’s residential property lettings and property management services.
“Linear” and “Linear Financial Solutions” are trading names of Linear Mortgage Network Limited.
“Lloyds Banking Group” Lloyd Bank plc group of companies.
“LPA” the Law of Property Act 1925.
“LSLi” LSLi Limited and its subsidiaries (during 2014 these included JNP, Intercounty, Frosts, Goodfellows, Davis Tate, Lauristons, Lawlors
and Hawes & Co).
“LSL” LSL Property Services plc and its subsidiaries.
“LSL Corporate Client Department” trading name of LSL Corporate Client Services Limited.
“LSL Land & New Homes” trading style used by members of the Estate Agency Division.
“LTIP” long term incentive plan.
“Lush Retail” Lush Retail Limited.
“Management Team” senior management teams within the Group including the Executive Directors.
“Marsh & Parsons” trading name of Marsh & Parsons Limited.
“MMR” Mortgage Market Review.
“NAEA” National Association of Estate Agents.
“NBS” or “New Bridge Street” trading name of Aon Hewitt Limited.
“Net Bank Debt” see Note 29 to the Financial Statements.
“NFoPP” National Federation of Property Professional.
“Non Executive Director” during 2014 refers to Helen Buck, Adrian Gil (until 24th November 2014), Roger Matthews (until 31st December
2014), Mark Morris and Bill Shannon; since 1st January 2015 refers to Helen Buck, Mark Morris and Bill Shannon.
“Notice of Meeting” the circular made available to shareholders setting out details of the AGM.
“Note” refers to Notes to the Financial Statements.
“OCI” refers to other comprehensive income.
“OFT” Office of Fair Trading.
“Openwork” trading name of Openwork Limited.
“Ordinary Shares”or “Shares” 0.2p ordinary shares in LSL.
“PI” professional indemnity.
“PI Costs” costs relating to ongoing and expected future PI claims relating to Surveying and Valuation Services.
“Pink Home Loans” or “Pink” are trading names for Advance Mortgage Funding Limited (AMF) and BDS Mortgage Group Limited
“RCF” revolving credit facility.
“Reeds Rains” trading name of Reeds Rains Limited.
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Other Information LSL Property Services plc Annual Report and Accounts 2014
Definitions continued.
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“Reeds Rains Financial Services” trading name of Reeds Rains Financial Services Limited.
“Registered Office” Newcastle House, Albany Court, Newcastle Business Park, NE4 7YB.
“Report” LSL’s annual report and accounts 2014.
“Residential Sales” refers to LSL’s services for residential property sales.
“RICS” Royal Institution of Chartered Surveyors.
“Sainsbury’s” Sainsbury’s Supermarkets Limited.
“SAYE” save-as-you-earn.
“Senior Independent Non Executive Director” during 2014 refers to Mark Morris; since 1st January 2015 refers to Bill Shannon.
“Shareholders” shareholders of LSL.
“SIP” share incentive plan (as referred to as BAYE).
“St Trinity Asset Management” trading name of St Trinity Limited.
“Surveying Division” or “Surveying” includes LSL’s surveying and valuation businesses.
“Surveying and Valuation Services” or “Surveying Services” refers to LSL’s Surveying Division.
“Templeton” trading name of Templeton LPA Limited.
“Thomas Morris” trading name of Thomas Morris Limited.
“The Mortgage Alliance” or “TMA” are trading names of First Completes’ mortgage club.
“TMG” TM Group Limited.
“TPO” The Property Ombudsman.
“Trust” or “Employee Benefit Trust” or “ESOT” LSL Property Services plc Employee Benefit Trust.
“Trustees” Capita Trustee Limited.
“TSI” Trading Standards Institute.
“TSR” total shareholder return.
“Underlying Operating Margin” operating profit before exceptional costs, contingent consideration, amortisation and share based
payments show as a percentage of turnover.
“Underlying Operating Profit/Loss” before exceptional costs, contingent consideration, amortisation of intangible assets and share based
payments.
“VEM” Vibrant Energy matters Limited.
“Walker Fraser Steele” a trading name and division of e.surv.
“Your Move” trading name of your-move.co.uk Limited.
“Zoopla” trading name of Zoopla Property Group plc.
Other Information LSL Property Services plc Annual Report and Accounts 2013 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
Head Office:
1 - 3 Sun Street, London, EC2A 2EP
Telephone: 0203 215 1015
Facsimile: 0207 920 9443
Email: 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 Asset Services
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: +44 208 639 3399
Website: www.capitaassetservices.com
Email: shareholderenquiries@capita.co.uk
If you move, please do not forget to let the Registrars know your new address
Provisional calendar of events
Preliminary Results Released
AGM Proxy Form Deadline
AGM
12th March 2015
2.30pm 28th April 2015
2.30pm 30th April 2015
The AGM will be held at LSL’s offices at 1-3 Sun Street, London EC2A 2EP. The Notice of Meeting details the proposed resolutions.
In accordance with its Articles of Association, LSL publishes shareholder information, including notice of AGMs and the Annual Report and
Accounts on its website, www.lslps.co.uk. Reducing the number of communications sent by post not only results in cost savings to LSL, it
also reduces the impact that unnecessary printing and distribution of reports has on the environment.
LSL’s Articles of Association enable all communications between Shareholders and LSL to be made in electronic form (as permitted by the
Companies Act 2006). Documents will be supplied via LSL’s website to Shareholders who have not requested a hard copy, or provided an
email address to which documents of information may be sent. Where a Shareholder has consented to receive information via the website,
a letter will be sent to the Shareholder on release of any information directing them to the website.
If a Shareholder wishes to continue to receive hard copy documents they should contact Capita Registrars (details above).
153
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Other Information LSL Property Services plc Annual Report and Accounts 2014
Shareholder Notes
www.lslps.co.uk
LSL Property Services plc (LSL)
is a leading provider of residential
property services to two key
customer groups. Services to
consumers include residential sales,
lettings, surveying, conveyancing
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.
Your Move
Reeds Rains
Marsh & Parsons
LSLi
Davis Tate
Frost’s
Goodfellows
Hawes & Co
Intercounty
Lauristons
Lawlors
The JNP Partnership
LSL Corporate Client Department
St Trinity Asset Management
Templeton LPA
First Complete
Pink Home Loans
The Mortgage Alliance
Embrance Mortgage Services
First2Protect
e.surv Chartered Surveyors
Walker Fraser Steele Chartered Surveyors
Annual Report and Accounts 2014
•••LSL AR 2014•••.indd 2
27/03/2015 11:39
Annual Report and Accounts
Year ended 31st December 2014
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
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