LSL Property Services plc Annual Report 2017

FY2017 Annual Report · LSL Property Services plc

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LSL Property Services plc

Annual Report and Accounts Year ended 31st December 2017

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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Annual Report and Accounts 2017

LSL Property Services plc, a leading
provider of residential property services
to its key customer groups incorporating
both estate agency and surveying
businesses.

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Contents

Overview, Strategic Report and Directors’
Report Overview
1
Highlights 2017
2
LSL Today
4 Milestones
5
7

Chairman’s Statement
Group Chief Executive’s Review

Strategic Report

12 Strategy
13 Business Model
14 Markets
16 Business Review – Estate Agency Division
19 Business Review – Surveying Division
20 Financial Review
22 Principal Risks and Uncertainties
28 Corporate Social Responsibility
38 The Board

Directors’ Report (including Corporate
Governance Reports)
Statement of Directors’ Responsibilities in Relation to
the Group Financial Statements
Report of the Directors
Corporate Governance Report

42
47
56 Audit & Risk Committee Report
Directors’ Remuneration Report
66

Financial Statements
88

Independent Auditor’s Report to the Members of
LSL Property Services plc
98 Group Income Statement
99 Group Statement of Comprehensive Income
100 Group Balance Sheet
101 Group Statement of Cash-Flows
102 Group Statement of Changes in Equity
103 Notes to the Group Financial Statements
147 Statement of Directors’ Responsibilities in Relation to

the Parent Company Financial Statements

148 Parent Company Balance Sheet
149 Parent Company Statement of Cash-Flows
150 Parent Company Statement of Changes in Equity
151 Notes to the Parent Company Financial Statements

Other Information
164 Definitions
169 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 financial condition, business performance and results of
LSL. By their nature, all forward looking statements involve risk and
uncertainty because they relate to future events and circumstances
that are beyond the control of LSL including, amongst other things,
UK domestic and global economic and business conditions, market
related risks such as fluctuations in interest rates, inflation, deflation,
the impact of competition, changes in customer preferences, delays
in implementing proposals, the timing, impact and other uncertainties
of future acquisitions or other combinations within relevant industries,
the policies and actions of regulatory authorities, the impact of tax
or other legislation and other regulations in the UK. As a result LSL’s
actual future condition, business performance and results may differ
materially from the plans, goals and expectations expressed or
implied in these forward looking statements. Nothing in this Report
should be construed as a profit forecast. Information about the
management of the Principal Risks and Uncertainties facing LSL is
set out within the Strategic Report on pages 22 to 27.

Highlights 2017
Robust performance in subdued market conditions

Group

£311.5m

Group Revenue
(2016: £307.8m)

£37.5m

Group Underlying Operating Profit
(2016: £34.6m)

12.0%

Group Underlying Operating Margin
(2016: 11.3%)

£42.7m

Group Adjusted EBITDA
(2016: £40.1m)

£42.1m

Group Operating Profit
(2016: £65.4m)

£40.1m

Profit before tax
(2016: £63.5m)

£9.3m

Net exceptional gain
(2016: £32.2m)

28.3p

Adjusted Basic Earnings Per Share
(2016: 25.9p)

11.3p

Full year dividend per share
(2016: 10.3p)

Estate Agency and Related Services

Surveying and Valuation Services

£26.9m

Underlying Operating Profit
(2016: £24.5m)

£18.9m

Underlying Operating Profit
(2016: £17.5m)

Group Revenue – £m

Group Underlying Operating Profit¹ – £m

Group Underlying Operating Margin – %

Group Adjusted EBITDA2

Group operating profit – £m

Profit before tax – £m

Net exceptional gain – £m

Basic Earnings Per Share (EPS) – pence

Adjusted Basic Earnings Per Share (EPS) – pence3

Net Bank Debt4 at 31st December – £m

Final proposed dividend per share – pence

Full year dividend per share – pence

2017

2016 % Change

311.5

307.8

37.5

12.0

42.7

42.1

40.1

9.3

32.6

28.3

30.0

7.3

11.3

34.6

11.3

40.1

65.4

63.5

32.2

49.2

25.9

20.3

6.3

10.3

-36

-37

-73

-34

-48

+16

+10

Notes:
1 Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments (as defined in Note 5

to the Financial Statements)

2 Group Adjusted EBITDA is Group Underlying Operating Profit plus depreciation on property, plant and equipment (as defined in Note 5 to the Financial Statements)
3 Refer to Note 10 to the Financial Statements for the calculation
4 Refer to Note 30 to the Financial Statements for the calculation

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewLSL Today
LSL has established leading positions in its market segments

LSL is a leading provider of residential property services to its key customer groups. Services to consumers include: residential
sales; lettings; surveying; conveyancing; and mortgage, pure protection and general insurance brokerage services. Services to
mortgage lenders include: valuations and panel management services; asset management and property management services.

Information included in this section of the Report is provided as at 5th March 2018.

Estate Agency Division - Estate Agency and Related Services

Residential Sales and Lettings

LSL is one of the largest estate agency networks in the UK1. It has strong established high street brands including Your Move, the largest UK
single brand estate agent on the high street2, and Marsh & Parsons which brings exposure to the prime and outer Central London property
markets. Branch services include Residential Sales, Lettings and Financial Services and a successful franchise model which operates in 104
branches across predominantly Your Move and Reeds Rains. All Estate Agency brands are members of The Property Ombudsman (TPO)
Redress Scheme, which operates a residential sales and lettings code of practice approved by the Trading Standards Institute (TSI) under its
Consumer Codes Approval Scheme (CCAS). The Financial Services businesses are subject to the Financial Ombudsman Service and also
contribute to the funding of the Financial Services Compensation Scheme through regulatory fees and charges.

Your Move
your-move.co.uk

The largest UK single branded estate agent2 with 260 branches operating
throughout the UK with strong brand awareness and one of the most visited UK
estate agency websites3 with over 11 million visits in 20174.

Reeds Rains
reedsrains.co.uk

A predominantly northern based network of 154 branches with the
highest brand awareness of any estate agent brand in the North East,
the North West and Yorkshire2.

Marsh & Parsons
marshandparsons.co.uk

Leading London premium brand estate agency operating
out of 27 branches in the prime Central, North West, West
and South West London property markets.

LSLi
lsli.co.uk

LSLi is the holding company and financial services provider for nine estate agency
brands with a network of 64 branches. The brands in the LSLi network are based
predominantly in and around Greater London and the Home Counties.

Yopa
yopa.co.uk

In September 2017, LSL made a strategic investment in the online hybrid estate agent,
Yopa, acquiring a 17.3% shareholding. Following this investment, LSL and Yopa started
collaborative activities as part of a strategic partnership. Yopa operates independently of
any other LSL company, under its own brand and management team.

Group First: Mortgages First and Insurance First Brokers
mortgages-first.co.uk insurance-first.co.uk

N E W H O M E S

Group First, which was acquired in 2016, provides mortgage and protection brokerage services to
purchasers of new homes through its subsidiaries: Mortgages First and Insurance First Brokers.

LSL Land & New Homes
lsllandandnewhomes.co.uk

LSL Land & New Homes, through the Estate Agency businesses, provides
a complete range of services for house builders, developers and investors of all sizes.

Asset Management

LSL’s asset management companies
are market leaders in the sale of
residential properties on behalf
of corporate clients. In 2017 they
managed 2,269 repossessions
utilising a network of up to 1,157
estate agency branches nationwide.

LSL Corporate Client
Department
lsl-ccd.co.uk

LSL CCD operates a repossessions
asset management business and
a property management business
for multi-property landlords and
is a leading property specialist,
providing services to national and
global institutions.

St Trinity Asset Management
sttrinityassetmanagement.co.uk

The Group’s second asset
management business was
created in 2010 and specialises in
repossession property sales, as
well as offering a range of other
services including part exchanged
property sales, bulk property
disposal, auction sales, property
relocations and conveyancing.

Templeton LPA
templetonlpa.co.uk

Law of Property Act fixed charge
receiver which joined the Group
in 2010.

N E W H O M E S

Estate Agency Division - Estate Agency and Related Services

Surveying Division – Surveying and Valuation Services

www.lslps.co.uk

Financial Services

LSL’s Financial Services teams specialise in the brokerage of
mortgage, pure protection and general insurance products through a
range of brands. Following the acquisition of Personal Touch Financial
Services in January 2018, LSL’s combined appointed representative
network is the second largest in the UK5 and across its brands, the
Group has 682 appointed representative firms and 1,745 advisers.
The total value of mortgage completions arranged by PRIMIS in 2017
was £21.0bn up 22.8% from 2016.

PRIMIS Mortgage Network
primis.co.uk

PRIMIS Mortgage Network is a trading name of First Complete and
Advance Mortgage Funding and both companies are directly author-
ised by the FCA. First Complete acts as principal for most of the estate
agency businesses within LSL’s Estate Agency Division, enabling their
employed financial consultants to offer Financial Services to customers
of the branch networks. Advance Mortgage Funding (previously trad-
ing as Pink Home Loans), operates a mortgage intermediary network,
providing products and services to financial intermediaries since 1990,
joining the LSL Group in 2010.

The Mortgage Alliance
tmaclub.com

The Mortgage Alliance is a trading style of First Complete
and distributes mortgages and financial services products
to directly authorised mortgage intermediaries.

Personal Touch Financial Services
personaltouchfs.com

Personal Touch Financial Services is directly authorised by the FCA and
operates a financial services intermediary network, providing products
and services to financial intermediaries, launched in 1994 and joining the
LSL Group in 2018.

Your Move and Reeds Rains are appointed representatives of First
Complete and provide mortgage, pure protection and general insurance
brokerage services, through employed financial consultants based in the
Estate Agency branches and call centres; Embrace Mortgage Services,
which is a trading name of LSLi, does the same across the LSLi group of
companies; and Linear Financial Solutions, an appointed representative
of Advance Mortgage Funding and Openwork, provides those products
through a network of financial consultants based remotely and in the
branches of estate agents. First2Protect is a specialist business arranging
household insurance for customers of LSL’s Estate Agency Division and
third party introducers. Mortgages First is an appointed representative
of First Complete and specialises in providing mortgages and financial
services to customers financing the purchase of new-build property.
Insurance First Brokers is an appointed representative of First Complete
and provides pure protection and general insurance brokerage services.

your-move.co.uk/mortgages
reedsrains.co.uk/mortgages
embracemortgageservices.co.uk
linearfs.com

first2protect.co.uk
mortgages-first.co.uk
insurance-first.co.uk

e.surv Chartered Surveyors
esurv.co.uk

e.surv Chartered Surveyors is one of
the country’s largest providers of
property risk and residential valuation services⁶. Combining industry-
leading technology with a nationwide network of over 400 surveyors,
e.surv provides a range of products and services to a customer base
that includes lenders, intermediaries, social housing entities, estate
agents, private homeowners and other stakeholders in the UK residential
property sector. Now in its fifth year, the e.surv Graduate Residential
Surveying Programme has launched the careers of nearly 200 graduates
and represents a strategic commitment to a sustainable and evolving
industry.

Walker Fraser Steele
walkerfrasersteele.co.uk

One of the longest established
Chartered Surveyor brands in Scotland, Walker Fraser Steele was
founded in Glasgow in 1884 and became part of e.surv Chartered
Surveyors in 2013. The acquisition substantially expanded LSL’s
geographic coverage within Scotland and the business now provides
surveying and valuation services from locations across Scotland for
both local and national clients, including the Home Report, an essential
component of the Scottish home buying process.

Notes:
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 With 260 physical branches, Your Move has more branches than any other single

brand of estate agents, verified using publicly available data.

3 Hitwise December 2017.
4 Google Analytics January – December 2017.
5 Which Network – network performance figures for 2017 showing the combined

numbers for PRIMIS (First Complete and Advance Mortgage Funding).

6 The market position is based on LSL’s own calculations and assessment using

publicly available data.

For further information on all LSL brands please
visit www.lslps.co.uk

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview2013

New banking facility agreed.

Acquisition of Lawlors.

Completed five lettings book acquisitions.

Acquisition of Walker Fraser Steele.

2015

Acquisition of Thomas Morris.

Completed 30 lettings book
acquisitions.

2017

Strategic investment in Yopa, an online
hybrid estate agent.

Extension of contract to supply UK
residential survey and valuation services
to Barclays Bank PLC.

Extension of contract to supply UK
residential survey and valuation services
to Santander UK plc.

Milestones

2014

Commencement of a new contract with
Lloyds Banking Group for UK residential
survey and valuation services.

Commencement of renewed contract with
Barclays Bank PLC for UK residential survey
and valuation services.

ZPG plc IPO and special dividend of 16.5
pence per share paid to Shareholders.

Acquisition of Hawes & Co.

Completed 10 lettings book acquisitions.

2016

Extension of banking facility to May 2020.

Acquisition of Group First (including Mortgages
First and Insurance First Brokers).

Sale of entire shareholding in ZPG plc.

Completed nine lettings book acquisitions.

Chairman’s Statement

Introduction

I am pleased to report positive progress
for the Group in 2017. Group Underlying
Operating Profit1 of £37.5m in 2017
increased 8% compared to the prior
year (2016: £34.6m) with Group Adjusted
EBITDA2 up 7%. Group Revenue in 2017
grew by 1% to £311.5m (2016: £307.8m).

The Group’s business model and
disciplined focus on its strategy has
enabled LSL to successfully navigate the
challenging residential property market
conditions in 2017.

The LSL strategy has been consistently
and successfully executed in 2017 and
remains unchanged. The Board remain
confident of the opportunities for further
positive progress for the Group.

Dividend
The Board continues to support our
previously communicated dividend policy,
to apply a dividend pay-out ratio of between
30% to 40% of Group Underlying Operating
Profit after interest and tax. The Board has
reviewed the policy while considering the
risks and capital management decisions
facing the Group.

Adjusted Basic Earnings Per Share for 2017
was 28.3 pence, an increase of 9.3% on the
prior year (2016: 25.9 pence). The Board has
a positive view of the future prospects for
the business whilst also being mindful of the
uncertain economic and political landscape
which has an impact on consumer
sentiment. The proposed dividend payment
is at the upper end of the range of our
stated policy and a final dividend of 7.3
pence per share (2016: 6.3 pence per share)
will be proposed to Shareholders at the
forthcoming AGM, giving a total dividend
for 2017 of 11.3 pence per share (2016: 10.3
pence per share).

Our market position
LSL holds a market leading position in its
core Estate Agency business comprising
12 Estate Agency brands, including Your
Move, which is the largest UK single brand
estate agent measured by the number of
branches3. The businesses are organised
to deliver integrated Residential Sales,
Lettings and Financial Services, as well as
a range of additional residential property
related services.

Consumer confidence was impacted by
rising inflation, subdued wage growth and
changes to buy-to-let regulations, leading
to reduced housing transactions in 2017.
Despite the subdued market backdrop,
LSL’s focus on its stated strategy delivered
growth in both Financial Services income
and Lettings income and improved
productivity in the Surveying business.
These self-help measures have protected
LSL from the full impact of the challenging
housing market in 2017.

We continued to invest in our brands in
2017 to drive future growth, and increased
dedicated headcount to support our
successful Lettings and Financial Services
income streams and to grow our Land &
New Homes business. During 2017 we
also opened two new Marsh & Parsons
branches in outer prime Central London.

In Financial Services, during 2017 the
Group arranged total mortgage lending of
£21.0bn (2016: £17.1bn). Measured by the
number of appointed representatives, as
at 5th March 2018, LSL’s overall combined
network is the second largest in the UK4.
Financial Services income represented 24%
of total Group Revenue in 2017 (2016: 21%)
and demonstrates LSL’s growing position
as a leading financial services distributor.

During 2017 and into 2018, we have
assessed and continued to selectively
acquire businesses and make strategic
investments:

• Following LSL’s strategic review of
digital opportunities in the estate
agency market, in September 2017 LSL
made a 17.3% strategic acquisition of a
shareholding in Yopa, an online hybrid
estate agent. Following this investment,
LSL and Yopa started collaborative
activities as part of a strategic
partnership.

• In January 2018 LSL
acquired the entire
issued share capital of
Personal Touch Financial
Services and its subsidiary
company, Personal Touch
Administration Services.
Personal Touch Financial
Services is a financial
services business
specialising in the

provision of mortgage and other financial
services products via its network of
intermediaries. This acquisition supports
LSL’s stated strategy of enhancing its
position as a leading mortgage distributor
and is an excellent fit with our existing
financial services businesses, which were
rebranded to PRIMIS in February 2018.
Details of the acquisition are included
in this Report as a post balance sheet
event.

Following the publication of the draft Tenant
Fees Bill in November 2017, setting out the
government’s approach to banning letting
fees paid by tenants, we are monitoring
developments. Whilst the exact timing
of the introduction of the legislation is
uncertain, our current expectation is that
it will be introduced in 2019.

Our Surveying Division continues to hold a
market leading position, maintaining strong
relationships with many of the UK’s largest
lenders. During 2017 LSL negotiated
extensions to its contracts to supply UK
residential surveying and valuation services
to Barclays Bank PLC and Santander UK
plc. LSL’s Surveying Division is one of the
country’s largest providers of residential
valuation services nationwide and is one
of the largest employers of surveyors in
the UK4.

Simon Embley
Chairman

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewChairman’s Statement

£311.5m

Group Revenue
Up 1.2% (2016: £307.8m)

£40.1m

Profit before tax
Down 36.8% (2016: £63.5m)

28.3p

Adjusted Basic Earnings Per Share
Up 9.3% (2016: 25.9p)

11.3p

Full year dividend per Share
Up 9.7% (2016: 10.3p)

Full year 2017
Underlying Operating Profit

£37.5m

41%

59%

n Estate Agency
n Surveying

Corporate Governance and Board
The Board remains committed to high
levels of corporate governance and during
2017, LSL has complied in all respects
with the UK Corporate Governance Code
(April 2016 edition). We are also closely
monitoring the Government’s review of
corporate governance and the FRC’s
consultation in relation to the Code.

As Chairman, with the responsibility
for leadership of the Board, I review its
effectiveness on all aspects of its role
and encourage feedback. During our
annual evaluation exercise we reviewed
the composition of our Board and its
Committees and concluded that we
have the appropriate balance of skills,
independence and knowledge of the Group
to enable the Board to discharge our duties
and responsibilities effectively.

Details of our corporate governance
arrangements and the recommendations
arising from the evaluation exercise are
contained within the Corporate Governance
Report and details of the Directors are
included in The Board section of this Report.

Our people
Ultimately the success of our business
model is attributable to, and underpinned,
by our strong brands and excellence in the
delivery of high levels of customer services
by our colleagues throughout the Group.
The total number of employees as at 31st
December 2017 was 5,084 (2016: 4,990).
I would like to take this opportunity to thank
all of our colleagues for the continued hard
work and commitment which they have
demonstrated throughout 2017.

Outlook
Market conditions in 2018 have been
slightly softer than the equivalent period
in 2017. LSL’s financial performance in
2018 has tracked closely to the Board’s
expectations and the Group is well placed
to deliver a solid performance during the
year. LSL continues to execute on its
stated strategy and is well placed to deliver
increased Shareholder value.

standards and mortgage availability
remains good. The medium to longer term
fundamentals of the UK housing market
remain solid.

We are positive regarding the outlook
for the business, driven in part by
LSL’s ambition to continue to deliver
a programme of self-help measures,
including organic growth in Estate Agency
in Financial Services Income and Lettings
Income, with the aim of optimising organic
growth. LSL will also continue to evaluate
selective acquisitions and in 2018, LSL’s
ambition is to restart its lettings book
acquisition programme.

The Group has a robust balance sheet with
relatively low levels of gearing and is very
cash generative at an operational level.
The business is well placed to capitalise on
market conditions to increase Shareholder
value.

Simon Embley
Chairman
6th March 2018

Notes:
1 Group Underlying Operating Profit is before
exceptional costs, contingent consideration,
amortisation of intangible assets and share-based
payments (as defined in Note 5 to the Financial
Statements).

2 Group Adjusted EBITDA is Group Underlying

Operating Profit plus depreciation on property plant
and equipment (as defined in Note 5 to the Financial
Statements).

3 Your Move has 260 branches and has been internally
verified as the largest single brand estate agent in
the UK

4 LSL estimates on the combined networks of PRIMIS

and Personal Touch Financial Services.

Group Chief Executive’s Review

2017 Overview

The Group delivered a robust
performance in 2017, particularly
against the backdrop of a subdued
residential property market during
the year. I am pleased to report that
in 2017, Group Revenue (+1%), Group
Underlying Operating Profit (+8%) and
Group Adjusted EBITDA (+7%) were all
up year-on-year. Further, at the end of
2017 LSL’s Net Bank Debt (£30m) and
operational gearing1 ratio (0.7x) both
remained modest.

Group Revenue increased by 1% to £311.5m
(2016: £307.8m). Group Underlying Operating
Profit2 was up 8% to £37.5m (2016: £34.6m).
Group Adjusted EBITDA was up 7% to
£42.7m (2016: £40.1m). 2017 Profit before
tax of £40.1m was down compared to the
prior year (2016: £63.5m). The 2016
financials included an exceptional gain on
the disposal of ZPG plc shares of £32.9m.

In the Estate Agency Division, we continued
to invest in the growing parts of our
businesses and delivered strong year-on-
year revenue growth in Lettings (+4%) and
Financial Services (+16%). In the Surveying
Division, we delivered strong profit growth
(+8%), strong margins (29.4%) and we were
pleased to announce contract extensions
with Barclays Bank PLC (September 2017)
and Santander UK plc (December 2017).

Ian Crabb
Group Chief
Executive Officer

Yopa’s latest TV advertising campaign, on air January 2018.

During 2017 LSL completed the exploration
and evaluation of options to capitalise on
digital opportunities created by the growth
in consumer acceptance of online and
hybrid estate agency business models.
Following this evaluation, in September
2017, LSL announced the strategic
acquisition of a 17.3% shareholding in Yopa
for a total consideration of £20m. LSL and
Yopa have started collaborative activities as
part of a strategic partnership

The Market in 2017
The UK residential property sales market
was subdued in 2017. Approvals for house
purchases3 in 2017 were down by 1.5%
with the drop in market transactions more
pronounced in London and the South East4.

Approvals for house purchases were down
2.9% in the first half of 2017 compared to
the same period in 2016 when an increase
in Stamp Duty on 1st April 2016 led to
a spike in market activity in the period
up to the change. In the second half of
2017, approvals for house purchases
were broadly flat compared to the same
period in 2016. Whilst approvals for house
purchases in the third quarter of 2017
were relatively positive (+5.4%) compared
to the same period in 2016 when
consumer confidence was impacted by
the June 2016 EU referendum result,
approvals for house purchases were
down in the final quarter of 2017 (-5.5%)
compared to the same period in 2016.

Total mortgage approvals3 increased by
2.3% in 2017. This reflected an increase
in remortgage approvals in the first half of
2017 (+3.6%) compared to the same period
in 2016 reflecting low interest rates and the
availability of remortgage products and also
the second half of 2017 (+10.2%) reflecting
a spike in remortgage activity following the
interest rate increase announced by the
Bank of England in November 2017.

Average house prices5 in England and
Wales grew by 0.2% (2016: 3.1%) to
£301,022 annually with a drop in Greater
London (-4.3%) and the South East (-0.2%)
offsetting increases elsewhere in the country.
Excluding Greater London and the South
East, the average increase was 2.3%.

Residential property values in Greater
London decreased by 4.3%. Within prime
Central London (five prime boroughs) prices
fell by 9.5% while the remainder of Greater
London experienced a decrease of 1.3% in
year-on-year house prices5.

The proportion of new sales instructions
placed with online and hybrid estate agents
has continued to grow, increasing from 3%
of the market in the second half of 2015 to
7% in the second half of 20176. Channel
dynamics continue to evolve in 2017 with
online and hybrid agents share growing
in both the first and second half of 2017
compared to the same periods in 2016,
to represent circa 7% of new instructions
(H216: 6%). Their market share remained
broadly flat in the second half of 2017.

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewGroup Chief Executive’s Review

Total gross mortgage lending in 2017 was
£256bn7 (2016: £245bn). The proportion
of mortgage lending in the market placed
through intermediaries increased to 68% in
2017 (2016: 67%)8.

Following market declines in the
repossessions market in the past few
years, market repossession volumes
again declined in 2017, reducing by 4% to
7,4009 total repossessions as interest rates
remained low and was the lowest number
since 1982.

Strategy

LSL remains committed to delivering on our
stated strategy:

Estate Agency
• Ambition to drive operating profit

per branch to between £80,000 and
£100,000 in the medium term.

• Ambition to expand the number of Marsh
& Parsons branches to a total of 36 in the
medium term, particularly outside prime
Central London.

• Grow recurring and where market

conditions permit counter-cyclical income
streams.

• Complete selective acquisitions of both
residential sales businesses and lettings
books.

Surveying and Valuation Services
• Optimise contract performance and
revenue generation from business to
business customers.

• Achieve further improvement in efficiency

and capacity utilisation.

• Use technology to target further

improvements in customer satisfaction
and performance.

• Continue the graduate training

programme.

In addition to delivering on our stated
strategy, in the second half of 2017
we launched a new ways of working
programme across our Estate Agency
business to respond to the changing
landscape and customer demands. We
expect this to deliver improvements to
our operational performance and result
in enhancements to the quality of service
provided to Estate Agency Division
customers over the medium-term.

0808

LSL performance in 2017

Estate Agency Division
Total Estate Agency income of £247.4m
(2016: £243.1m) increased by 2%. This
increase resulted from the consistent
execution of our strategies with strong
growth in both Lettings and in Financial
Services income, where we continued
to invest in additional people to support
growth.

During 2017 eight owned branches and
three franchises were selectively closed
as part of the on-going management and
optimisation of LSL’s branch estate. LSL
does not expect either a rationalisation from
the current number of its Estate Agency
brands or any material change to the size of
its branch estate in the foreseeable future.

Residential Sales exchange income
Residential Sales exchange income
decreased by 9% to £76.6m (2016: £83.8m)
with average fees per unit down 1%.
Exchange volumes fell by 7%, back 19% in
the first quarter compared to the increased
activity in the first quarter of 2016. This was
attributable to the change in Stamp Duty
on 1st April 2016, followed by a relatively flat
second and third quarter in 2017 compared
to the same periods in 2016. However the
fourth quarter saw a subdued end to the
year reflecting on-going market conditions
in 2017.

Lettings income
We remain committed to our strategy
of increasing recurring Lettings income.
In 2017 we delivered growth in Lettings
income of 4% (organic growth 3%). Lettings
income increased as a proportion of the
Estate Agency business and represented
30% of total Estate Agency Division income
in 2017 (2016: 29%).

To drive recurring income growth, we
have previously acquired lettings books
which have been successfully integrated
into our Estate Agency networks. Lettings
book acquisitions were paused during the
second half of 2016 and into 2017 following
the EU referendum. Our ambition is to
recommence lettings book acquisitions
during 2018.

Financial Services
Total Financial Services income grew
strongly again with 16% year-on-year
growth in 2017. Adjusting for the acquisition

of Group First in February 2016, we
delivered organic growth of 14% as we
continued to roll out our model across
the Estate Agency business and delivered
growth from our intermediary networks.
Financial Services income increased as a
proportion of the Estate Agency businesses
and represented 30% of total Estate
Agency Division income in 2017 (2016:
26%) reflecting our continuing strategy
to enhance LSL’s position as a leading
distributor of mortgage and non-investment
insurance products.

In 2017, LSL further strengthened its
position as a leading distributor of
mortgage and non-investment insurance
products and delivered strong growth in
the value of mortgage completions which
were up to £21.0bn in 2017 (2016: £17.1bn).
Further, measured by the number of
appointed representatives, as at 5th March
2018, LSL’s overall combined network is the
second largest in the UK10.

Marsh & Parsons
LSL estimates that residential sales
volumes in the prime Central London
market fell by more than 15% in 2017 with
prime Central London house prices falling
by 9.5%. Given the overall challenging
prime Central London market, Marsh
& Parsons delivered a positive top line
performance with revenue up by 2% in
2017 to £34.3m (2016: £33.5m).

Marsh & Parsons Residential Sales income
fell by 5% in 2017 which represents a solid
performance in light of the overall prime
Central London market conditions. We are
pleased with the Lettings performance with
income growth of 10% (9% adjusting for
branch openings). Lettings revenue now
represents 59% of Marsh & Parson’s total
revenue (2016: 56%).

Expenditure at Marsh & Parsons increased
by 4% during 2017 including the investment
in additional Lettings headcount to support
revenue growth, additional investment
in headcount for New Homes, full year
costs for branches opened in 2016 and the
opening of two new branches in 2017. These
increases have been partly offset by the gain
on sale of leasehold premises (£0.7m in the
first half of 2017). Full year operating profit
fell by 12% to £3.9m (2016: £4.4m).

We continued with our branch expansion
strategy in 2017, opening two new

branches during the year in the outer
prime Central London locations of Brixton
and Islington. We are pleased with the
performance of these new branches. This
takes our total number of Marsh & Parsons
branches to 27 as at 31st December 2017.

Our ambition is to expand to 36 branches
in the medium-term. Outer prime Central
London has not been as negatively
impacted as prime Central London and
Marsh & Parsons is looking to expand its
branch footprint in outer prime Central
London locations. Marsh & Parsons is also
planning to open a new branch in Chiswick
in the spring of 2018.

Estate Agency profit per branch
(Your Move, Reeds Rains and LSLi)
Underlying Operating Profit per owned
branch in 2017 increased to £32,000 (2016:
£30,500) reflecting the growth in Financial
Services income and Lettings income offset
by the impact of the challenging residential
sales market conditions on Residential
Sales exchange income.

LSL has increased Underlying Operating
Profit per owned branch from £30,100 in
2013 to £32,000 in 2017. Our medium-term
ambition is to drive Underlying Operating
Profit per owned branch to between
£80,000 and £100,000 on the expectation
of a normalised level of market transactions
in the UK residential property sales market.

Our Lettings growth and Financial Services
growth across the network continues to
underpin this ambition and we will also
focus on our Land & New Homes business.
We will also plan to selectively deploy
new technology to improve the consumer
journey and increase efficiency.

Surveying Division
Surveying revenue was £64.1m (2016:
£64.7m), a decrease of 1% on the
previous year with the total number of
jobs performed during the year of 309,499
(2016: 318,077) reflecting the overall
management of the mix of jobs. Profit
growth was strongly influenced by the
successful continuation of investment in
our IT platform, optimising efficiency and
operational performance. This continued
focus on optimising efficiency drove an
increase in income per job to £207, an
improvement of 2% year-on-year. We
delivered strong growth in Underlying
Operating Profit to £18.9m (2016: £17.5m)

Investment in technology has enabled e.surv to optimise efficiency.

with an enhancement of profit margin to
29.4% (2016: 27.1%).

In 2017 we signed contract extensions with
two of our largest customers, Barclays
Bank PLC and Santander UK plc.

The total number of qualified surveyors
at 31st December 2017 was 321, which is
broadly in line with 2016. Our on-going
graduate programme continues to be
successful and assists in alleviating the
impact of capacity constraints in the market.

Our customers
Our continued focus on providing the
best service to our customers has
been recognised in 2017 and 2018 with
numerous industry awards including:

• Marsh & Parsons: International Property
Awards (UK) 2017: Best Estate Agent,
London – Gold Award, Best Estate
Agency Marketing, London – Gold Award.
The London Magazine Club Awards
2017: Advertising Campaign of the Year –
Gold Award.

• Your Move: British Property Awards
2017: Gold Award for ten Your Move
branches.

• Reeds Rains: Best Estate Agent Guide

2018 (*): Leamington Spa – Top 100
Agent, Rated Exceptional, Kenilworth
Lettings – Rated Highly. British Property
Awards 2017: Gold Award for two Reeds
Rains branches.

• Davis Tate: Best Estate Agent Guide
2018 (*): Didcot Lettings – Top 100
Agent, Rated Exceptional, Henley Sales
& Lettings – Top 100 Agent, Rated
Exceptional (Lettings), Twyford Sales
– Top 100 Agent, Burghfield Sales and
Lettings – Rated Excellent, Pangbourne,
Reading, Wallingford and Wantage Sales
– Rated Highly, Abingdon, Reading and
Wantage Lettings – Rated Highly. The
2017 allAgents Awards: Best Estate
Agent – 17 Gold Awards in various
locations, Best Letting Agent – 20 Gold
Awards in various locations.

• Frost’s: Best Estate Agent Guide

2018(*): Harpenden Sales and Lettings –
Top 100 Agent, Rated Exceptional.

• Goodfellows: Best Estate Agent

Guide 2018(*): Morden Sales – Rated
Exceptional, Wimbledon Sales (under
Finch & Co – Goodfellows) – Rated
Excellent, Carshalton Beeches, Cheam
Village, Raynes Park and Mithcam Sales
– Rated Highly, Raynes Park Lettings
– Rated Highly. The 2017 allAgents
Awards – Best Estate Agent – 9 Gold
Awards in various locations, Best Letting
Agent – 4 Gold Awards in various
locations.

• JNP: Best Estate Agent Guide 2018(*):
High Wycombe Sales – Rated Highly,
Princes Risborough Sales – Rated Highly,
Hazlemere Sales – Rated Excellent,

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewGroup Chief Executive’s Review

Stokenchurch Sales – Rated Exceptional.
British Property Awards 2017: Gold
Award for Princes Risborough branch.

• Thomas Morris: Best Estate Agent

Guide 2018(*): Biggleswade Sales – Top
100 Agent, Rated Exceptional, St Neot’s
Sales – Rated Exceptional, Sawtry
Sales – Rated Excellent. The Negotiator
Awards: Medium UK Estate Agency
of the Year – Gold Award. Relocation
Agent Network Awards: Customer
Relocation Award – Winner, Best Regional
Agent Award – East Anglia and Essex
Regional Winner. Agents Giving Awards
2017: Outstanding Contribution Award.
The Guild of Property Professionals
Awards: East Anglia – Winner. Fine &
Country Awards 2017: St.Neots, East
Anglia Regional Award – Winner. The 2017
allAgents Awards: Best Estate Agent,
East of England – Gold Award.

• e.surv Chartered Surveyors: Awarded:
ISO27001 Information Security Global
Standard. Re-awarded: ISO 9001:2015
Global Quality Management Systems.
Awarded: RoSPA Quality Safety Award,
Level 3. Awarded: BS 18001 Occupational
Health & Safety Award.

• PRIMIS (Advance Mortgage Funding):

Financial Adviser Service Awards 2017
– 5 Star Award.

• LSL Financial Services: Precise Mortgage

Awards: Best Distribution Group 2017.

(*) As judged and announced in 2017

Balance sheet and exceptionals
The Group has a strong balance sheet with
closing Net Bank Debt at 31st December
2017 of £30.0m (2016: £20.3m) and a
gearing level at 0.70 times Group Adjusted
EBITDA1 (2016: 0.51 times).

In relation to the PI Costs provision, the
Group continued to make positive progress
in addressing historic claims and there has
been a net £3.7m exceptional gain (H117:
£1.1m, H217: £2.6m).

In July 2017 LSL disposed of its investment
in GPEA for cash (£3m) and shares in eProp
Services plc with an exceptional gain of
£5.6m.

Post balance sheet events
In January 2018, LSL acquired the entire
issued share capital of Personal Touch
Financial Services and its subsidiary

company, Personal Touch Administration
Services. Personal Touch Financial
Services is a financial services business
specialising in the provision of mortgage
and other financial services products via its
network of intermediaries.

This acquisition supports LSL’s stated
strategy of enhancing its position as a
leading financial services distributor and
growing long-term profitability in the
provision of residential property services
in the UK by identifying value enhancing
opportunities. LSL has deep sector
expertise in the provision of financial
services and Personal Touch Financial
Services is an excellent fit with our existing
Financial Services businesses.

In January 2018, LSL extended its
banking facility until May 2022. The facility
comprises a £100m revolving credit facility
(RCF) (2016: £100m).

Our people
I would like to take this opportunity to thank
all my colleagues across our business for
their professionalism and dedication during
2017. I look forward to working with my
colleagues to deliver a successful year in
2018.

LSL expects to see a modest reduction in
the volume of house purchase transactions
compared to the prior year, with the rate
of House Price Inflation outside Greater
London continuing to ameliorate. Mortgage
costs continue to be low by historic
standards and mortgage availability
remains good. The medium to longer term
fundamentals of the UK housing market
remain solid.

Income, with the aim of optimising organic
growth. LSL will also continue to evaluate
selective acquisitions and in 2018, LSL’s
ambition is to restart its lettings book
acquisition programme.

Ian Crabb
Group Chief Executive Officer
6th March 2018

Notes:
1 Operational gearing is defined as Net Bank Debt
divided by Group Adjusted EBITDA (Group Adjusted
EBITDA is Group Underlying Operating Profit (Note
5 to the Financial Statements) plus depreciation on
property plant and equipment).
2 Group Underlying Operating Profit is before
exceptional costs, contingent consideration,
amortisation of intangible assets and share-based
payments (as defined in Note 5 to the Financial
Statements).

3 Bank of England for “House Purchase Approvals”
and “Total Mortgage Approvals” - December 2017
released January 2018.

4 LSL estimates and including Land Registry regional

data (Oct 2017),

5 December 2017 LSL Property Services/ACADATA

HPI

6 LSL sources/data analysis.
7 UK Finance “Gross mortgage lending estimate” –

January 2018.

8 UK Finance, new mortgages sold by intermediaries –

February 2018.

9 UK Finance “Possessions on mortgaged properties”

– January 2018, released February 2018.

10 Which Network? January 2018.

Strategic Report

In this section
12 Strategy
13 Business Model
14 Markets
16 Business Review – Estate Agency Division
19 Business Review – Surveying Division
20 Financial Review
22 Principal Risks and Uncertainties
28 Corporate Social Responsibility
38 The Board

Reeds Rains brochure.

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview

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 2017 average FTE

4,515

13%

87%

n Estate Agency
n Surveying

Estate Agency branches

505

260

154

n Your Move
n Reeds Rains
n LSLi
n Marsh & Parsons

LSL remains committed to the strategy to grow long-term profitability in the UK
residential property services sector, by identifying value enhancing opportunities.

The components of LSL’s strategy are:

Estate Agency and Related Services:
• Ambition to drive operating profit per branch to between £80,000 and £100,000 in the

medium-term.

• Ambition to expand the number of Marsh & Parsons branches to a total of 36 in the

medium-term, particularly outside prime Central London.

• Grow recurring and where market conditions permit, counter-cyclical income streams.
• Complete selective acquisitions of both residential sales businesses and lettings books.

Surveying and Valuation Service:
• Optimise contract performance and revenue generation from business to business

customers.

• Achieve further improvement in efficiency and capacity utilisation.
• Use technology to drive further improvements in profitability.
• Continue graduate training programme.

In addition to delivering on our stated strategy, in the second half of 2017 LSL launched
a new ways of working programme across our Estate Agency business to respond to the
changing landscape and customer demands. LSL expect this to deliver improvements to
operational performance and result in enhancements to the quality of service provided to
Estate Agency Division customers over the medium-term.

Estate Agency and Related
Services:

Residential Sales and Lettings
• Deliver future branch profitability through

Lettings income growth, Financial Services
income growth, Land & New Homes
growth and re-engineering the costs base
together with volume and fee growth, lettings
book acquisitions and selective branch
refurbishments.

• Investment in selective acquisitions.
• Investment in additional mortgage advisers

within the Estate Agency branches.
• Grow LSL’s intermediary networks and

expansion of the Group’s mortgage club
and realise synergies and cost savings to
make the networks more efficient.

• Enhancements of technology solutions
to improve the customer experience,
raise productivity and deliver process
efficiencies.

• Provide a service proposition that recognises

• Use the networks to strengthen

customer needs and maximises income
across the value chain.

• Drive organic growth through increasing

Residential Sales transaction volumes and
investing further in Lettings services.

• Grow LSL’s share of the prime and outer

prime Central London Residential Sales and
Lettings markets by supporting Marsh &
Parsons’ branch expansion plans.

• Grow recurring revenue (e.g. Lettings) and,
where market conditions permit, counter-
cyclical income (e.g. Asset Management).

• Identify, evaluate and invest in selective

acquisitions.

Asset Management
• Grow counter-cyclical income streams where

market conditions permit.

relationships with key lender clients and
to provide high quality service and good
financial outcomes for consumers.

Surveying and Valuation Services:
• Focus on the business to business market

where the economics are better and
service business to consumer clients
where capacity allows.

• Optimise contract performance and
revenue generation from business to
business customers.

• Investment in a market leading IT system

that provides scalable and secure
technology to deliver services to clients.
• Continue focus on improving efficiency

through optimising capacity management
supported by new IT technology.

• Increase market share by providing innovative

• Continued investment and delivery of

solutions and strong service delivery to a
broader selection of clients.

Financial Services
• Consistent delivery of appropriate customer
outcomes for consumers and maintain focus
on best practice standards of regulatory
compliance.

• Capitalise on mortgage market shift towards

intermediary distribution channels.

the graduate training programme which
assists in alleviating the impact of capacity
constraints in the market.

Acquisitions and investments:
• Continue to identify, evaluate and invest in
selective value enhancing acquisitions and
investments across the residential property
services value chain, in order to enhance
market positions and to grow scale.

Business Model

Customers

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L enders – Banks/building
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Market
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Investment

Cash-flow

n Estate Agency and Related Services
n Surveying and Valuation Services

Note: Business Model describes the Group’s
operations as at 5th March 2018

Dividends

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, profit-
ability 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, as well as mortgage, pure protection and
general insurance brokerage services.

• LSL serves retail customers in its Estate Agency businesses,

such as house sellers and buyers, and landlords and tenants by
providing Residential Sales, Lettings, as well as mortgage, pure
protection and general insurance brokerage services and other
related services.

• LSL serves business customers in its Surveying and Asset

Management businesses, such as banks and building societies,
and benefits from long-term relationships and contracts.

in the residential property market due to its market positions in
Lettings (recurring income) and Asset Management (counter-cyclical
income).

• The model benefits from scale and investment to ensure the

Surveying business has the best technology in the market to help it
maintain its market leading position and to improve quality, service
performance and risk management for clients.

• The Estate Agency branches focus on customer service by utilising
hubs and call centres to provide instructions to the branches and to
handle certain administrative tasks centrally.

• The business has low capital requirements and is highly cash

generative.

• The growth and reputation of LSL is dependent on providing
exceptional service and appropriate outcomes for customers.

• The business model has demonstrated resilience to changes

• 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.

Markets
LSL operates across the residential property services value chain

Market transaction data

Total mortgage
approvals for house
purchase1
‘000s

Full Year 2017 Revenue

£311.5m

6
3
7

9
7
7

4
1
8

8
0
8

6
9
7

2013

2014

2015

2016

2017

Remortgage and other
loans volumes1
‘000s

1
5
5

8
1
5

1
9
5

3
8
6

9
2
7

2013

2014

2015

2016

2017

Total mortgage
approvals1
‘000s

6
8
2
,
1

7
9
2
,
1

5
0
4
,
1

0
3
5
,
1

5
2
5
,
1

2013

2014

2015

2016

2017

Repossessions volumes2

0
0
9

8
2

0
0
9

0
2

0
0
2

0
1

0
0
7
,
7

0
0
4
,
7

2013

2014

2015

2016

2017

21%

79%

n Estate Agency
n Surveying

In 2017 total mortgage approvals decreased by 0.3% to 1,525,000 (2016: 1,530,000)¹. Overall house purchase
approvals fell by 1.5% to 796,000 (2016: 808,000)¹. Remortgage volumes of 729,000 were up by 6.7% compared to
2016 (2016: 683,000)¹.

LSL’s Markets

LSL’s market can be categorised into two principal segments

Estate Agency and Related Services; and

Surveying and Valuation Services.

Estate Agency and Related Services

Estate Agency and
Related Services

79.4%

of Group Revenue in 2017 (2016: 79.0%)

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, pure protection
and general insurance brokerage services
with revenue earned directly by the Estate
Agency brands and through the operation
of intermediary networks.

Residential Sales
and Lettings

48.3%

of Group Revenue in 2017 (2016: 50.4%)

Estate Agency services for residential
property sales.

Comprehensive Lettings service for
residential landlords and tenants.

The market in 2017
The UK residential property services market
was subdued in 2017. Approvals for house
purchases1 in 2017 were down by 1.5%
with the drop in market transactions more
pronounced in London and the South East2.

Approvals for house purchases were down
2.9% in the first half of 2017 compared to
the same period in 2016 when an increase
in Stamp Duty on 1st April 2016 led to a
spike in market activity in the period up
to the change. In the second half of 2017,
approvals for house purchases were broadly
flat compared to the same period in 2016.
Whilst approvals for house purchases in the
third quarter of 2017 were relatively positive
(+5.4%) compared to the same period in
2016 when consumer confidence was
impacted by the June 2016 EU referendum
result, approvals for house purchases were
down in the final quarter of 2017 (-5.5%)

compared to the same period in 2016.

Total mortgage approvals1 increased by
2.3% in 2017. This reflected an increase
in remortgage approvals in the first half
of 2017 (+3.6%) compared to the same
period in 2016 reflecting low interest
rates and the availability of remortgage
products, and also the second half of 2017
(+10.2%) reflecting a spike in remortgage
activity following the interest rate increase
announced by the Bank of England in
November 2017.

Average house prices3 in England and Wales
grew by 0.2% (2016: 3.1%) to £301,022
annually with a drop in Greater London
(-4.3%) and the South East (-0.2%) offsetting
increases elsewhere in the country.
Excluding Greater London and the South
East, the average increase was 2.3%.

The proportion of new sales instructions
given to online and hybrid estate agents
has continued to grow, increasing from 3%
of the market in the second half of 2015 to
7% in the second half of 20174. Channel
dynamics continue to evolve in 2017 with
online and hybrid agents share growing
in both the first and second half of 2017
compared to the same periods in 2016,
to represent circa 7% of new instructions
(H216: 6%). LSL’s market share remained
broadly flat in the second half of 2017.

The total gross mortgage lending in
2017 was £256bn5 (2016: £245bn). The
proportion of mortgage lending in the
market placed through intermediaries
increased to 68% in 2017 (2016: 67%)6.

Following market declines in the
repossessions market in the past few
years, market repossession volumes
again declined in 2017, reducing by 4% to
7,4002 total repossessions as interest rates
remained low and was the lowest number
since 1982.

Asset
Management

2.0%

of Group Revenue in 2017 (2016: 2.1%)

Repossessions asset management
services for lenders.

Property management services for multi-
property landlords.

Repossession volumes fell by 4% to 7,400
(2016: 7,700) in 20172 in a declining market.

Mortgage, pure
protection and
general insurance
brokerage services

23.9%

of Group Revenue in 2017 (2016: 20.8%)

Brokerage services for mortgages, pure
protection and general insurance.

Other
income

5.2%

of Group Revenue in 2017 (2016: 5.6%)

Includes franchising income, conveyancing
services, EPCs, Home Reports, utilities and
other products and services to clients of
the Estate Agency branch network.

Surveying and Valuation Services

Surveying and
Valuation Services

20.6%

of Group Revenue in 2017 (2016: 21.0%)

Valuation services for lenders for residential
mortgage purposes, surveying services for
private house purchasers, and the provision
of Home Reports and professional services
in Scotland.

Notes:
1 Bank of England for ‘House purchase approvals’ and
‘Total mortgage approvals’ - December 2017 released
January 2018.

2 LSL estimates and including Land Registry regional

data (October 2017).

3 December 2017 LSL Property Services/ACADATA

HPI.

4 LSL sources/data analysis.

5 UK Finance ‘Gross mortgage lending’ estimate –

January 2018.

6 UK Finance, new mortgages sold by intermediaries –

February 2018.

+2%Total income

2016: +3%

-9%Exchange income

2016: -10%

+4%Lettings income

2016: +9%

+16%Financial Services income

2016: +27%

-1%Fee per exchange unit

2016: -2%

10.9%

Operating margin
2016: 10.1%

Financial
Residential Sales exchange income
Lettings income
Financial Services income
Asset Management income
Other income1

Total income
Operating expenditure
Underlying Operating Profit2

KPIs
Exchange units
Underlying Operating Margin (%)
Fees per unit £

Market data
House purchase approvals (000s)3
Total mortgage approvals (000s)3
UK housing transactions (000s)4
Repossessions5

2017
£m
76.6
73.9
74.4
6.3
16.2

247.4
(220.5)
26.9

2017
25,176
10.9
3,042

2017
796
1,525
1,220
7,400

2016
£m

83.8
71.4
64.1
6.6
17.2

243.1
(218.6)
24.5

2016

27,193
10.1
3,083

2016

808
1,530
1,235
7,700

%
change

-9
+4
+16
-4
-6

+2
-1
+10

%
change

-7
-
-1

%
change

-1
-
-1
-4

Notes:
1 ‘Other income’ includes franchising income, conveyancing services, EPCs, Home Reports, utilities and other products and

services to clients of the branch network.

2 Refer to Note 5 to the Financial Statements for the calculation.
3 Bank of England, ‘Mortgage approvals for house purchases’ and ‘Total mortgage approvals’ – December 2017, released

January 2018.

4 HMRC Stats, ‘Monthly property transactions completed in the UK with value of £40,000 or above’ – December 2017, released

January 2018.

5 UK Finance ‘Possessions on mortgaged properties’ January 2018, released February 2018.

Estate Agency Division performance
Year-on-year income growth in the Estate
Agency Division was 2%. Lettings income
and Financial Services income showed
positive growth with Residential Sales
performance reflecting market conditions.

branches, Group First (acquired in 2016)
and the intermediary networks of PRIMIS
grew strongly again with 16% year-on-year
growth in 2017, as well as income growth
across all Estate Agency brands and also
the intermediary network businesses.

Residential Sales exchange income
Residential Sales exchange income
decreased by 9% to £76.6m (2016:
£83.8m), average fees per unit decreased
by 1%. Residential Sales exchange volumes
fell by 7%.

Lettings income
Lettings income grew in each quarter of
the year as LSL continued to focus on this
recurring revenue stream. Total Lettings
growth for the year of 4% comprised organic
growth of 3% and a full year of lettings books
acquired in 2016 as well as the positive
impact of the opening of additional Marsh &
Parsons branches in 2016 and 2017.

Financial Services income
Total Financial Services income is delivered
through the Estate Agency Division’s

Other income
Other income fell by 6% year-on-year in
large part due to a fall in conveyancing
income due to lower residential transaction
volumes.

Asset Management
Asset Management maintained its position
in a smaller repossessions market.

Estate Agency Division
operating margin
The Estate Agency Division Underlying
Operating Margin was 10.9% in 2017
(2016: 10.1%).

Regulation – Financial Services
PRIMIS is the trading name of both First
Complete and Advance Mortgage Funding,
and both companies are directly authorised

is in addition to observing compliance
with relevant legislation, such as Data
Protection, the Consumer Protection
Regulations and the Consumer Rights Act;
guidance material published by relevant
regulators, including the Competition
and Markets Authority (CMA) (and its
predecessor the Office 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 has also on behalf of all its Estate
Agency businesses entered into a primary

authority agreement with York Trading
Standards Office.

LSL from time to time also enters into
direct dialogue with the regulators and
consumer groups. During 2017 LSL has
been monitoring and responding to the
wide range of consultations published by
the Government as part of its review of
the housing market which commenced
at the start of 2017 and will continue
during 2018.

The Estate Agency Division has
dedicated compliance teams and is
subject to oversight by the Estate Agency
Management Committee.

Branch numbers
Breakdown of LSL’s Estate Agency branches as at 31st December 2017 and
31st December 2016:

Owned

Franchised

Total 2017

Total 2016

198

114

401

104

260

154

505

267

157

514

Your Move

Reeds Rains

LSLi

Marsh & Parsons

Totals

The total number of branches
reduced by nine in 2017, following
the closure of eight owned branches
and three franchises and the opening
of two new branches in Marsh &
Parsons. Of the eight owned branches
closed in the year, four were in Your
Move, three in Reeds Rains, and one
in LSLi. All closed branch operations
and employees were transferred into
existing local branches.

by the FCA in relation to the sale of
mortgage, pure protection and general
insurance products.

Your Move, Reeds Rains, First2Protect,
Mortgages First, Insurance First and
Embrace Mortgage Services along with
the LSLi subsidiaries are all appointed
representatives of First Complete.

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.

In 2018, LSL acquired Personal Touch
Financial Services which is also directly
authorised by the FCA in relation to
mortgage, pure protection, general
insurance and investment products.

First Complete acts as principal for most
of the estate agency businesses within
LSL’s Estate Agency Division, enabling
their employed financial advisers to offer
Financial Services to customers of the
branch networks. Advance Mortgage
Funding (previously trading as Pink Home
Loans) and Personal Touch Financial
Services both operate intermediary
networks, providing products and services
to financial services intermediaries.

LSL’s Financial Services businesses
are also members of the Association of
Mortgage Intermediaries (AMI) which is
an industry representative and trade body
and the Financial Services businesses
are subject to the Financial Ombudsman
Service and contribute to the funding of the
Financial Services Compensation Scheme
through regulatory fees and charges.

Regulation – Residential Sales
and Lettings
The Estate Agency Division’s branches
adhere to the Codes of Practice issued
by industry professional and regulatory
bodies, including The Property
Ombudsman (TPO) and/or the Association
of Residential Lettings Agents (ARLA)/
National Association of Lettings Agents
(NALS). Membership of these bodies

Advertisements from Marsh & Parson’s award winning campaign.

Business Review
Surveying Division

-1%Revenue

2016: +1%

+2%Income per job

2016: +4%

29.4%

Profit margin
2016: 27.1%

321Number of qualified surveyors

2016: 323

Financial
Revenue
Operating expenditure
Underlying Operating Profit1

KPIs
Underlying Operating Margin (%)
Jobs performed (‘000s)
Revenue from private surveys (£m)
Income per job (£)
Historic PI Costs provision (balance sheet) at
31st December (£m)
Number of qualified surveyors at 31st December (FTE)2

2017
£m
64.1
(45.2)
18.9

2017
29.4
309
2.4
207

15.9
321

2016
£m

64.7
(47.2)
17.5

2016

27.1
318
2.3
203

20.7
323

Total mortgage approvals (‘000s)3

1,525

1,530

Notes:

1 Refer to Note 5 to the Financial Statements for the calculation.
2 Full Time Equivalent (FTE).
3 Source: Bank of England, ‘Mortgage approvals for house purchases’ and ‘Total mortgage approvals’ 2017.

%
change

-1
+4
+8

%
change

-
-3
+3
+2

+23
-1

Surveying Division performance
Surveying revenue was £64.1m (2016:
£64.7m), a decrease of 1% on the previous
year with a total number of jobs performed
during the year of 309,499 (2016: 318,077)
reflecting the overall management of the mix
of jobs.

Profit performance was enhanced by the
on-going investment in the IT platform, as
well as optimising efficiency and operational
performance. This continued focus on
optimising capacity drove an increase in
income per job to £207, an improvement of
2% year-on-year. As a result, LSL delivered
an increase in Underlying Operating Profit1 to
£18.9m (2016: £17.5m) with an enhancement
of profit margin to 29.4% (2016: 27.1%).

In 2017 LSL successfully negotiated contract
renewals with two of its largest lender
customers.

The total number of qualified surveyors at
31st December 2017 was 3212, which was
broadly in line with the 2016 position. The
on-going graduate programme continues
to be successful and assists in alleviating
the impact of skill constraints in the market.
In 2018 LSL will continue to focus on its
graduate training programme.

At 31st December 2017 the total historic
provision for PI Costs was £15.9m (2016:
£20.7m). In 2017 LSL continued to make
positive progress in addressing these
historic claims. There was an exceptional
gain of £3.7m during the year.

Training new e.surv graduates.

Financial Review
The key drivers of the financial performance of LSL in 2017 are summarised below:

£311.5m

Group Revenue
Up 1.2% (2016: £307.8m)

£37.5m

Group Underlying Operating Profit
Up 8.3% (2016: £34.6m)

£41.5m

Cash generated from operations
Up 26.9% (2016: £32.7m)

£42.1m

Group operating profit
Down 35.7% (2016: £65.4m)

Income Statement

Revenue
Revenue increased by 1% to £311.5m in
the year ended 31st December 2017 (2016:
£307.8m).

Operating expenses
Operating expenses increased by 0.5% to
£276.8m (2016: £275.3m). Increases in the
Estate Agency Division included additional
headcount to support the growth of LSL’s
Financial Services businesses, Lettings and
Land & New Homes; and increased costs
in Marsh & Parsons due to the two new
branches opening in Brixton and Islington,
and the full year costs for the two Marsh &
Parsons branches opened in 2016.

Group Underlying Operating Profit
Group Underlying Operating Profit1
increased by 8.3% to £37.5m (2016:
£34.6m) with an Underlying Operating
Margin of 12.0% (2016: 11.3%). On a
statutory basis, the Group operating profit
decreased by 35.7% to £42.1m (2016:
£65.4m). The 2016 financial results included
an exceptional gain on the disposal of ZPG
plc shares of £32.9m.

Group Adjusted EBITDA
Group Adjusted EBITDA2 increased by
6.5% to £42.7m (2016: £40.1m) driven by
an increased Group Underlying Operating
Profit and a slightly reduced depreciation
charge of £5.2m (2016: £5.5m).

Exceptional items
Total exceptional gains in 2017 were £9.3m
(2016: £34.5m) comprising of £3.7m of
exceptional gain relating to the historic PI
Costs provision and an exceptional gain of
£5.6m relating to the sale of the Group’s
share in GPEA in July 2017. The 2016
financials included an exceptional gain on
the disposal of ZPG plc shares of £32.9m.
Total exceptional costs in 2017 were £nil
(2016: £2.3m).

PI Costs provision for PI claims
and notifications
At 31st December 2017, the total provision
for historic PI Costs was £15.9m (2016:
£20.7m). In 2017 the Group continued
to make positive progress in addressing
historic claims and there has been a net
£3.7m exceptional gain.

Contingent consideration
In 2017 contingent consideration in the
Income Statement amounted to a charge of
£0.7m (2016: £3.8m credit). This included a
charge relating to the Group First acquisition
of £0.4m (acquired in 2016) and a charge of
£0.3m in LSLi (2016: credit of £1.1m).

Amortisation
The amortisation charge was £4.1m (2016:
£3.9m). This is slightly higher than 2016
given there was a full year charge for
lettings book acquisitions made in the first
half of 2016.

Net financial costs
Net financial costs amounted to £2.0m
(2016: £1.9m) and are in line with the prior
year. The finance costs related principally
to interest and fees on the RCF. Additional
costs relate to the unwinding of discounts
on provisions and contingent consideration.

Taxation
The UK corporation tax rate reduced to
20% with effect from 1st April 2015 and
subsequently 19% with effect from 1st April
2017. A future UK corporation tax of 17%
has been enacted and is effective from
1st April 2020, and this is the rate at which
deferred tax has been provided (2016:
17%). Corporation tax is recognised at the
headline UK corporation tax rate of 19.25%
(2016: 20%).

The effective rate of tax for the year was
16.7% (2016: 20.5%). The most significant
reason that LSL’s effective tax rate for 2017
is lower than the headline UK tax rate is
that the gain on the disposal of GPEA in the
year is not taxable due to the application
of the Substantial Shareholding Exemption.
Adjusting for this item, the effective tax rate
is 19.4%.

Deferred tax credited directly to other
comprehensive income is £0.6m (2016:
£3.8m). This is comprised of a credit of
£0.9m and a charge of £0.3m, and relates
respectively to the disposal and revaluation
of financial assets. Income tax credited
directly to the share-based payment
reserve is £nil (2016: £0.1m).

In 2017 corporation tax payments of
£11.1m (2016: £8.9m) were made which is
greater than the current year corporation
tax charge of £7.5m (2016: £12.7m). This
is a result of the timing of the settlement
of the corporation tax liability of the ZPG

plc shareholding in the second half of
2016 – the corporation tax liability on these
disposals was not settled until the quarterly
instalment payments made in January and
April 2017.

Basic Earnings Per Share
The Basic Earnings Per Share was 32.6
pence (2016: 49.2 pence). The Adjusted
Basic Earnings Per Share3 is 28.3 pence
(2016: 25.9 pence), an increase of 9.3%
which is broadly in line with the increase
in Group Underlying Operating Profit1.
The Group seeks to present a measure
of underlying performance which is not
impacted by the unevenness in profile of
exceptional gains and exceptional costs,
contingent consideration, amortisation
and share-based payments. The Directors
consider that the adjustments made to
exclude the after tax effect of exceptional
items, contingent acquisition consideration
treated as remuneration, and amortisation
provides a better and more consistent
indicator of the Group’s underlying
performance.

Balance sheet

Joint ventures and other investments
The Group has two joint ventures: a 33.3%
(2016: 33.3%) interest in TM Group, whose
principal activity is to provide property
searches, and a 50% (2016: 50%) interest
in LMS whose principal activity is to provide
conveyancing panel management services.

During 2017 LSL made three investments:

• in September 2017, LSL acquired a 17.3%
stake in Yopa for total consideration of
£20m;

• in October 2017 LSL acquired 19,675

ordinary shares in NBC Property Master
for a total consideration of £65,000; and

• in November 2017, LSL invested £0.25m

by way of a convertible loan note, in
Global Property Ventures (trading as
Zero Deposit) which distributes a tenancy
deposit replacement product.

During the year, LSL disposed of its 18.1%
investment (2016: 18.1%) in GPEA, which is
a membership organisation with a national
network of independently owned estate
agents. The investment was disposed of
for £5.7m (£3.0m cash and shares in eProp
Services plc) in July 2017 and resulted in an
exceptional gain of £5.6m.

Ian Crabb, Group Chief Executive Officer and Simon Embley, Chairman.

Capital expenditure
Total capital expenditure in the year
amounted to £5.0m (2016: £4.6m) and an
additional £0.6m (2016: £1.4m) has been
spent internally on developing new
software which has been treated as an
intangible asset.

Bank facilities
In January 2018, LSL extended its bank
facility until May 2022. The facility includes
a £100m RCF (2016: £100m). During the
period under review, the Group complied
with all of the financial covenants contained
within the facility.

Net Bank Debt and cash-flows
As at 31st December 2017 Net Bank
Debt was £30.0m (2016: £20.3m) and
Shareholders’ funds amounted to £148.6m
(2016: £128.8m) providing a balance
sheet gearing of 20.2% (2016: 15.8%).
The increase in Net Bank Debt was
primarily the result of the investment in
Yopa in September 2017 of £20.0m. The
2017 gearing level was 0.7 times3 Group
Adjusted EBITDA (2016: 0.51 times). The
Group has a committed RCF until May 2022
and in 2017 the Group generated cash from
operations of £41.5m (2016: £32.7m).

Net assets
The Group’s net assets as at 31st December
2017 were £148.6m (2016: £128.8m).

Treasury and risk management
LSL has an active debt management policy.
LSL does not hold or issue derivatives
or other financial instruments for trading
purposes. Further details on the Group’s
financial commitments as well as the
Group’s treasury and risk management
policies are set out in this Report.

Post balance sheet events
In January 2018, LSL acquired the entire
issued share capital of Personal Touch
Financial Services and its subsidiary
company, Personal Touch Administration
Services. Personal Touch Financial
Services is a financial services business
specialising in the distribution of mortgage
and other financial services products via its
network of intermediaries.

In January 2018, LSL extended its bank
facility until May 2022. The facility includes
a £100m RCF (2016: £100m).

International Financial
Reporting Standards (IFRS)

The Financial Statements have been
prepared under IFRS as adopted by the
European Union.

2 Group Adjusted EBITDA is Group Underlying
Operating Profit as previously defined plus
depreciation on property plant and equipment.

3 Refer to Note 30 to the Financial Statements for

the calculation.

LSL has an overall framework for the management of risks and internal controls to mitigate the risks. Through this
framework, the Board (which has overall accountability and responsibility for the management of risk and is supported
by the Audit & Risk Committee) on a regular basis identifies, evaluates and manages the principal risks and uncertainties
faced by LSL; as well as areas which could adversely affect its business, operating results and financial condition.

Development of risk appetite
During 2017, in line with the FRC’s
Guidance on ‘Risk Management, Internal
Control and Related Financial and Business
Reporting’, the Board continued to develop
LSL’s risk appetite framework to ensure
continued compliance with the Code and
FRC guidance. The Board has through this
process expressed and reviewed the types
and level of risk which it is willing to take
or accept to achieve LSL’s strategy and
business plans and to support consistent,
risk-informed decision making across the
Group.

The development of the risk appetite
began with the Directors approving
a risk framework policy and defining
individual risk appetite statements for
LSL’s principal risks and uncertainties
and for key decisions made by the Board.
These statements provide parameters
within which the Board typically expect
LSL’s businesses to operate, facilitating
structured consideration of the risk and
reward trade-off for the decisions made
around how the Group conducts business.
This includes monitoring risk measures and
identification of actions needed to bring any
specific outlying areas of risk within target
levels. During 2017, a programme has
been progressed to enhance the existing
risk framework within each of the Group’s
subsidiary businesses, including the
development of risk appetite measures by
each subsidiary. This exercise has included
each subsidiary business quantifying their
highest ranked risk areas and introduced
the use of graphical management
information to facilitate the tracking of risk
status versus tolerance by the subsidiary
boards and divisional governance
committees. The framework has also
improved the visibility of action plans to
address any core risk areas considered
outside tolerance. These developments
have in turn served to provide a more
robust means for evaluating the capture
and measurement of risk factors within
the established risk appetite framework at
Group level.

The framework covers a wide range of

risks, which reflect the nature of LSL’s
businesses and acknowledges that there
is not a ‘one size fits all’ approach to
establishing risk parameters. During 2018,
LSL will continue to re-visit the status of this
framework to ensure it remains in line with
emerging best practice and continues to
foster the maturity of risk appetite routines
at both Group and subsidiary level.

The Board has established clear risk
parameters, whilst at the same time
fostering an environment within which
innovation and entrepreneurial activities
can thrive. Where there is any proposal to
shift the Group significantly closer to or
outside agreed risk parameters, this will
be discussed and will be subject to Board
approval before commencing any activities
to ensure that appropriate mitigation
controls are put into place.

On-going evolution of the risk management
framework is carried out as part of an on-
going cycle of continual improvement, and
remains a key priority for the Audit & Risk
Committee and the Board in 2018.

Developing the financial
viability statement

Assessment of prospects
The Group’s business model and strategy
are central to an understanding of its
prospects, and details can be found on
pages 12 and 13 of this Report.

Through organic growth, selective
acquisitions and a delivery of high quality
services to customers, the Group’s key
objective is to build market leading positions
and ultimately deliver long-term Shareholder
value.

Prospects of the Group are assessed by the
Board throughout the year at its meetings,
including a particular focus during the
strategic planning process. This process
includes an annual review of the on-going
plan, led by the Group Chief Executive
Officer and Group Chief Financial Officer in
addition to the relevant business functions
involved.

The Directors participate fully in the annual
planning process by means of a Board

meeting and part of the Board’s role is to
consider whether the plan continues to take
appropriate account of the changing external
environment including macroeconomic,
political, regulatory and technical changes.

This process allows the Board to produce
strategic objectives and detailed financial
forecasts over a three year period. The latest
updates to the on-going plan were finalised
in December 2017. This considered the
Group’s current position and its prospect of
operating over the three year period ending
31st December 2020, and reaffirmed the
Group’s stated strategy. Furthermore the
Group’s future prospects have been further
strengthened with the extension of the RCF.

EU referendum
The Board has been fully aware of the
significance of the EU referendum since
the announcement of the referendum
result in 2016. Following the referendum,
‘Brexit’ has been included as a subset entry
within the Group’s risk appetite framework.
This process ensures EU referendum
developments are formally monitored, and
the risk status is regularly reassessed with
reactive action plans identified to respond
to the effects of on-going uncertainties and
the resolution of the UK/EU negotiations
as they crystalise. These practices will
continue throughout 2018, with linkage to
viability assessment modeling and wider
consideration of the likely impacts of other
major economic and political events.

The Group’s principal risks and uncertainties
are set out on pages 24 to 27. The Board
reviewed LSL’s principal risks and
uncertainties when assessing the Group’s
prospects, and noted that none of these
individual risks would, in isolation,
compromise the Group’s prospects.

Assessment of viability
Although the strategic plan reflects the
Directors’ best estimate of the prospects
of the Group in accordance with provision
C.2.2 of the Code, the Directors have
assessed the viability of the Company over
a longer period than the 12 months required
by the ‘going concern’ provision.

For the purposes of assessing the viability

of the Group, it was determined that a three
year period ending on 31st December 2020
should be used, as this corresponds with
the Board’s strategic planning cycle. This
assessment has been made with reference
to the Group’s current position and
prospects, the Board’s risk appetite and the
Group’s principal risks and uncertainties.

A number of severe but plausible scenarios
were considered and modelled in detail
with input from across a functional group of
senior managers, including representatives
from the finance teams.

The following scenarios were modelled:

• Severe downturn in the UK housing

market caused by Brexit and/or political
uncertainties.

• A data breach causing a regulatory

fine and reputational damage, with the
potential loss of customers.

• Changes to regulation and compliance
and the subsequent impact on revenue.

Detailed assumptions for each scenario
were built up and modelled by month
across the three year period. The models
measured the downside impact on revenue
and the management action which would
be taken to retain cash reserves and
maintain the operating capacity of the
business as a result of the stress scenarios.

Assumptions were also made for the
potential growth of LSL’s recurring income
and counter-cyclical businesses, notably
Lettings and Asset Management, and the
extent to which some activities, such as
Lettings, tend to be less affected through
the cycle. The modelling and assumptions
took account of the broad range of services
across a wide geography which allows
some protection from the impact of stress
scenarios.

The results from the stress testing indicated
that the Group would be able to withstand
the financial impact of each scenario and
therefore continue to operate and meet its
liabilities, as they fall due, over the three
year period ending 31st December 2020.

Furthermore the Board also considered
it appropriate to prepare the Financial
Statements on the going concern basis,
as explained in the Basis of Accounting
paragraph in the Principal Accounting
Policies section (see page 103).

The Audit & Risk Committee oversaw the
process by which the Directors reviewed
and discussed the assessment undertaken
by the Management Team in proposing the
viability statement.

The Directors’ financial viability statement
is contained in the Report of the Directors
section of this Report.

Risk management and internal
controls framework
LSL’s risk management and internal
controls framework for 2017 included:

a. ownership of the risk management

and internal controls framework by the
Board, including a risk framework policy,
supported by the Group Chief Financial
Officer, the Company Secretary, the
Head of Risk and Internal Audit and the
Group Financial Controller;

b. a network of risk owners in each of LSL’s
businesses with specific responsibilities
relating to risk management and internal
controls, including maintenance of
detailed risk analyses;

c. the documentation and monitoring
of risks are recorded and managed
through risk appetite measures which
undergo regular reviews and scrutiny by
subsidiary boards, divisional governance
committees and the Head of Risk and
Internal Audit;

d. the Board regularly identifies, reviews
and evaluates the principal risks and
uncertainties which may impact the
Group as part of the planning and
reporting cycle to ensure that such risks
are identified, monitored and mitigated;

e. the development and application of LSL’s
risk appetite statement and associated
framework (for further details on steps
taken during the year, see the Audit &
Risk Committee Report); and

f. reporting by the Chairman of the Audit
& Risk Committee to the Board on any
matters which have arisen from the Audit
& Risk Committee’s review of the way in
which LSL’s risk management and internal
control framework has been applied
together with any breakdowns in, or
exceptions to, these procedures.

The Group-wide risk appetite statement
and risk framework policy will continue to
be developed in 2018.

The risk framework includes the following:

a. a risk framework policy;

b. determination of risk appetite, with

management and mitigation of risks in
line with risk appetite tolerances;

c. assessment of prospects and viability;

d. review of the effectiveness of the risk
management and internal control
systems; and

e. going concern confirmation (for LSL’s

going concern disclosure see the Report
of the Directors).

During 2017, the Directors carried out a
robust assessment of the principal risks and
uncertainties facing the Group, including
those that threaten the Group’s business
model, future performance, solvency or
liquidity. The Directors believe that the
assessment which has been completed
is appropriate to the complexity, size and
circumstances of the Group, which is a
matter of judgment of the Board and has
been supported by the Management Team.

The Directors also carried out a risk
appetite assessment exercise which
involved the evaluation of continually
evolving aspects of risk management.
During 2017, this included responses
to the threat of external technology-
based business models, articulation of
risk appetite tolerances for key aspects
of selective external contract renewals,
identifying responses to a fast changing
regulatory environment and consideration
of major scenarios of further external
political and economic change on the UK
housing market.

The identified risks may change over
time due to changes in business models,
performance, strategy, operational
processes and the stage of development
of the Group in its business cycle as well as
with changes in the external environment.
This robust assessment is focused on
the principal risks and uncertainties and it
differs from the review of the effectiveness
of the systems of risk management and
internal controls.

In accordance with the requirements of the
Code, this Report includes descriptions of
principal risks and uncertainties together
with a high level explanation of how they are
being managed or mitigated. This includes
clear descriptions of the risks together with

an evaluation of the likelihood of a typical
risk event crystallising and its possible
impact. Mitigating steps and any significant
changes to specific areas of risk are also
referred to within the tabular summary.

As noted above, this robust analysis
of principal risks and uncertainties has
also contributed to the Group’s viability
statement which is included within the
Report of the Directors. The Directors have
also considered the impact if risks coincide,
namely a combination of non-principal
risks and uncertainties could potentially
represent a single compound principal risk
or uncertainty.

The Group also faces other risks which,
although important and subject to regular
review, have been assessed as less
significant and are not listed in this Report.
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 as 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 2017 is set out in the Audit & Risk
Committee Report (Internal Controls) of this
Report.

Risk

Strategic:

UK housing market

New UK housing
market entrants

Description

Mitigation

Group performance is intrinsically linked
to the overall performance of the UK
housing market (including subsets –
e.g. prime Central London).

The housing market is also impacted by
changes in national and global political
and economic environments (e.g. Brexit
vote in 2016).

The impact of this risk can be direct
(such as changes in Government policy
or legislation arising from a change
in Government) or indirect (such as
changes in consumer behaviour/
sentiment arising from changes in
Government policy or legislation).

Traditional business models and pricing
structures for residential property
services are exposed to new business
models and technological advancements
(e.g. online/hybrid estate agents,
automated valuation models and
automated financial services operating
models).

• Daily, weekly and monthly monitoring of trading and market

performance data.

• Market share, product mix and segmentation initiatives.
• Development of counter-cyclical and recurring revenue income

streams.

• Responsive investment and cost control measures during the

housing market cycle.

• Investment in teams to deliver strategic projects.
• Balanced UK-wide geographical spread.
• Monitoring of wider macro-economic and political developments

(including domestic and national developments).

• Competitor and industry benchmarking.
• Development of strategies in response to market disrupters,

including exploring options to capitalise on digital opportunities.

• Development of Estate Agency business through new ways of

working programme.

• Infrastructure investment, including investment in innovation,
technology and upgrading and consolidating core operating
systems to improve service delivery and customer experience.
• Service delivery enhancements, product/services differentiation

and experimentation.

• Engagement of specialist external consultative support as necessary.
• Monitoring of investment, acquisition and joint venture opportunities.
• Marketing initiatives.
• Operation of staff incentive schemes to mitigate staff attrition.

Risk

Strategic:

Investment, acquisitions
and growth initiatives

Description

Mitigation

Realising appropriate targets
for investment, acquisition and
major project initiatives, including
delivery of appraisals, due diligence
and integration/implementation
requirements, in line with LSL’s strategy
to complete selective acquisitions.

Sales/distribution:

Professional services

Exposure to major PI claims arising from
any lapses in professional services,
including surveying and valuation
practices, financial services advice,
and estate agency services.

Client contracts

The performance of the Estate Agency
and Surveying businesses is dependent
on entering into appropriate and relevant
agreements and retaining contracts
with key clients (e.g. lenders, portfolio
landlords and house builders).

• Defined pre and post-acquisition reporting to the Board and Audit &

Risk Committee.

• Establishment of structured authority levels.
• Responsive flexing of risk appetite during the housing market cycle.
• Flexible resource pool to support and deliver investments and

acquisitions.

• Flexible resource pool to deliver integration/implementation

activities following completion of acquisitions.

• Ability to selectively dispose of assets to protect gearing, as

required.

• Engagement of specialist external consultative support as

necessary.

• Established integration/implementation planning methodology.
• Post-acquisition and post-integration/implementation review

programmes.

• Risk and Internal Audit engagements.

Surveying Division
• Robust framework and monitoring routines to maintain valuation

accuracy.

• Dedicated surveying risk team.
• Timely data capture of all claims and associated trends with regular

scenario modelling undertaken.

• Utilisation of technology to monitor valuation trends, trigger alerts

and ‘real time’ checks.

• Board-level authorities for PI claims settlement payments and
governance of underlying claims handling and accounting
processes.

Estate Agency Division (including Financial Services)
• Defined responsibilities for claims management and operation of
PI insurance together with management of underlying risk areas.

Group-wide
• Risk and Internal Audit reviews.
• Experienced claims handling personnel supported by legal experts.
• Culture promoting effective sales conduct and open lines of

communication with clients.

• Customer outcomes focused forums and initiatives.
• Designated senior members of staff with responsibility for

relationship management.

• On-going investment in resources, innovation, technology and

service standards to ensure LSL has the capacity to meet service
level demands.

• Targeted marketing and training events for corporate clients.
• Monitoring of client dependency and compliance with contractual

requirements.

• Robust control framework supporting the risk profiling of

prospective clients, contract renewals (including contract terms)
and the quality of professional services.

• In-house legal services team, with specialist external legal support

engagement when necessary, together with dedicated claims
management teams within business areas.

• Risk and Internal Audit reviews.

Risk

Operations:

Information technology
infrastructure

Description

Mitigation

The Group has varied operations which
require a robust IT infrastructure. The IT
environment needs to remain adaptable
to support growth initiatives, harness
technological advancements and counter
business continuity threats, including
malicious and cyber-related attacks.

LSL’s strategy recognises the importance
of investing in the Group’s IT infrastructure
to maintain both competitive advantages
and deliver system security – all within
the context of changing business models
within the residential property services
sector.

• Group-wide IT governance, policies and initiatives supported by a

Group IT Director.

• Focus on investment and development of innovation within the

Group’s strategies.

• Dedicated in-house IT teams.
• Maintenance of infrastructure to maintain effective service delivery.
• On-going IT investment and development programme.
• Identifying and securing innovation and technology opportunities

through the investment and acquisition strategy.

• Implementing business continuity and disaster recovery solutions.
• Monitoring of compliance with relevant contractual and regulatory

requirements.

• Inter-Group IT governance forums.
• External consultative support as necessary.
• Risk and Internal Audit reviews.
• Oversight by the Information Security Governance Group.

Information security

Group operations involve the processing
of high volumes of personal data, with
potential for unintended data loss and
exposure to increasing levels of external
cyber crime.

• LSL Information Security and Governance Group and IT Teams

with oversight responsibilities.

• Defined Group-wide base policy standards.
• Dedicated information security and data protection personnel.

Data security
• Group data protection policies and training in place.
• Tracking of data assets/data sharing, in line with authority levels.
• Implementation of regulatory changes – e.g. General Data

Protection Regulation via defined project teams.

Systems security
• Penetration testing programme.
• Benchmarking against and accreditation by best practice standards

– e.g. ISO27001 accreditation for e.surv.
• Second and third-line risk-based reviews.

Regulatory and
compliance

Compliance with legal and regulatory
requirements, including relationship with
regulators.

Regulations govern roles as an employer
and as providers of services.

Any compliance breaches could result
in sanctions and reputational damage
(e.g. prosecutions or fines). This includes
compliance with existing regulations
and implementing new regulations (e.g.
GDPR).

Regulatory and compliance risk extends
to oversight of standards adopted by
business partners (e.g. franchises,
appointed representatives, joint ventures
and minority investments).

The market and business operations
are also impacted by regulatory reforms
(e.g. Government reviews relating to the
housing market, including the proposed
tenant fee ban) which may have an effect
on Group revenue and expenditures.

Regulatory costs, fees and charges
continue to grow due to the rising funding
requirements of the Financial Services
Compensation Scheme (FSCS).

• Top-down management culture focused on fairness, transparency

and successful customer outcomes.

• Open dialogue with regulators and monitoring of emerging

developments and regulatory reforms.

• Group risk framework policy incorporating a ‘three lines of defence’

model to track compliance with regulations.

• Group policies including ethics (i.e. whistleblowing structures,

anti-fraud and anti-bribery policies) and employee welfare.

• Subsidiary businesses have in place health and safety arrangements

to ensure welfare of employees and visitors to Group premises.

• Group-wide forums with regulatory focus and oversight (e.g.

Financial Services Management Committee, Financial Services Risk
Committee and Information Security and Governance Group).
• Dedicated second line compliance teams in higher risk/regulated

functions. Investment in recruitment of expertise within the
compliance teams to ensure the Group is able to put in place
procedures for regulatory compliance.

• Evolution and development of IT systems to strengthen oversight

routines.

• Responsive complaints tracking of any emerging themes.
• In-house legal services team, with specialist external legal support

engagement when necessary.

• Group Risk and Internal Audit reviews.
• Membership of industry trade bodies and participation in

Government and Regulator consultations.

• Responsive business model changes to address impact of

regulatory changes.

Risk

People:

Employees

Description

Mitigation

Securing and retaining key strategic
populations and controlling attrition in
key business critical areas (e.g through
e.surv’s graduate training programme),
as well as ensuring the effective
management of personnel standards
and policy frameworks across varied
Group businesses.

• Oversight by LSL Remuneration and Nominations Committees

supported by the Group HR Director.

• Group remuneration policies and incentive schemes to retain key

strategic populations.

• Regular benchmarking and appraisals of senior management.
• Succession planning reviews and targeted reviews in some areas.
• Dedicated in-house recruitment team within Group HR which is

headed by the Group HR Director.

• Targeted retention and recruitment initiatives.
• Staff surveys and Group HR initiatives to focus on attrition, improve

staff morale, relieve areas of pressure and improve operational
efficiencies.

• Group-wide HR IT systems.
• Monitoring of statutory requirements and developments (including

gender pay reporting).

• Employee policies and monitoring framework (e.g. health and

safety).

• Development of a Group-wide culture, values and vision statement

taking into account subsidiary company statements.

• Development of employee engagement initiatives as part of the

Group’s stakeholder engagement project.

• Clear Group policies and whistleblowing procedures to enable staff

to confidentially raise concerns.

Reeds Rains was the main sponsor of Bauer Media’s Cash for Kids Superhero Day.

The Board has overall responsibility for establishing the Group’s Corporate Social Responsibility (CSR) statement and
associated policies with the Group Chief Financial Officer, 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 and consider the broad impact of corporate
actions on stakeholders including employees, customers, local communities, and the environment. The growing awareness of and
attention to social responsibility issues has many benefits for corporations such as LSL.

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 online service systems).

LSL’s focus is on actions that the Group can take, over and above its legal requirements, to address its competitive interests as well
as those of the wider society. This approach 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. 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 on reducing costs 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.

Environmental, Social and Governance (ESG) matters
As part of LSL’s regular risk assessment procedures and in its decision making, the Board takes into account the significance of ESG
matters to the business of the Group. 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 receives information to make this
assessment and Directors will ensure that their training takes into account ESG matters. The Board will also ensure that LSL has in place
effective systems for managing and mitigating significant risks, which, where relevant, incorporate performance management systems and
appropriate remuneration incentives.

Employees
LSL recognises that its employees are a valuable asset and the Group’s businesses are committed to providing working environments in
which employees are supported in their professional and personal development. By creating such an environment, the Group believes
that this results in 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 includes the use of employee opinion surveys
to obtain employee views. It also ensures that LSL, in its decision making, takes into account employees’ views. For further details of the
existing employee survey arrangements, see Communication (Employees) below.

The Board has, as part of a stakeholder engagement review exercise in 2017, considered how the Group engages with employees and will
also during 2018 monitor corporate governance reforms in relation to employee engagement matters.

LSL’s approach
LSL’s aim is to be recognised by existing and potential future employees as a responsible employer that values its employees and the
contribution they make both to the business and 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, email, handbooks and 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 Teams.

In addition, the Board receives employee feedback via the Group’s employee opinion surveys which are undertaken across all parts of
the Group’s businesses on an annual basis. The employee opinions that are captured are then presented to the Board as part of a regular
review of employee matters which focuses on considering issues relevant to the Group’s employees. Key performance indicators such as
labour turnover and responses to key questions are also monitored to measure staff morale.

In relation to the annual employee opinion surveys, LSL engages an external consultant to assist and this engagement allows LSL to not
only generate an accurate picture of engagement across the Group, but also to assess the results and feedback received against similar
organisations using the benchmarking data retained by the agency. As in previous years, the 2017 survey which related to 2016, covered
all aspects of the working environment including training, careers, performance and Group companies communications, together with
questions on the effectiveness of Group companies management and leadership. The response from employees to the 2017 survey was
very positive with 3,574 (72%) (2016: 3,578 (71%)) returns received. The survey relating to 2017 will be conducted in 2018 and the findings
reported in the Annual Report and Accounts 2018.

The employee opinion 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 2018 as LSL remains
committed to the continual development and improvement of employee engagement across the Group. On strategic matters, LSL
recognises 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, mystery shopping exercises and consumer focus groups. This
feedback is taken into account in LSL’s decision making processes and in particular in the development of its services to customers.
Feedback from customers including monitoring complaints and business performance against agreed service levels is also undertaken by
LSL’s Executive Committee as part of the Group’s regular Customer Outcomes review meetings.

Equal opportunities
LSL promotes equal opportunities in employment, recognising that equality and diversity are a vital part of 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, gender, marital status, nationality, social backgrounds, ethnic origin, age, disability,
religious belief or sexual orientation, and to ensure that no individuals suffer harassment or intimidation.

Specific employment policies exist which employees are required to observe and which the Group Chief Executive Officer has overall
responsibility for, 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 alongside regular reporting to the Board, which includes indicators
such as staff turnover.

Gender diversity
During 2017, LSL has remained committed to diversity and equal pay and Group companies will in 2018 commence reporting on
gender pay in accordance with the new reporting requirements. During 2017, LSL has ensured full compliance ahead of the reporting
requirements which come into force in April 2018.

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 percentage1 (%)

Note: 1 Data excludes forced leavers.

Breakdown by gender
Male
Female

2017
5,084
28.7

2016

2015

2014

2013

4,990
30.8

5,181 5,222
27.8
28.5

5,299
26.4

2017
2,273
2,811

2016

2015

2014

2013

2,206
2,784

2,316
2,285
2,896 2,906

2,318
2,981

In accordance with reporting requirements, the gender split for the Board, senior Management Team and Group employees for 2017 and
2016 is as follows:

Directors
Senior managers
Group employees

Female

2016
2
16
2,766

2017

2
15
2,794

2017

5
61
2,207

Male

2016
6
61
2,139

Employee training
LSL’s businesses place strong emphasis on the quality of service they provide to customers with employees (and where appropriate
consultants) undergoing suitable training. During 2017, 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.

The Group has also during 2017, and will in 2018 continue to review its processes and put into place arrangements to ensure compliance
with the new legislation, including data protection requirements ahead of the introduction of the General Data Protection Regulation into
UK law during May 2018.

LSL monitors all relevant legislative changes affecting its businesses and 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 also monitors and
contributes to consultations relating to reviews and reforms.

Details of LSL’s approaches to training are summarised opposite.

Group HR – Talent Development Team
LSL’s Group HR function includes a ‘Talent Development Team’ which delivered classroom based training to a total of 2,106 employees
during 2017, equating to the delivery of 4,094 training days. In addition, during 2017 LSL moved a significant proportion of the classroom
training to webinars to offer a blended learning approach in response to the Group’s business needs. LSL delivered 8,007 hours of
webinar training (which equates to an additional 1,144 days of training) to 1,693 staff during 2017. In addition to this, Group employees
completed 73,839 eLearning modules.

By fostering an inclusion culture, LSL is committed to diversity and equal pay, and recognise that many of its employees do not progress
at the same rate. Therefore LSL has identified some of the main barriers to progression and has developed a plan to support minority
groups. This includes the running of new training programmes which include both unconscious bias and assertiveness training.

Estate Agency and Related Services
Residential Sales, Lettings and Asset Management
The Estate Agency Division’s branches adhere to the Codes of Practice issued by industry professional and regulatory bodies, including
the TPO and/or the Association of Residential Lettings Agents (ARLA Propertymark)/National Association of Lettings Agents (NALS).
Membership of these bodies is in addition to observing compliance with relevant legislation, such as Data Protection legislation,
the Consumer Protection Regulations, the Consumer Rights Act, guidance material published by relevant regulators, including the
Competition and Markets Authority (CMA) (and its predecessor the Office of Fair Trading (OFT)), the National Trading Standards Agency/
TSI, HMRC and codes published by other relevant bodies, including the ASA.

LSL has also on behalf of all its Estate Agency businesses entered into a primary authority agreement with York Trading
Standards Office.

LSL from time to time also enters into direct dialogue with the regulators and consumer groups. During 2017 LSL has been monitoring
and responding to the wide range of consultations published by the Government as part of its review of the housing market which
commenced at the start of 2017 and will continue during 2018.

The Estate Agency Division has dedicated compliance teams and is subject to oversight by the Estate Agency Management Committee.

Financial Services
In relation to LSL’s Financial Services business, PRIMIS is the trading name of First Complete and Advance Mortgage Funding, and both
companies are directly authorised by the FCA in relation to the sale of mortgage, pure protection and general insurance products.

Your Move, Reeds Rains, First2Protect, Mortgages First, Insurance First and Embrace Mortgage Services along with the LSLi
subsidiaries are all appointed representatives of First Complete. 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.
In 2018, LSL acquired Personal Touch Financial Services which is also directly authorised by the FCA in relation to mortgage, pure
protection, general insurance and investment products.

LSL’s Financial Services businesses are also members of the Association of Mortgage Intermediaries (AMI) which is an industry
representative and trade body and the Financial Services businesses are subject to the Financial Ombudsman Service and contribute to
the funding of the Financial Services Compensation Scheme through regulatory fees and charges.

First Complete acts as principal for most of the estate agency businesses within LSL’s Estate Agency Division, enabling their employed
financial advisers to offer Financial Services to customers of the branch networks. Advance Mortgage Funding (previously trading as
Pink Home Loans) and Personal Touch Financial Services both operate intermediary networks, providing products and services to
financial services intermediaries.

The Financial Services businesses have dedicated compliance teams and the Financial Services activities are subject to the oversight
of the Financial Services Risk Committee and Financial Services Management Committee. The Financial Services companies are also
responsible for the training and compliance arrangements of the majority of Financial Services business conducted by Group companies
and the Financial Services businesses place strong emphasis on the quality of service provided to customers and as part of the
compliance arrangements and have in place arrangements to capture and monitor customer feedback.

All employees involved in the Financial Services businesses receive appropriate and relevant training. In particular, all Financial Services
advisers complete a specially designed training programme which is supplemented by effective supervision, regular monitoring and
regular refresher training sessions.

Surveying and Valuation Services
There are a total of 101 graduates in the Surveying Division, the majority of whom have achieved AssocRICS qualifications. There are
20 still working towards the competency levels and who are on schedule to qualify during 2018. In addition there are 35 AssocRICS
qualified surveyors being sponsored through the Assessment of Professional Competency (APC) programme which, once successfully
completed, will result in the MRICS status.

All surveyors are regulated by RICS and Continuing Professional Development (CPD). As members of RICS, surveyors commit to
continually update their skills and knowledge in order to remain professionally competent. All RICS professionals must undertake and
record online a minimum of 20 hours of CPD activity each calendar year. This is supported by the Group and undertaken through a variety
of methods ranging from distance learning, online modules through the Learning Management System, regional workshops and an annual
conference.

Training
During 2017, the Group’s training expenditure was:

Division
Estate Agency and Related Services
Surveying and Valuation Services
Total Expenditure1

Notes: 1 This includes in-house training costs of £1,155,184 (2016: £1,164,440).

Expenditure 2017 (£)
1,221,496
426,556
1,648,052

Expenditure 2016 (£)

1,406,325
344,218
1,750,543

Health, safety and welfare
LSL places great importance on the health, safety and welfare of its employees. Regular training is supported by policies, together with
Group standards and procedures, 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 Chief Financial Officer 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, which includes indicators such as accident numbers.

Environmental issues
LSL recognises that the environment has an intrinsic value, which is central to quality of life and underpins economic development. As
part of this understanding, LSL has 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 Chief Financial Officer 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.

Energy efficiency strategy (including ESOS and greenhouse gas emissions reporting)
During 2015, LSL undertook a number of energy audits to identify opportunities for energy and emissions reductions and to ensure
compliance to the new ESOS Regulations 2014 and Article 8 of the EU Energy Efficiency Directive, which came into force in the UK in July
2014.

The aim of ESOS is to aid organisations in their identification of energy efficient savings to support and increase good energy management
and it is part of the Government’s climate change initiative. The results of the audit were submitted to the Environment Agency in
December 2015 and LSL’s next audit is scheduled to take place in 2019.

The 2015 audit which was completed by a Lead ESOS Assessor, involved a review of energy consumption data and visits to selected
branches and offices.

The recommendations arising from the audit, which were reported to the Board have contributed to a Group-wide energy strategy. As
a result, the following environmental projects were adopted in 2016 and implemented during 2017. Group businesses have completed
a proactively managed review of branch premises and head office locations, implementing changes in relation to the key areas listed
below, with a particular focus on continued upgrading of lighting, air conditioning and heating systems. Additionally, the Estate Agency
businesses continue to progress replacement via the branch refresh programme.

1. Energy monitoring – Where installation is practical, continue to build on the existing programme of implementation of smart meters,

which now covers the supply of gas and electricity, through the remainder of the Group’s premises estate.

2. Lighting – Installation of low energy and LED lighting in branches and offices, replacing inefficient fluorescent tubes and halogen lamps,

and the installation of PiR motion sensors at large locations.

3. Heating, ventilation and air conditioning – Ensuring, through annual servicing, the effectiveness of temperature controls on fixed air
conditioning systems. In terms of new installations, heating and air conditioning, ensuring these are in accordance with the Group
ESOS strategy in terms of producing energy savings and reducing CO2 emissions.

4. Building management – Undertake reviews at key sites to optimise system installations to improve the working environment for Group

employees and generate savings on energy costs.

5. Water – Investigate the opportunities which may be available through market deregulation, and what further advantages this could

present through the installation of meters to better manage usage and costs.

6. Transport – Consider improvements which may be available via the introduction of telematics producing data to allow for the monitoring

of fuel consumption, driver fuel performance, alongside offering lower emission fleet vehicles, as Group businesses continue to
introduce hybrid vehicles into their fleets. Additionally, further measures introduced to reduce CO2 emissions include the use of
telephone conference facilities and also the use of online web-based training programmes.

The next ESOS audit is due to take place during 2019 which will include reporting on total energy consumption data over a 12 month
period (including the qualification date of 31st December 2018).

Greenhouse gas emissions
This section of the Report has been prepared in accordance with LSL’s regulatory obligation to report greenhouse gas emissions
pursuant to Section 7 of The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.

During the 2016/17 reporting period, LSL emitted a total of 6,680 tCO2e from fuel combustion and operation of LSL’s facilities (Scope 1
direct), and electricity purchased for LSL’s own use (Scope 2 indirect). This is equal to 22 tCO2e per £m of revenue or 1.47 tCO2e per full
time equivalent employee.

The table below shows LSL’s tCO2e emissions for the period 1st October – 30th September for the years 2017, 2016, 2015 and 2014.

(tCO2e)
Combustion of fuel and operation of facilities (Scope 1)
Electricity, heat, steam and cooling purchased for our own use (Scope 2)
Total Scope 1 and 2
tCO2e per full time equivalent employee
tCO2e per £m revenue

2016/ 2017
3,959
2,721
6,680
1.47
22

2015/2016

2014/2015

2013/2014

4,046
3,553
7,599
1.69
24

4,325
4,236
8,561
1.89
29

4,781
4,834
9,164
2.08
34

As the table demonstrates, since 2014 LSL’s absolute emissions have decreased by 31%. This reduction is principally due to the Group’s
programme of continual branch refurbishment across the Estate Agency businesses to improve efficiency and modernise fittings, as well
as the reduction in average FTE employees across the Group over this period; the disposal of a number of sites; and the decrease in the
UK electricity CO2e GHG conversion factors linked to the reduction in coal powered electrical generation.

Greenhouse gas reporting methodology
The Group quantifies and reports on its organisational greenhouse gas emissions according to Defra’s Environmental Reporting
Guidelines and has utilised the UK Government 2017 Conversion Factors for Company Reporting in order to calculate CO2 equivalent
emissions from corresponding activity data. LSL has also utilised data required for compliance with the CRC Energy Efficiency Scheme
and ESOS.

Greenhouse gas reporting boundaries and limitations
The emission sources included within this Report fall within the consolidated Financial Statement. LSL does not have responsibility for any
emissions sources that are not included within the consolidated Financial Statement. LSL has not to date calculated the Group’s fugitive
refrigerants from air-conditioning equipment as these are considered to be de minimis, however, LSL may look to quantify and report on
emissions from this source in future years.

The Greenhouse gas sources that constitute LSL’s operational boundary for the 2016/2017 reporting period are:

• Scope 1: Natural gas combustion within boilers and road fuel combustion within vehicles.

• Scope 2: Purchased electricity consumption for our own use.

Greenhouse gas reporting assumptions and estimations
In some cases, missing data has been estimated using either extrapolation of available data from the reporting period or data from
2015/2016 as a proxy.

Non Domestic Private Rented Property Minimum Standard Guidance
The Group is also reviewing the Non Domestic Private Rented Property Minimum Standard Guidance published in February 2017 by
the Department for Business, Energy & Industrial Strategy. The Guidance relates to Part Three of the Energy Efficiency (Private Rented
Property) (England and Wales) Regulations 2015 and relates to non domestic property.

With effect from 1st April 2018 it will be unlawful to let residential or commercial properties with an Energy Performance Certificate (EPC)
rating of ‘F’ or ‘G’ (i.e. the lowest two grades of energy efficiency). Landlords will be required to ensure compliance before the lease
is granted or alternatively must demonstrate falling within one of the exemption categories. The new regulations also apply to tenants
wishing to assign or sub-let commercial space.

Social and community interests (including human rights, ethical issues and modern slavery)
LSL’s social and community interests (which includes the promotion of human rights, ethical issues and modern slavery) 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 below.

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 (CEP), which is presented to the Board for annual review and approval. The Combined Ethics Policy
covers:

a. Anti-slavery and human trafficking

b. Anti-corruption and bribery (including hospitality)

c. Conflicts

d. Fraud

e. Whistleblowing.

While all Group employees are made aware of the policy, the Audit & Risk Committee and the Risk and Internal Audit Team will audit
awareness and compliance, with the findings reported to the Board.

Modern Slavery
LSL and its group of companies are all committed to conducting their businesses in a socially responsible way. LSL businesses seek to
carry out their operations in accordance with appropriate ethical standards and to be honest and fair in their relationships with customers
and suppliers. As part of this, LSL and its subsidiary companies are dedicated to ensuring that effective systems and controls are in place
to safeguard against modern slavery and human trafficking occurring within their businesses or any of their supply chains.

During 2017, LSL continued to implement arrangements to ensure compliance with the Modern Slavery Act 2015 including developing its
first Modern Slavery Statement which was published in June 2017 (see lslps.co.uk/modern-slavery) and which is described below.

The Statement sets out the steps taken by Your Move, Reeds Rains, LSLi and e.surv and it was signed for and on behalf of the Board by
Adam Castleton (Group Chief Financial Officer and director of each of these companies).

LSL Group Slavery and Human Trafficking Statement (Statement)
The published Statement sets out the steps that members of the Group have taken during the financial year ending 31st December 2016
to prevent modern slavery and human trafficking from occurring within its business and supply chains. The initiatives included in the
Statement continued to be implemented and developed during 2017 and further reporting will take place during 2018.

Group supply chains
Members of the Group have established direct relationships with a number of primarily UK-based suppliers who deliver a variety of
services including: professional services, utilities and telecoms, and facilities management. As part of its service delivery, members of the
Group procure services not just for themselves, but also for the benefit of some of the customers of other Group companies (including
property management services and contractors).

The vast majority of services are procured via specialist individuals employed or engaged by members of the Group.

Group policies and contractual provisions
The approach of members of the Group to the promotion of human rights and ethical issues is contained within the Group’s HR Policies,
which includes the CEP. The CEP applies to all individuals employed or engaged by LSL and its subsidiaries and includes an established
Whistleblowing Policy which employees can use to report suspected concerns within the LSL businesses and supply chains.

A working group has been established, which consists of representatives from the Group’s procurement teams, the in-house legal team
(LSL Legal Services) and Group HR, which reviewed and updated the CEP to include a dedicated anti-slavery and human trafficking policy.

Since the enactment of the Modern Slavery Act, members of the Group have taken steps to seek to ensure that any new agreements with
suppliers include an express obligation for suppliers to comply with the Modern Slavery Act, to implement due diligence procedures within
its own supply chains and notify LSL in the event of any actual or potential incidences of modern slavery. In the event of a breach of these
provisions, members of the Group will seek to resolve any issues with its suppliers and it may also seek to terminate the relationship with
the supplier where a resolution is not achieved. This provision is regularly reviewed and further amendments will be made.

LSL Group due diligence
Members of the Group have identified their supply chains as the main area of risk and exposure to modern slavery. A two-stage
risk assessment to identify possible risks of modern slavery within supply chains was commenced in 2016 and has continued to
be undertaken in 2017. The initial risk assessments focused on significant suppliers (who have been identified by reference to total
expenditure). The initial stage of the risk assessment enabled members of the Group to attribute a risk rating to each supplier. Where a
supplier was considered medium or high risk, further investigation was conducted to enable greater understanding of the possible risks
associated with the supply chain and consider whether further action is required.

In addition to carrying out due diligence exercises on existing suppliers, the working group has identified measures that members of the
Group will benefit from including the development of supplier due diligence arrangements which form part of procurement processes.

Group areas of risk
Overall exposure to modern slavery for members of the Group has been assessed and is considered to be lower than other sectors
taking into account that the Group’s businesses operate in the residential property services sector and that the types of services they
procure tend to have a lower risk profile. Further the fact that the Group’s business operations and those of the majority of its suppliers are
primarily based in the UK, also limits the Group’s exposure to modern slavery.

Notwithstanding the above, members of the Group are not complacent and understand that the procurement of recruitment and facilities
services and the use of subcontractors are practices which may bring about increased risks of modern slavery within supply chains.
Accordingly, members of the Group are taking steps to mitigate such risks, including:

• Requiring suppliers to implement due diligence procedures for its own suppliers and subcontractors.

• Having in place stringent checks on recruitment agencies and ensuring internal recruitment processes meet the minimum legal requirements.

As part of this, members of the Group comply with all relevant legislation including the Immigration, Asylum and Nationality Act 2006 and
ensure that all appropriate checks are carried out to maintain compliance. In the event that further risks are identified, members of the
Group will consider such risks and take appropriate steps to address any emerging risks.

LSL Group training
Members of the Group understand the importance of training employees to enable them to be able to identify risks of modern slavery. LSL
is putting in place a training programme to ensure that senior management, procurement leads and Group employees receive sufficient
information and/or complete appropriate training to understand the requirements of the Modern Slavery Act and how to identify and report
issues of modern slavery. Each employee group identified has a different role to play in combatting modern slavery and therefore the
information and/or training shall be tailored accordingly.

KPI monitoring
The Board appreciates that the approach to combatting modern slavery will have to adapt over time in response to the findings following
the completion of various risk assessments. The Board intends to monitor the following KPIs over the next financial year to measure how
effective the processes have been:

• The number of employees who have received training on modern slavery risks.

• The number of suppliers that have been subject to a risk assessment.

Anti-corruption and bribery
The Group has in place arrangements to ensure compliance with the Bribery Act 2010 and its arrangements are based on the results of
a bribery risk assessment. A review of the Group’s anti-corruption and bribery risks will be undertaken and reported to the Audit & Risk
Committee in 2018 and this will be followed by a review of the Group’s policies and procedures with a view to implementing any changes
identified as a result of the review.

Payment practices reform
LSL is monitoring the implementation of the payment practices reforms with reporting requirements commencing in July 2018.
Arrangements are being put in place to ensure compliance.

Tax evasion and strategy
The Criminal Finances Act 2017 brought into effect two new criminal offences for companies of failing to prevent the facilitation of tax
evasion, both in the UK and overseas. The new offences were effective from 30th September 2017. In response to the new legislation, the
Group established a working party with the initial aim of raising internal awareness and identifying the Group’s existing risks and controls
in respect of these new offences.

The Group has also published the following tax strategy in 2017:

Introduction
LSL is a leading provider of residential property services to its key customer groups, incorporating both estate agency and surveying
businesses. The Group operates exclusively in the UK through a range of national and regional brands.

This is the Group’s first published tax strategy, having been approved by the Board of Directors on 27th April 2017. This strategy will be
reviewed and updated annually, following further approvals by the Board. Our tax strategy is outlined below, and outlines the Group’s
attitude towards tax risk, tax planning and interactions with HMRC.

The Group is committed to the delivery of the tax strategy and this will be owned by the Group’s Chief Financial Officer, in conjunction with
the finance team. This tax strategy applies to all taxes, and the key principles of the strategy are:

• The Group is committed to paying the correct amount of tax due under UK legislation whilst maximising available reliefs in the way

legislation intended.

• The Group has a low appetite for tax risk, and seeks certainty through open and collaborative dialogue with the relevant tax authorities.

• The Group will seek to be proactive in its management of tax risk and in the course of its interactions with tax authorities.

Risk management and governance
The Group’s greatest tax risk areas are identified by considering areas of high value taxation, new and unfamiliar transactions, or
transactions with which there exists inherent tax complexity or uncertainty. Internal focus is directed to these higher risk areas, with
external advisers also engaged by Group Finance when required. External advisors will be used to support the Group where additional
resource or expertise is required to mitigate these tax risks. UK tax is a significant cost to the Group, and as a result is an area of focus for
the Board and the Group’s Risk and Internal Audit function.

Tax is the ultimate responsibility of the Group’s Chief Financial Officer, who is also the Group’s Senior Accounting Officer. The Group’s
central finance function develops the Group’s tax strategy and underlying policies, and ensures that appropriate knowledge and training
is in place across the Group. Within the central finance function there is a Group Tax Manager who, along with the finance functions within
the operating businesses, manages day to day taxation matters excluding payroll taxes. The calculation and deduction of payroll taxes
(including benefits) is managed by the Group HR department, although this process is controlled by policy and process documents which
are managed centrally.

Tax planning
The Group seeks to arrange its affairs in such a way as to ensure that it maximises all available claims and reliefs under UK tax legislation
and in the manner in which the legislation was intended. The Group will continue to have a strong focus on compliance with all applicable
tax legislation. The Group’s focus on CSR demonstrates the Board’s focus on ensuring that group companies operate in a responsible
way. The Group’s attitude towards tax planning fits into this framework.

Assessing and mitigating risk
Taxation risk is mitigated through internal procedure and the use of specialists where appropriate. Where there is uncertainty over a tax
filing position, the Group will seek specialist external advice or liaise with HMRC on a real-time basis around the transactions to discuss
the appropriate tax treatment. Further to seeking specialist advice, there may still exist inherent risk and uncertainty with regards to a
specific filing position. When assessing the level of any remaining risk the Group will seek to take a balanced and cautious approach
taking additional third party advice as appropriate.

Relationship with HMRC
The Group is committed to working collaboratively with HMRC, through open and transparent dialogue to ensure it is compliant with all of
its compliance and filing obligations. The Group has a proactive working relationship with HMRC and will continue to engage with HMRC
on a real-time basis.

Charitable donations
Workplace giving
LSL has implemented the ‘Charitable Giving’ initiative and all Group employees have been invited to participate. The initiative was
launched in October 2010 and in 2017 LSL employees raised over £11,000. Over 95 employees participate in the scheme, which donates
to a range of charities.

LSL 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 by receiving a higher amount. Further information can be found at:
charitablegiving.co.uk/payroll/payroll-giving.htm

Estate Agency – Residential Sales and Lettings
LSL’s Estate Agency Division encourages and promotes employees’ individual fundraising activities in the local communities of all the
brands. Employees have raised money for a wide range of causes in 2017, from national and international organisations such as Cancer
Research UK, the Alzheimer’s Society, The Children’s Heart Foundation, Help for Heroes, Diabetes UK, Macmillan Cancer Support, Help
the Homeless and Agents Giving, to very local causes such as Katherine House Hospice in Stafford, and gathering donations for Trussell

Trust foodbanks in St Neots, Royston and Godmanchester. In addition to this, Reeds Rains was the headline sponsor of Bauer Radio’s
Cash for Kids Superhero Day in 2017 across eight radio stations in the North of England and Reeds Rains employees raised over £34,000
for the charity during the event.

Estate Agency – Financial Services
PRIMIS employees participated in a range of local activities including the Pretty Muddy race in July 2017 to raise money for a number of
cancer charities.

Surveying
For the second year running, the Surveying Division’s corporate charity was Coming Home. Coming Home is a national charity that
provides specially adapted housing and support for ex-service personnel.

Support was also provided to a number of different charities (national and local) based on individual employee requests, including but not
limited to: Melanoma UK, Sir Bobby Robson Foundation, Heads Together, Bradley Lowery Foundation, Manchester Terror Attack, Circus
Starr, Kids Cancer Charity.

1. David Stewart
Non Executive Director
David joined the Board on 1st May 2015, and
is Chairman of the Audit & Risk Committee
and a member of the Remuneration and
Nomination Committees. David has significant
experience in finance, strategy, operations,
risk and compliance with a particular expertise
in financial services. He is currently Non
Executive Chairman of the Enra Group and
also sits as a Non Executive Director on
the boards of M&S Bank and HSBC Private
Bank (UK) Limited. Previously, he was Chief
Executive of the Coventry Building Society
(2006-2014), having earlier served as Finance
Director and Operations Director. Prior to
joining the Coventry, David spent 10 years
at DBS Management plc, holding a number
of board positions including Group Chief
Executive, Group Managing Director and
Group Finance Director. David qualified as
a Chartered Accountant with Peat Marwick
(KPMG) and is a graduate of Warwick
University.

2. Simon Embley
Non Executive Director and 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 oversaw and was
responsible for the turnaround of the initial
Group. Simon’s other directorships are limited
to a small estate management company, Road
to Health (a healthcare provider) and he is also
Non Executive Chairman at Global Property
Ventures (which distributes a tenant deposit
replacement product).

3. 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. He is also a member of LSL’s
Audit & Risk 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, Non

Executive Director of Johnson Service Group
plc and Council Member at the University of
Southampton. 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.

4. Kumsal Bayazit Besson
Non Executive Director
Kumsal was appointed as an independent
Non Executive Director on 1st September 2015
and is also a member of LSL’s Nominations,
Remuneration and Audit & Risk Committees.
Kumsal has significant experience in strategy,
technology, operations and sales and
marketing, particularly in the professional
information solutions sector. This includes her
current appointment as Regional President,
Europe at Reed Exhibitions which is part of the
RELX Group plc (formerly the Reed Elsevier
Group plc). Kumsal has previously held a
number of executive technology and digital
strategic roles including appointments as Chief
Strategy Officer for RELX Group plc, as the
Executive Vice President of Global Strategy and
Business Development for LexisNexis (part of
RELX Group plc); and as a consultant for Bain
& Co in New York, Johannesburg, Sydney, San
Francisco and Los Angeles. Kumsal holds an

MBA from Harvard Business School and a BA
in Economics from the University of California
at Berkeley.

5. Ian Crabb
Executive Director,
Group Chief Executive Officer
Ian was appointed Group Chief Executive
Officer on 9th September 2013 and has primary
responsibility for the performance, strategy
and development of LSL. Ian’s previous
experience included seven years as CEO 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.
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
UK/Europe, the document management and
office products provider, for six years; delivering
significant growth both organically and through
several acquisitions. Ian holds a BA from Oxford
University and an MBA from Harvard Business
School.

has overall responsibility for the performance,
strategy and development of LSL’s Estate
Agency Division. Prior to this role Helen
had, since December 2011, served as an
independent Non Executive Director and
was also a member of LSL’s Nominations
and Remuneration Committees. Helen was
previously Chief Operating Officer at Palmer
& Harvey. Prior to this she was part of the
Sainsbury’s management team from 2005 to
2015, including five years as a member of the
Operating Board. Helen has extensive expertise
in strategy, marketing, commercial and
operations. Before joining Sainsbury’s, Helen
held a number of senior positions at Marks &
Spencer, Woolworths and Safeway and was a
senior manager at McKinsey & Co.

7. Adam Castleton
Executive Director,
Group Chief Financial Officer
Adam was appointed as Group Chief Financial

Officer on 2nd November 2015. Adam has a
breadth of financial skills and experience in the
retail and services sectors. Adam joined LSL
from French Connection Group PLC where he
was the Group Finance Director. He previously
held leadership roles at a number of market
leading companies including O2 UK, eBay and
The Walt Disney Company. Adam has over 25
years’ experience in finance, having started
his career with Price Waterhouse where he
qualified as a Chartered Accountant in 1989.

8. Sapna B FitzGerald
General Counsel and Company Secretary
Sapna is a solicitor (qualified in 1998) and
has been in the role of General Counsel and
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.

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.

6. Helen Buck
Executive Director – Estate Agency
Helen was appointed as Executive Director
– Estate Agency on 2nd February 2017 and

Ian Crabb
Group Chief Executive Officer
6th March 2018

Adam Castleton
Group Chief Financial Officer
6th March 2018

In this section

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

42 Report of the Directors
47 Corporate Governance Report
56 Audit & Risk Committee Report
66 Directors’ Remuneration Report

Your Move advertises properties on Facebook.

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 International Financial Reporting Standards (IFRS) as adopted by the EU.

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

• State that the Group has complied with IFRS, subject to any material departures disclosed and explained in the Financial

Statements.

• Make judgments 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 & Risk 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.

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewReport of the Directors

Business review and development
The Strategic Report (including the Chairman’s Statement and the Group Chief Executive’s Report) sets 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 26th April 2018 starting at 3.30pm.

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
The Board continues to support LSL’s previously communicated dividend policy, to apply a dividend pay-out ratio of between 30% to
40% of Group Underlying Operating Profit after interest and tax. The Board has reviewed the policy while considering the risks and capital
management decisions facing the Group.

Adjusted Basic Earnings Per Share for 2017 was 28.3 pence, an increase of 9.3% on the prior year (2016: 25.9 pence). The Board has a
positive view of the future prospects for the business whilst also being mindful of the uncertain economic and political landscape which
has an impact on consumer sentiment. The proposed dividend payment is at the upper end of the range of LSL’s stated policy and a
final dividend of 7.3 pence per share (2016: 6.3 pence per share) will be proposed to Shareholders at the forthcoming AGM, giving a total
dividend for 2017 of 11.3 pence per share (2016: 10.3 pence per share).

The ex-dividend date for the final dividend is 22nd March 2018 with a record date of 23rd March 2018 and a payment date of 5th May 2018.
The last date for election is 10th April 2018.

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 employees are a valuable asset and the Group’s businesses are committed to providing working environments in
which employees are supported in their professional and personal development. By creating such an environment, the Group believes
that this results in 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, included in 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 Report of the Directors. The 2017 results are included within the CSR statement of this Report.

Directors
The current Directors are listed with their biographies in The Board at pages 38 and 39 of this Report. During the year Adrian Gill was also
a Director and he stepped down from The Board on 4th January 2017. Further, Helen Buck became Executive Director – Estate Agency on
2nd February 2017, and ceased to be a Non Executive Director and member of the Remuneration Committee and Nominations Committee
at the same time.

Full details of the Directors’ service contracts, letters of appointment and interests in LSL Shares are also detailed within the Directors’
Remuneration Report.

Re-election and election
All of the Directors will each retire at the AGM and, being eligible 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. All of the

Directors (who were elected at the 2017 AGM) will stand for re-election at the 2018 AGM. Shareholders 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 the Directors are set out on pages 38 and 39 of this Report.

During the 2017 Board and Committees 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 included in this Report. During the
period between 31st December 2017 and the date of this Report, there were no changes in the Directors’ interests other than the purchases
of Shares by Ian Crabb (164 Shares), Adam Castleton (163 Shares) and Helen Buck (164 shares) as participants of LSL’s SIP/BAYE scheme.
These Shares were purchased by the Trust at the prevailing market rate.

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. In July 2017 the Group invested in Global Property Ventures of which Simon Embley (LSL’s Chairman) is the
chairman. Simon did not participate in the Board‘s decision in relation to the investment.

Directors’ service contracts
Details of the Executive Directors’ service agreements and the current Non Executive Directors’ letters of appointment (including any
extensions to appointments) are set out in the Directors’ Remuneration Report and are available for inspection at the Registered Office
during normal business hours and at each AGM.

Auditor
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.

Details of LSL’s policy designed to safeguard the independence and objectivity of the external auditors is included in the Audit & Risk
Committee Report together with details of how the Audit & Risk Committee undertakes this assessment.

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 2017.
LSL will seek Shareholder approval for the renewal of authority for the Directors to allot unissued Ordinary Shares and for the power to
disapply statutory pre-emption rights at the 2018 AGM. LSL obtained Shareholder approval to disapply pre-emption rights at the 2017 AGM.

Full details of the deadline for exercising voting rights in respect of the resolutions to be considered at the 2018 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 Link Market Services Trusts (formerly Capita Trustees Limited) (Trustees) to operate the LSL Property Services plc Employee
Share Scheme (Trust). The Trustees of this Trust operate both the LSL Property Services plc Employee Share Incentive Plan (Buy As You
Earn 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 13 to the Financial Statements. The Trustees have waived the right to any dividend payment in respect of each
Share held by them in 2017 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 were 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, 2013 and 2015. The Growth
Shares were all acquired by LSL during 2017. The 2011 EBT does not currently hold any LSL Shares.

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Viability statement
In accordance with provision C.2.2 of the Code (April 2016), the Directors confirm that they have a reasonable expectation that the Group
will continue to operate and meet its liabilities, as they fall due, for the next three years. This assessment was considered against the
Group’s expected financial position, existing banking facilities and potential management actions.

A three year viability period, ending 31st December 2020, has been selected which corresponds to the Board’s three year planning horizon.
In light of the further guidance issued on the appropriateness of the viability period this has been reassessed and is still considered
appropriate given this aligns with the Group’s planning and budget cycle and is supported by the Group’s funding arrangements, which
expire in May 2022. The term was extended from May 2020 in January 2018.

The Directors’ assessment has been made with reference to the Group’s current position and prospects, the current three year strategy
and the Group’s Principal Risks and Uncertainties and how these are managed as detailed in pages 22 to 27 of the Strategic Report.

The strategic plan has been stress tested using sensitivity analysis which reflects plausible but severe combinations of the principal risks of
the business, primarily through reducing revenues and cash-flows.

The process by which LSL developed its viability statement is set out on page 22 of the Principal Risks and Uncertainties section of this Report.

Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in
the Business Review sections of the Strategic Report. The financial position of the Group, its cash-flows, liquidity position and the Group’s
policy for treasury and risk management are described in the Financial Review sections of the Strategic Report. 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 24 to 27.

As explained in Note 29 to the Financial Statements, the Group meets its day to day working capital requirements through cash generated
from operations as well as utilising its RCF, which was renewed in January 2018. The Group currently has a £100m facility which is
committed for a period up to May 2022. As stated in Note 29 to the Financial Statements as at 31st December 2017 the Group had available
£70m 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 12 months (including the Group’s facility
which is due to mature in May 2022) 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 the auditor
Having made enquiries of fellow Directors and of the external auditor, each of the 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.

• 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 and
indemnities 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 2017, 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.

Ordinary Shares
On a show of hands at a general meeting of LSL every holder of Ordinary Shares present in person and entitled to vote shall have one
vote and on a poll, every member present in person or by proxy and entitled to vote shall have one vote for every Ordinary Share held. The
Notice of Meeting which accompanies this Report specifies deadlines for appointing a proxy in relation to resolutions to be passed at 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 (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 closed periods); and

• pursuant to the Listing Rules of the FCA/UKLA and LSL’s Share Dealing Policy, 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 2006 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 2017, the Trust held 1.45% (2016: 1.46%) 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 events
In January 2018, LSL acquired the entire issued share capital of Personal Touch Financial Services and its subsidiary company, Personal
Touch Administration Services. Personal Touch Financial Services is a financial services business specialising in the provision of mortgage
and other financial services products via its network of intermediaries.

In January 2018, LSL extended its bank facility until May 2022. The facility includes a £100m RCF (2016: £100m).

Directors’ responsibility statement
Each of the current Directors confirms that to the best of their knowledge:

• The Financial Statements, prepared in accordance with IFRS as adopted by the EU, 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.

• 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 shareholdings
As at 31st December 2017 and as at 5th March 2018, the Shareholders set out below have notified LSL of their interest under DTR 5:

Institutional Shareholders:

Institution
Brandes Investment Partners L.P
Harris L.P
Setanta Asset Management Ltd
Kinney Asset Management, LLC
GLG Partners LP
First Pacific Advisers, LLC
The Capital Group of Companies, Inc
Henderson
FMR, LLC
Franklin Templeton Institutional, LLC

Nature of
shareholding

Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial

Number of
Ordinary
Shares

14,329,898
11,585,233
10,158,227
7,694,643
4,280,869
5,267,163
4,658,270
4,182,818
Below DTR 5 threshold
Below DTR 5 threshold

31st December 2017

5th March 2018

% of
Ordinary
Shares

Number of
Ordinary
Shares

% of
Ordinary
Shares

13.98
11.12
9.75
7.39
4.18
5.06
4.47
4.01
Below DTR 5 threshold
Below DTR 5 threshold

13,254,206
11,585,233
10,158,227
7,113,643
4,280,869
5,267,163
4,658,270
4,182,818
5,302,440
5,224,560

12.94
11.12
9.75
6.83
4.18
5.06
4.47
4.01
5.09
5.02

Individual Shareholders (excluding Directors)
David Newnes

Registered

3,479,910

3.34

3,479,910

3.34

The Report of the Directors has been approved by and is signed on behalf of the Board of Directors

Sapna B FitzGerald
Company Secretary
6th March 2018

Corporate Governance Report

UK Corporate Governance Code (April 2016) (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 2017 and the corporate governance arrangements that are in place for 2018.

This Report assesses LSL’s compliance against the 2016 edition of the Code and during 2017, LSL complied with the relevant provisions of
the Code in all respects. The Code is available on the Financial Reporting Council’s website (frc.org.uk).

Further, during 2017 the Board also reviewed and updated its governance arrangements to reflect best practice introduced by the joint
guidance issued by the Investment Association and ICSA in relation to stakeholder engagement.

Corporate governance reviews
The Board has also during 2017 been monitoring the findings of the House of Commons Business, Energy and Industrial Strategy Select
Committee’s review of corporate governance and the Government’s proposals for reform; in addition to the FRC’s proposed amendments
to the Code (published in December 2017) in response to the Government’s Green Paper (published in November 2016).

Further to the 2016 Board evaluation exercise, during 2017 the Board commenced a review of the Group’s cultures, values and ethics,
taking into consideration the FRC’s guidance published in 2016 (Corporate Culture and the Role of Boards) and the draft Guidance on
Board Effectiveness which was published in December 2017, alongside the draft Code.

The guidance, whilst in draft, provides a useful indication of how the FRC intend to implement the findings from its own review in 2016, and
the Government’s response to the Green Paper consultation on Corporate Governance Reform (published in August 2017). The FRC has
also taken into account issues raised by the House of Commons Business, Energy and Industrial Strategy Select Committee (April 2017).

During 2018, the Board will continue to prepare for implementation of a new Code and to monitor the development of the draft guidance
and the new Code in addition to progressing the Group’s culture, values and ethics review.

The Board
At the date of this Report, the Board has seven members, whose details are set out below.

Director Name

Position(s)

Kumsal Bayzit Besson

Independent Non Executive Director – member of the Nominations Committee, Remuneration
Committee and Audit & Risk Committee

Helen Buck

Executive Director – Estate Agency

Adam Castleton

Executive Director – Group Chief Financial Officer

Ian Crabb

Simon Embley

Bill Shannon

David Stewart

Executive Director – Group Chief Executive Officer

Non Executive Director – Chairman

Independent Non Executive Director – Deputy Chairman, Senior Independent Director, Chairman of the
Remuneration Committee, Chairman of the Nominations Committee and a member of the Audit
& Risk Committee

Independent Non Executive Director – member of the Nominations Committee and Remuneration
Committee and Chairman of the Audit & Risk Committee

All of the Directors are listed with their biographies in The Board at pages 38 and 39 of this Report.

2017 Board changes
Adrian Gill (Executive Director – Estate Agency), stepped down from the Board on 4th January 2017.

Helen Buck (as a Non Executive Director) was a member of the Nominations Committee and Remuneration Committee until her
appointment as Executive Director – Estate Agency on 2nd February 2017. Helen Buck did not participate in any Nominations Committee
or Remuneration Committee discussions regarding her appointment into this role. In relation to the appointment into the role of Executive
Director – Estate Agency, the Nominations Committee was assisted in its search by executive search agencies, The MBS Group (trading
name of Moira Benigson Executive Search LLP) and The Zygos Partnership (trading name of Zygos LLP which is part of Russell Reynolds
Associates). Both agencies are considered to be independent of, and neither agency has any connection with, LSL.

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Board composition
During 2017 the Non Executive Directors (excluding the Chairman) were determined to be independent in accordance with B.1.1 of
the Code and the Board composition continued to comply with B.1.2 of the Code, namely that at least half of the Board (excluding the
Chairman) comprised independent Non Executive Directors. The current Non Executive Directors together have a range of experiences
which are described in more detail overleaf in the Nominations Committee section of this Corporate Governance Report. All of the Non
Executive Directors (excluding the Chairman) are considered by the Directors (and for the purposes of the Code) to be independent of
management and free of any relationship which could materially interfere with the exercise of their independent judgment.

Director search
During 2017, the Nominations Committee on behalf of the Board considered at length a number of aspects regarding the Board’s
composition and following this review commenced a search for the recruitment of an additional director with skills and expertise in
technology and innovation, to be appointed as an additional independent Non Executive Director. The Nominations Committee has been
assisted in its search by The Zygos Partnership (trading name of Zygos LLP which is part of Russell Reynolds Associates), which is an
executive search agency. The Zygos Agency is considered to be independent of and does not have any connection with, LSL.

Roles of the Chairman and Group Chief Executive Officer
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 in 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. The Chairman 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.
The Directors are satisfied that the balance of Executive and Non Executive Directors on the Board is appropriate and that no individual or
group may dominate the Board’s decisions.

Chairman’s other appointments
In addition to his role as Chairman, Simon Embley’s other board appointments comprise a small estate management company, Road to
Health Group Limited (a healthcare provider) and he is also Non Executive Chairman of Global Property Ventures Limited (trading as Zero
Deposit, which distributes a tenant deposit replacement product).

Board and Committees evaluation
During the year the Directors continuously review, and are encouraged to provide feedback on, the effectiveness of the Board. Further,
the Directors assisted by the Company Secretary, undertake an annual evaluation of the performance of the Board which includes an
evaluation of the Board, its Committees and of individual Directors (including relevant skills, experience and diversity) to ensure that the
Directors remain individually and collectively effective.

The actions agreed during the 2016 evaluation process were completed in 2017.

The evaluation process relating to 2017 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.

No significant issues requiring action arose from the 2017 evaluations and the outcomes of the exercise were reported to the Board.
The appraisal confirmed that the Board and its Committees were discharging their responsibilities effectively and produced a number of
recommendations to further improve the effectiveness of the Board. As a result, during 2018 the Board will:

a. Continue to develop succession planning arrangements for Executive and senior management.

b. Recruit additional independent non executive director with skills and expertise to enhance existing Board and Committee composition

(including diversity) and to support Group business and markets developments.

c. Building on 2017 activities, continue to review meeting arrangements and the provision of information to the Board and its Committees

to ensure that the Board/Committees prioritise supporting the Group’s strategy.

d. All Directors to complete a self-assessment exercise to identify any development/training needs and to agree training plans as

appropriate with Chairman/CEO with support from Company Secretary and Group HR Director.

e. Implement the culture, value and ethics and stakeholder engagement Board feedback and plans, taking into account the Code and

FRC guidance review (including employee engagement matters).

Diversity
LSL continues to recognise the benefits of diversity on the Board (including relevant professional skills, experience, gender and race) and
the current Board composition includes two female Directors, Helen Buck (Executive Director – Estate Agency) and Kumsal Bayazit Besson
(independent Non Executive Director).

LSL has not adopted a diversity policy and 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 they will continue to appoint on merit, both the Chairman of the Board and the Chairman
of the Nominations Committee ensure that all searches for directors and senior managers (including those undertaken in 2017 and being
undertaken in 2018) continue to take into account the benefits of diversity, including professional skills, experience, gender, social and
ethnic backgrounds.

Further, LSL has also considered the FRC’s views on diversity which are included in the Code consultation document (published in
December 2017). In particular, the Board notes that diversity on the Board and within the senior management teams has a positive impact
on the Group’s performance and the Board will during 2018 take into consideration the adoption of a diversity policy.

For further information on how the Nominations Committee ensures the promotion of diversity within the Group, see below (Nomination
Committee section).

Directors’ service agreement and letters of appointment
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. Further details of Director service agreements and
letters of appointment are contained in the Directors’ Remuneration Report.

Director support
All Directors have access to 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 and its Committees on all matters of corporate governance, ensuring that all Board and Committee procedures are followed and
facilitating Director induction and training.

Director induction and training
Each newly appointed Director receives an induction on a range of topics, including as appropriate, the responsibilities of a listed public
company director and the LSL businesses. 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.

The Company Secretary ensures that the Director induction and training arrangements are reviewed regularly with updates provided to
the Board.

During 2017, and following on from the 2016 Board evaluation exercise, the Board agreed that as part of its training it would receive a
specific training session during 2017 on FCA Regulation which was delivered by Grant Thornton (trading name of Grant Thornton UK LLP).

Board and Committee meetings
During 2017 the Board held nine scheduled meetings (including a three year planning meeting and a strategy 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 in this Report.

During 2018 the Board is scheduled to meet eight times (including a three year planning meeting and a strategy meeting). Additional
meetings will be held as required.

During 2017 the Non Executive Directors collectively scheduled to meet nine times without the Executive Directors being present and it is
the intention that the Non Executive Directors will meet eight times during 2018. These meetings are scheduled before or after a Board or
Committee meeting.

In addition, the Non Executive Directors are scheduled to meet at least once in the year without the Chairman being present.

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Board and Committee attendance 2017

Board Meetings
(including three
year planning
meeting and

Director
Kumsal Bayazit Besson

Position
NED

Helen Buck

Adam Castleton
Ian Crabb
Simon Embley
Adrian Gill

Bill Shannon

Executive Director
– Estate Agency
Group CFO
Group CEO
Chairman
Executive Director
– Estate Agency
Deputy Chairman, SID

David Stewart

NED

Committee
memberships
Audit & Risk, Remuner-
ation and Nomination
Remuneration
and Nomination
-
-
-
-

Audit & Risk, Remuner-
ation and Nomination
Audit & Risk, Remuner-
ation and Nomination

strategy
meeting)
8

Audit & Risk Remuneration Nomination
Committee
Committee
2
4

Committee
3

Notes
2

9
9
9
-

-
-
-
-

-
-
-
3

Board and Committee attendance Notes:
1 Helen Buck was appointed as Executive Director – Estate Agency on 2nd February 2017 and she did not participate in any Board, Nominations Committee or Remuneration Committee

discussions in relation to her appointment. As a result, during 2017 and whilst she was a Non Executive Director and member of the Nominations Committee, Helen Buck did not attend any
scheduled Nominations Committee meeting. There was no scheduled meeting of the Remuneration Committee during the period prior to Helen Buck’s appointment as Executive Director –
Estate Agency.

2 Kumsal Bayazit Besson was not present at one of the scheduled Board meetings and one Nominations Committee meeting during 2017. She received the papers in advance of the

meetings and provided her comments and queries to the Chairman and the Group Chief Executive Officer to raise at the meeting.

3 Adrian Gill stepped down from the Board on 4th January 2017 and there were no Board meetings scheduled before this date.

Director elections
LSL’s Articles of Association stipulate that all of the Directors appointed since the previous AGM and 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.

Board role and responsibilities
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 and the formulation of the Group’s risk appetite framework, including the identification,
assessment and monitoring of LSL’s principal risks and uncertainties. In accordance with best practice, LSL has adopted a policy of
Matters Reserved for the Board which is reviewed annually by the Board.

The Board has adopted principles of good boardroom practice which set out procedures on how Directors are given accurate, timely
and clear information and how they can seek and obtain information or advice necessary for them to discharge their duties. These
arrangements are reviewed annually as part of the Board’s evaluation process referred to above.

There is also a programme of regular reviews by the Board of LSL 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). During
2017, the Board considered the joint guidance on best practice issued by the Investment Association and ICSA in relation to stakeholder
engagement and also commenced a review of the Group’s cultures, values and ethics, taking into account FRC commentary.

LSL believes that Corporate Social Responsibility (CSR) is necessary to support responsible business decisions that consider 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 including the steps
being taken to ensure compliance with the requirements of the Modern Slavery Act 2015 can be found in the CSR Statement included in
this Report.

During 2017, the Board also received updates on how LSL is implementing new legislation including Reporting on Payment Practices
Regulations 2017, the Modern Slavery Act 2015, General Data Protection Regulation and the Criminal Finances Act 2017 (which created a
new offence of tax evasion).

Director conflicts of interest
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 of
Association 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.

Board Committees
The Board has delegated specific responsibilities to three standing Committees of the Board:

a. Nominations Committee;

b. Remuneration Committee; and

c. Audit & Risk Committee.

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 (lslps.co.uk). During 2017, the Board reviewed the Terms of Reference for each of the
Committees and updated each to reflect the guidance on best practice included in the joint guidance issued by the Investment Association
and ICSA in relation to stakeholder engagement. In addition, in February 2018 the Terms of Reference of the Audit & Risk Committee was
updated to reflect the work it has undertaken in relation to risk and during 2018, the Board will continue to review the Committees’ Terms of
Reference in response to amendments to FRC guidance and the Code.

It is also the intention that Bill Shannon, as Chairman of the Nominations Committee and Remuneration Committee and David Stewart, as
Chairman of the Audit & Risk Committee, will both attend the 2018 AGM to answer any questions.

Nominations Committee
Bill Shannon is the Chairman of the Nominations Committee and, its other members are Kumsal Bayazit Besson and David Stewart.

During 2017, Helen Buck was (as a Non Executive Director) a member of the Nominations Committee until her appointment as Executive
Director – Estate Agency on 2nd February 2017. Helen Buck did not participate in any Nominations Committee discussions regarding her
appointment into this role.

Director searches
In relation to the appointment into the role of Executive Director – Estate Agency, the Nominations Committee was assisted in its search by
executive search agencies, The MBS Group (trading name of Moira Benigson Executive Search LLP) and The Zygos Partnership (trading
name of Zygos LLP which is part of Russell Reynolds Associates).

During the second half of 2017, the Nominations Committee considered at length a number of aspects regarding the Board’s composition
and as a result of the review, commenced a search for the recruitment of an additional independent Non Executive Director with expertise
and skills in relation to technology and innovation. The Nominations Committee has been assisted in its search by executive search agency
The Zygos Partnership.

The MBS Group and The Zygos Partnership are considered to be independent of, and neither has any connection with, LSL.

Roles and responsibilities of the Nominations Committee
The duties of the Nominations Committee are governed by its Terms of Reference, which was reviewed in 2017 to ensure continued
compliance with the Code. The Terms of Reference was also updated to take into account the joint guidance on best practice issued by the
Investment Association and ICSA relating to stakeholder engagement.

The Nominations Committee’s roles and responsibilities are contained in its Terms of Reference and includes the following:

a. taking into account LSL’s strategy and the Board’s knowledge and understanding of the Group’s key stakeholders, regularly reviewing

the structure, size and composition (including skills, knowledge and experience) required of the Board and its Committees; and making
recommendations to the Board with regard to any changes;

b. recommending appointments after the evaluation of the balance of skills, experience, independence and knowledge on the Board,
taking into account diversity (including gender and race). The Nominations Committee will also prepare a description of the role and
capabilities required for a particular appointment;

c. giving full consideration to succession planning in the course of its work, taking into account the challenges and opportunities facing
LSL, and what skills and expertise are therefore needed on the Board in the future. The Nominations Committee will also satisfy
itself that plans are in place for orderly succession for appointments to the Board and to senior management, so as to maintain an
appropriate balance of skills and experience within the Group and on the Board, to ensure progressive refreshing of the Board;

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d. 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 are made, on merit, against objective criteria, with due regard for
(a) the benefits of diversity, including gender and race; and (b) the Group’s key stakeholders;

e. reporting on the nomination of all new Board appointments and undertaking an annual performance evaluation to ensure that all

members of the Board have devoted sufficient time to LSL to discharge their duties effectively;

f. keeping 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. ensuring that on appointment to the Board, Non Executive Directors receive a formal letter of appointment which sets out clearly what is

expected of them in terms of time commitment, committee service and involvement outside Board meetings;

h. 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, recognising the need for availability in the event of a crisis; and

i. as part of the process for nominating candidates for any appointments, obtain details of and review any interests that the candidate may

have which conflict or may conflict with the interests of LSL.

The Nominations Committee make recommendations to the Board as set out in its Terms of Reference, which includes the following
matters:

a. succession plans and Board appointments; and

b. reporting on its activities in the Annual Report and Accounts.

What the Nominations Committee did in 2017
The Nominations Committee met three times in 2017 and the Group Chief Executive Officer, the Chairman, the Group HR Director and
the Company Secretary were all invited to attend these meetings and assisted the Nominations Committee in its deliberations during this
period.

During the year, as part of it discussions, the Nominations Committee considered the following matters:

a. Board composition, including gender, race and professional diversity;

b. the role and responsibilities profiles in relation to the Chairman and Group Chief Executive Officer;

c. Non Executive Director skills, expertise and experience together with succession planning arrangements taking into consideration the

term of each Non Executive Director;

d. Executive Committee performance together with Executive Committee and senior management succession planning arrangements;

e. a review of the Nomination Committee’s performance and its Terms of Reference to ensure continued compliance with the Code,

FRC guidance and updated the Terms of Reference to take into account the joint guidance on best practice issued by the Investment
Association and ICSA relating to stakeholder engagement;

f. the Committee conducted a search for the recruitment into the role of the Executive Director – Estate Agency. Here the Nominations
Committee considered and, where appropriate made recommendations to the Board in relation to LSL’s search. The search, which
began in 2016, was concluded in February 2017 when the Board appointed Helen Buck as Executive Director – Estate Agency. LSL
was assisted by executive search agencies in the recruitment for the role of Executive Director – Estate Agency. Helen Buck did not
participate in any discussions relating to her appointment as Executive Director – Estate Agency; and

g. the Committee commenced a search for the recruitment of an additional Non Executive Director. LSL is being assisted by executive

search agency The Zygos Partnership in its selection.

As part of its discussions in 2017 the Nominations Committee considered FRC guidance and other publications relevant to the roles and
responsibilities of the Nominations Committee.

Governance
In carrying out its duties, the Nominations Committee also takes into account the requirements of the Listing Rules (together with
requirements issued by the FCA), the Code and guidance for Nominations Committees issued by the FRC (including its feedback statement
on UK Board Succession Planning published in May 2016) and other bodies (including the joint report published by ICSA and Ernst & Young
titled The Nomination Committee – coming out of the shadows published in May 2016), together with the requirements of the Board, and any
other relevant ethical guidance.

During 2017, the Nominations Committee has also monitored both the Government’s review of corporate governance, including the Green
Paper published by the Department for Business, Energy and Industrial Strategy and the review conducted by the Business, Energy and
Industrial Strategy Select Committee. Further, the Nominations Committee is reviewing the proposals to amend the Code as published by the
FRC in December 2017.

Board composition and diversity
The LSL Board has expertise in strategy, technology, estate agency, surveying, financial services, the residential housing sector,
commercial property, retail and marketing, operations, business services, entrepreneurial private and public companies, finance, consumer
and employee matters, and corporate governance.

Whilst LSL has not adopted a formal policy on diversity, including professional skills, experience, gender, social and ethnic backgrounds,
the Chairman of the Board and the Chairman of the Nominations Committee ensures that diversity is taken into consideration in the
recruitment of new Directors. The Board will (supported by the Nominations Committee) during 2018 take into consideration the adoption of
a diversity policy.

Further, during 2018 the Nominations Committee will ensure that Board recruitment and succession planning practices identify and
consider a diverse pool of candidates to improve diversity over time. The Nominations Committee recognises the benefits of diversity and
notes that whilst the draft Code continues to emphasise the importance of diversity in its broadest sense, LSL welcomes initiatives which
seek to broaden perceptions of diversity and to ensure practices are designed to promote diversity, including gender, social and ethnic
backgrounds.

Gender pay reporting
LSL has during 2017 been preparing for the introduction of gender pay reporting and will ensure the publication of gender pay reports for all
LSL Group companies with more than 250 employees in April 2018.

For details of gender reporting in relation to the Board, within the senior Management Teams and Group employees, see the CSR
statement.

Remuneration Committee
The Remuneration Committee is chaired by Bill Shannon and its other members are Kumsal Bayazit Besson and David Stewart.

During 2017, Helen Buck was also a member of the Nominations Committee (as a Non Executive Director) until 2nd February 2017 when she
commenced her role as Executive Director – Estate Agency. Helen Buck did not participate in any discussions relating to her remuneration
as Executive Director – Estate Agency.

The Remuneration Committee met four times during the year and the Group Chief Executive Officer, the Chairman, the Group HR
Director and the Company Secretary were each invited to attend some of these meetings and assist the Remuneration Committee in its
deliberations during this period.

Role and responsibilities of the Remuneration Committee
The duties of the Remuneration Committee are governed by its Terms of Reference, which were reviewed in 2017 to ensure continued
compliance with the Code. The Terms of Reference were also updated with effect from 1st January 2018 to reflect the joint guidance on best
practice issued by the Investment Association and ICSA relating to stakeholder engagement. The Terms of Reference will also be reviewed
during 2018 to reflect any changes to the Code arising from the FRC review which commenced in December 2017.

The Remuneration Committee’s role and responsibilities are contained in its Terms of Reference, and it includes being responsible 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 Remuneration Committee has discharged these duties and this can be found
from page 66 of this Report.

In addition, the duties of the Remuneration Committee includes the following:

a. ensure that the levels of remuneration are sufficient to attract, retain and motivate directors of the quality required to run LSL

successfully and to ensure that LSL avoids paying more than is necessary for this purpose. The Remuneration Committee also ensures
that a significant proportion of the Executive Director’s remuneration is structured, so as to link rewards to corporate and individual
performance and is sensitive to pay and employment conditions elsewhere in the Group, especially when determining annual salary
increases;

b. designing performance related pay schemes which take into account the requirements of the Code;

c. review and design all share incentive plans for approval by the Board and Shareholders and determine each year the grants of awards

(including setting targets) pursuant to such plans; and

d. where instructed by the Board, ensure the levels of remuneration for Non Executive Directors reflect the time commitment and

responsibilities of the role.

The Terms of Reference of the Remuneration Committee are available from the Company Secretary or LSL’s website (lslps.co.uk).

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What the Remuneration Committee did in 2017
During 2017, the Remuneration Committee met four times and considered the following matters:

a. reviewed the levels of remuneration to ensure that they were sufficient to attract, retain and motivate Executive Directors of the quality

required to run LSL successfully;

b. implemented the revised Remuneration Policy which was approved by Shareholders at the 2017 AGM;

c. reviewed the Group’s all employee share plans (SAYE and BAYE/SIP);

d. reviewed the Group’s bonus arrangements;

e. reviewed LTIP award levels for the Executive Directors, which included significant Shareholder consultations;

f. reviewed and made recommendations to the Board on remuneration arrangements or other payments payable to Executive Directors

and senior management;

g. reviewed the Executive Directors shareholding guidelines and Executive Director shareholdings;

h. reviewed the Remuneration Committee’s performance and its Terms of Reference to ensure continued compliance with the Code,

FRC guidance and updated the Terms of Reference to take into account the joint guidance on best practice issued by the Investment
Association and ICSA relating to stakeholder engagement;

i. as part of the annual Board and Committee evaluation programme, the Committee evaluated its composition and performance; and

j. the Committee also reviewed the external remuneration advisors and following a formal tender process appointed Korn Ferry to replace

NBS.

As part of its discussions in 2017, the Remuneration Committee considered FRC guidance and other publications relevant to the roles
and responsibilities of the Remuneration Committee including reports and guidance issued by Institutional Shareholder Services and the
Investment Association.

Details of any remuneration consultants engaged by the Remuneration Committee during the year are set out in the Directors’
Remuneration Report.

None of the current Remuneration Committee members, and nor did the 2017 Remuneration Committee members, have any personal
financial interest (other than as Shareholders), any conflicts of interest arising from cross directorship, 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 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 ESG issues by inadvertently motivating irresponsible behaviour.

2018 remuneration
In relation to Executive Director remuneration for 2018, the Remuneration Committee has recommended performance-related elements
which are transparent, stretching and rigorously applied.

The Remuneration Committee is aware of the developing regulatory environment on pay in the UK and internationally – it will continue to
monitor this in 2018. Specifically, in response to the consultations on corporate governance reform, the Committee will also consider how it
can support the facilitation of greater employee engagement and consultation on remuneration matters.

Audit & Risk Committee
The Audit & Risk Committee is chaired by David Stewart and its other members are Bill Shannon and Kumsal Bayzit Besson. During the
2017 Board and Committee evaluation process the Board also confirmed that the Audit & Risk Committee as a whole has the competence
relevant to the sectors in which LSL operates and that it includes at least one member who has recent and relevant financial experience.

The Audit & Risk Committee met on three occasions in 2017. LSL’s Head of Risk and Internal Audit, the external auditors, the Chairman,
the Executive Directors, the Group Financial Controller and the Company Secretary were invited to attend all or parts of these meetings to
assist the Audit & Risk Committee in its deliberations during this period. The Audit & Risk Committee met with the Head of Risk and Internal
Audit and the external auditors without the Executive Directors being present, three times during 2017.

Further details of the duties and responsibilities of the Audit & Risk 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 or its Committees (as appropriate). In addition presentations will be arranged from time to time for Shareholders and analysts,
including after the publication of the interim and full year results.

Steps are taken to ensure that all Directors 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.

In addition each year all of the Non Executive Directors, including Simon Embley (Chairman) and Bill Shannon (Deputy Chairman and
Senior Independent Director), are offered the opportunity to attend meetings with all Shareholders as they require. If any Shareholder or
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 169 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 2018 AGM to meet with Shareholders.

During 2017 LSL consulted with significant Shareholders in relation to an increase in the LTIP award levels for the Executive Directors.
Further details of this consultation are contained in the Directors’ Remuneration Report.

During 2018, LSL will continue to engage with significant Shareholders and their representative bodies, as appropriate, in respect of any
proposed changes to the Remuneration Policy and on the implementation of the Remuneration Policy.

All of LSL’s announcements are published on the LSL website (lslps.co.uk), together with copies of presentations and financial reports.

Sharedealing Code
LSL has in place a Sharedealing Policy and Code to ensure compliance with the Market Abuse Regulation. This Sharedealing Policy and
Code applies to the Directors, PDMRs and other relevant employees of LSL.

Takeover Directive
The Group has addressed the matters required 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 the Report of the Directors for further details.

The Corporate Governance Report is approved by and signed on behalf of the Board of Directors

Sapna B FitzGerald
Company Secretary
6th March 2018

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Dear Shareholder

I am pleased to report on the activities of the Audit & Risk Committee during 2017.

The Audit & Risk Committee, on behalf of the Board, has taken steps to ensure that the Annual Report and Accounts 2017, when
taken as a whole, is fair, balanced and understandable.

In this report, we have detailed how the Audit & Risk Committee has discharged its responsibilities during 2017, including details of the
further development of the Group’s Finance, Risk and other control functions.

I would like to thank members of the Audit & Risk Committee for their support in 2017 and the active role each member played in
understanding the Group and the risks and challenges it faces.

I will be available at the 2018 AGM to answer Shareholder questions relating to the Audit & Risk Committee and how it discharged its
roles and responsibilities during 2017.

David Stewart
Chairman of the Audit & Risk Committee
6th March 2018

LSL’s Audit & Risk Committee
David Stewart is Chairman of the Audit & Risk Committee and its other members during the year were Bill Shannon and Kumsal Bayazit
Besson. All members of the Audit & Risk Committee are independent Non Executive Directors.

David Stewart was appointed Chairman in April 2016, the Board and Nominations Committee having determined that he has the requisite
recent and relevant financial experience as is required by the Code.

During the 2017 annual Board and Committees evaluation process, the Board confirmed that the Audit & Risk Committee as a whole
has the competence relevant to the sectors in which LSL operates and that it includes at least one member who has recent and relevant
financial experience.

Further during the year, in reviewing the composition of the Board and its Committees, the Nominations Committee has evaluated the range of
skills, experience, knowledge and professional qualifications of the Audit & Risk Committee to ensure LSL’s continued compliance with the Code.

Details of the members of the Audit & Risk Committee are detailed in the Corporate Governance Report and in the Director profiles included
in The Board section of this Report.

Roles and responsibilities of the Audit & Risk Committee
The main roles and responsibilities of the Audit & Risk Committee are detailed below. In carrying out its duties, the Audit & Risk Committee
has considered the requirements of the Listing Rules (together with the requirements of the FCA, the Code and Guidance on Audit
Committees issued by the FRC), together with any requirements of the Board, which are all incorporated into the Audit & Risk Committee’s
Terms of Reference.

During 2017, the Audit & Risk Committee established a programme of work to ensure that each of its roles and responsibilities was covered
adequately during the year.

The duties of the Audit & Risk Committee, included:

1. Internal controls and risk management
In relation to LSL’s internal controls and risk management arrangements, the Audit & Risk Committee shall:

a. ensure that the Group’s accounting and financial policies and controls, are proper, effective and adequate;

b. ensure that internal and external auditing processes are properly co-ordinated and work effectively;

c. monitor the integrity of LSL’s financial statements and any formal announcements relating to its financial performance, reviewing

significant financial reporting issues and judgments contained in them;

d. review the Group’s internal control and risk management systems, which includes the overall risk management framework (which have

been established to identify, assess, manage and monitor risks) and all material controls (including financial, operational and compliance
related controls);

e. on behalf of the Board, provide oversight of LSL’s risk management and internal controls systems (including reviewing LSL’s capability

to identify and manage new risk types) and in relation to the same, receive reports from the Management Team on material breaches of
risk limits and the adequacy of proposed actions; and the effectiveness of the systems and the conclusions of any testing carried out by
the Risk and Internal Audit Team or the external auditors;

f. consider the level of assurance the Audit & Risk Committee is getting on the risk management and internal control systems, including

financial controls, and whether there is enough to help the Board in satisfying itself that they are operating effectively;

g. review and approve the Group Risk Framework Policy, including a regular assessment and update of the Group risk appetite statement.
This latter process involves frequent re-assessment by the Audit & Risk Committee of the Group’s principal risks and uncertainties,
underpinned by defined metrics which articulate the status and tolerance levels for key business risks. The framework ensures sufficient
focus is placed on threats to Group objectives, with responsive action plans put in place for areas considered outside appetite. The
process is underpinned by the capture of outputs from risk appetite measures maintained at subsidiary level, regular review of risk
status by the Executive Committee and independent challenge of results by the Risk and Internal Audit function, prior to the tabling of
overall conclusions for discussion at Audit & Risk Committee;

h. advise the Board on LSL’s overall risk appetite, tolerance and strategy, taking account of the current and prospective macroeconomic
and financial environment and drawing on financial stability assessments such as those published by relevant industry and regulatory
authorities including the Bank of England, the FCA and other authoritative sources that may be relevant for LSL’s risk policies; and

i. monitor LSL’s risk management and internal control systems and, at least annually, carry out a review to enable LSL to report on that

review in the Annual Report and Accounts. The monitoring and review will cover all material controls, including financial, operation and
compliance controls.

2. Reporting to the Board
The Audit & Risk Committee reports to the Board on how it has discharged its responsibilities, including:

a. the significant issues that it considered in relation to the financial statements and how these were addressed;

b. its assessment of the effectiveness of the external audit process and its recommendation on the appointment/reappointment of the

external auditor; and

c. reporting on any other issues on which the Board has requested the Audit & Risk Committee’s opinion. In doing so the Audit & Risk
Committee identifies any matters in respect of which it considers that action or improvement is needed, whether the subject of a
specific request by the Board or not, and make recommendations as to the steps to be taken.

3. External auditor
In relation to the external auditor, the Audit & Risk Committee’s duties include:

a. to have primary responsibility for making annual recommendations to the Board on the appointment, reappointment or removal of the

external auditor, and to approve the remuneration and terms of engagement of the external auditor at the start of each audit;

b. to satisfy itself that the audit fee is appropriate and that an effective, high quality, audit can be conducted for such a fee;

c. to be responsible for the selection procedure for the appointment of the external auditor (including ensuring that all tendering firms have

such access as is necessary to information and individuals during the tendering process);

d. to meet with the external auditors before the start of each annual audit to consider the nature and scope of the audit and post-audit at

the reporting stage;

e. to meet with the external auditors without the presence of the Executive Directors at least once a year;

f. to annually assess, and report to the Board on, the qualification, expertise, ethical standards (including compliance with the same),

resources, and independence of the external auditor and the effectiveness of the audit process;

g. in the event of a resignation by the external auditor, to investigate the issues giving rise to such resignation and consider whether any

action is required;

h. to evaluate the risks to the quality and effectiveness of the financial reporting process, especially in light of the external auditor’s

communications with the Audit & Risk Committee;

i. to develop and implement LSL’s policy on the engagement of the external auditor to supply non-audit services, taking into account

relevant ethical guidance, and to report to the Board in relation to the same;

j. to review and monitor the Management Team’s responsiveness to the external auditor’s findings and recommendations and review the

audit representation letters;

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k. to meet the Board formally at least twice a year to discuss matters such as the Annual Report and Accounts, the relationship with the

external auditors and any other matters included within its duties and responsibilities;

l. to review at least annually for recommendation to the Board, LSL’s Auditor Independence Policy;

m. to keep under review the nature and extent of non-audit services provided by the external auditor, taking into account LSL’s Auditor

Independence Policy; and

n. to receive and consider the findings of the external auditor (including any management letters).

4. Annual Report and Accounts
Each year, the Audit & Risk Committee will prepare a report to Shareholders for inclusion in LSL’s Annual Report and Account. For details of
how the Audit & Risk Committee discharged its obligations in relation to this Report, see below.

5. Financial reporting
The Audit & Risk Committee reviews and reports to the Board on significant financial reporting issues and judgments made in connection
with the preparation of LSL’s financial statements (having regard to matters communicated to it by the external auditor) including the
annual and half yearly statements, and where requested by the Board, and interim reports, preliminary results announcements, summary
financial statements, significant financial returns to any regulators and any financial information contained in other documents prior to their
submission to the Board, with a particular focus on:

a. significant accounting policies and practices;

b. the appropriateness of LSL’s accounting policies, estimates and judgments;

c. the clarity and completeness of disclosures in the financial statements and consider whether the disclosures are set properly in context;

d. major judgmental areas;

e. any significant adjustments arising from an audit;

f. the appropriateness of the adoption of the going concern basis of accounting and identify any material uncertainties to the Group’s

ability to continue to do so for a period of at least 12 months;

g. compliance with accounting standards;

h. the impact of any unusual transactions; and

i. compliance with legal and regulatory requirements (including FCA/LSE requirements).

6. Risk and Internal Audit
In relation to LSL’s Risk and Internal Audit Team, the Audit & Risk Committee will:

a. review and approve the role and mandate of the Risk and Internal Audit Team (ensuring that the function has unrestricted scope, the

necessary resources and access to information to enable it to fulfil its mandate, and is equipped to perform in accordance with relevant
professional standards);

b. approve the internal audit plan and annually review and approve the Risk and Internal Audit Team’s Terms of Reference to ensure that it

is appropriate to the needs of the Group;

c. monitor and review the effectiveness of LSL’s Risk and Internal Audit Team and activities, including approving the appointment and

termination of the Group’s Head of Risk and Internal Audit;

d. undertake a review of the effectiveness of the Risk & Internal Audit Team and confirm to the Board that it is satisfied that the quality,

experience and expertise of the function is appropriate for the Group; and

e. receive and consider the major findings of the Risk and Internal Audit Team.

7. Whistleblowing, fraud and anti-bribery arrangements
The Audit & Risk Committee will:

a. review the arrangements by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting
or other matters with the objective of ensuring that arrangements are in place for proportionate and independent investigation of such
matters and appropriate follow-up action; and

b. review LSL’s procedures for detecting fraud and the prevention of bribery and corruption. The Audit & Risk Committee’s objective is to
ensure that arrangements are in place for the proportionate and independent investigation of such matters and that appropriate follow-
up action is taken.

Governance arrangements
In carrying out its duties, the Audit & Risk Committee takes into account the requirements of the Listing Rules (together with requirements
issued by the FCA), the Code and the Guidance on Audit Committees issued by the FRC, together with the requirements of the Board, and

any other relevant ethical guidance; each of which are incorporated in the Audit & Risk Committee’s Terms of Reference by reference to them.

Further, the Audit & Risk Committee completes a review of its Terms of Reference annually and in response to any regulatory or Code
changes to ensure continued compliance. In November 2017, the Audit & Risk Committee updated its Terms of Reference to reflect the joint
guidance published by Investment Association and ICSA regarding stakeholder engagement and in February 2018 the Terms of Reference
was updated to reflect the work undertaken by the Committee in relation to risk management.

The Audit & Risk Committee has during 2017 been monitoring both the Government’s review of corporate governance, including the Green
Paper published by the Department for Business, Energy and Industrial Strategy and the review conducted by the Business, Energy and
Industrial Strategy Select Committee. Further, the Audit & Risk Committee is reviewing the proposals to amend the Code as published by
the FRC in December 2017.

What the Audit & Risk Committee did in 2017
The Audit & Risk Committee met three times in 2017. Amongst other matters, during these meetings the Audit & Risk Committee
discharged its roles and responsibilities in the following ways:

1. Internal controls and risk management
Group matters
a. 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 at each meeting. During the year
the Audit & Risk Committee supported the Board in its robust assessment of LSL’s principal risks and uncertainties and the continued
application of the Group’s risk appetite terms of reference, framework, and statement, including the development of subsidiary risk
appetite measures;

b. evaluated areas for the continued development of the Group’s financial control structures, including documentation of Group

accounting policies and procedures, enhancement of financial review procedures and ensuring the continual professional development
of the internal finance community;

c. reviewed the Group’s compliance with regulatory requirements relevant to the Group’s businesses including the Group’s project

relating to the implementation of the new General Data Protection Regulation;

d. reviewed the Group’s data and information security governance and controls arrangements, including receiving reports from the

Information Security Governance Group (ISGG) and reviewing the effectiveness of the ISGG. The Audit & Risk Committee also reviewed
the Group’s penetration testing arrangements;

e. reviewed the Group’s Board and Executive committee arrangements including ensuring that all committees have in place terms of

references;

Surveying Division

f. continued to develop the systems and controls in place with regard to valuations carried out by the Surveying Division, including
the use of data mining techniques to identify key risk factors and the development of ‘real-time’ audit checks driven by these
characteristics;

Estate Agency Division
g. in relation to the Financial Services business, the Committee received reports from the Group Financial Services Director, the Financial
Services Compliance Director, the Financial Services Management Committee (FSMC) and the Financial Services Risk Committee
(FSRC) and considered the development of management information and KPIs to support oversight of conduct risk related matters
across Financial Services operations of LSL; and

h. reviewed the Estate Agency compliance arrangements including anti-money laundering compliance systems and controls and the

development of the Estate Agency Compliance Team.

2. External auditor
a. reviewed the external auditor’s terms of engagement and considered the quality, effectiveness and independence of the external

auditor and the external audit. The results of this review were taken into account in recommending the re-appointment of Ernst & Young
as external auditor at the 2018 AGM; and

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Auditor effectiveness, independence and objectivity
b. reviewed the auditor’s effectiveness, independence and objectivity. In making its assessment of the effectiveness of the external audit,

the Audit & Risk Committee reviewed the external audit findings and the Management Team’s responses to these findings. Discussions
were also held with the Risk and Internal Audit Team and the Management Team with regard to the effectiveness of the external audit
process.

3. Financial reporting (including 2016 Annual Report and Accounts)
a. reviewed the annual financial results and the preliminary results announcement for 2016 and the interim results for 2017, including

evaluating the going concern and viability statements;

b. received and considered, as part of the review of the annual financial statements and interim results;

i. feedback from the FRC in relation to a thematic review of alternative performance measures. This only covered the specific

disclosures relating to this thematic review and no substantive questions were raised; and

ii. reports from the external auditor in respect of their review of the annual financial statements and interim results, the audit plan for the

year and the results of the annual audit.

c. the external audit 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; and

d. oversaw the continued development of the Group’s viability statement taking into account the Group’s three year plan and the principal

risks and uncertainties impacting the Group.

4. Risk and Internal Audit
a. considered the effectiveness and independence of the internal audit arrangements and agreed the annual Risk and Internal Audit

plan. Consideration included compliance with both internal standards and external regulatory requirements, plus engagement with
external consultants on specialist areas as appropriate. This exercise included a review of linkages to the Group’s principal risks and
uncertainties and the results of a benchmarking exercise versus best practice professional guidelines; and

b. received and considered regular reports from the Risk and Internal Audit Team with regard to the control environment of the Group and

evaluated the resourcing, role and independence of the Risk and Internal Audit Team.

5. Governance (including whistleblowing arrangements and tax strategy)
a. reviewed the effectiveness of the Group’s whistleblowing and fraud policy arrangements, including logs to track actions associated with

any fraud related suspicions or incidents;

b. reviewed the Audit & Risk Committee’s composition and confirmed that as a whole it has the competence relevant to the sectors

in which LSL operates and that at least one member of the Audit & Risk Committee has recent and relevant financial experience to
ensure that it is able to fulfill its responsibilities effectively;

c. reviewed the Audit & Risk Committee’s Terms of Reference and the Group’s Auditor Independence Policy in addition to carrying out an

annual review of the Audit & Risk Committee’s performance; and

d. reviewed and approved the Group’s tax strategy for recommendation to the Board for adoption.

Annual Report and Accounts 2017
The Audit & Risk Committee has considered this Report, including the Financial Statements in the context of fairness, balance and
understandability. Following its evaluation, the Audit & Risk Committee has reported to the Board that the Annual Report and Accounts
2017 when taken as a whole is fair, balanced and understandable and provides the information necessary for Shareholders to assess LSL’s
position and the Group’s business performance, model and strategy.

The Audit & Risk Committee also ensured that the Report provides an explanation of the basis on which LSL generates or preserves value
over the longer term (the business model) and the strategy for delivering the objectives of LSL.

The Audit & Risk Committee’s assessment of this Report was on the basis that:

a. the description of the business is consistent with the Audit & Risk Committee’s own understanding;

b. the risks reflect the issues that concerned the Audit & Risk Committee;

c. appropriate weight has been given to the ‘good and bad’ news;

d. the discussion of performance properly reflects the ‘story’ of the year; and

e. that there is a clear and well-articulated link between all areas of disclosure.

The review also considered the Group’s CSR Statement (including the environmental disclosures).

Significant issues considered in relation to the Financial Statements
During the year the Audit & Risk Committee, the Management Team and 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 issues in
financial reporting for 2017

How the Audit & Risk Committee addressed these issues

Provision for PI Costs
relating to valuation services

Misstatements that occur in relation to the PI Costs provision would affect the PI Costs provision balance sheet account as
well as exceptional costs and administrative costs accounts.

This is an area of significant judgment and estimation and provides scope for management bias.

The Group has historically experienced a high level of claims relating to the 2004 to 2008 high risk lending period, and valuations
work undertaken during this period continues to result in claims being made against the Group, albeit at a reduced level.

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 2017, the Management Team continued to undertake detailed reviews on a case-by-case basis of all notifications
and claims relating to this period, in addition to any developments arising from cases received in previous years.

The review has also included an assessment of the claims and notifications on a selective case-by-case basis by specialist
external legal counsel.

Given the materiality of the PI Costs provision, the Board receives details of these reviews at each meeting, including the
status of existing claims and the number and nature of any new claims. In addition to this, the Audit & Risk Committee
reviewed the accounting policies relating to the PI Costs provisions to ensure that they were consistent on a fair and
reasonable basis.

The Audit & Risk Committee received reports from the Risk and Internal Audit Team following the completion of its reviews
of underlying PI claims records during the year.

Revenue recognition
(including lapse provision)

Misstatements that occur in relation to revenue recognition would affect the revenue accounts and also potentially the
lapse provision.

Revenue recognition is an area of judgment and a misstatement could be material to the Group although the nature of the
revenue recognised in the Group is not considered complex.

The Group sells a number of different products and services and operates in multiple locations throughout the UK.

Certain Financial Services businesses sell pure protection products which are cancellable without a notice period, and if
cancelled within a set period require that a portion of the commission earned must be repaid.

The lapse provision is recognised as a reduction in revenue and includes estimation uncertainty. As such it is possible that
management bias could be used to influence the amount of revenue that is reported.

LSL’s Risk and Internal Audit Team performed financial control audits on all key subsidiaries in 2017 which included focus
on the revenue cycle with findings reported to the Audit & Risk Committee. Balance sheet reviews, which included carrying
amounts driven by the revenue cycle, are also conducted by the Group Finance function.

Misstatements that occur in relation to this risk would affect the deferred and contingent consideration provisions.

The Audit & Risk Committee has reviewed the treatment of earn-out and other contingent consideration.

The Group is acquisitive, and these acquisitions frequently include earn-out arrangements in respect of key management
as well as bespoke purchase contracts.

There is a risk that the valuation of contingent consideration liabilities is not performed in accordance with accounting
standards. These balances are calculated with reference to specific management judgments. These include expected exit
date and future cash-flows which have a degree of estimation uncertainty.

Acquisition accounting
(including contingent and
deferred consideration
liabilities)

Impairment of goodwill and
intangible assets

Misstatements that occur in relation to impairment of investments and intangibles would affect goodwill and intangibles
balance sheet accounts.

On an annual basis, the Management Team undertake reviews of goodwill to determine whether impairment is required.
The Management Team will assess the net assets, current profitability, discount factor and value in use of each cash
generating unit in order to do this.

There is a level of estimation uncertainty inherent in the impairment review, including the Group forecasts used and the
discount rate applied.

The Management Team provided the Audit & Risk Committee with a paper supporting the review of goodwill to assess
whether any impairment is required. Based on the work performed, the Audit & Risk Committee was able to conclude that
no impairment was necessary to the goodwill or intangible assets as at 31st December 2017.

Further information is provided in the Notes to the Financial Statements.

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Other Financial Statement
matters considered by the
Audit & Risk Committee

Client monies with regard to
the Lettings businesses

How the Audit & Risk Committee addressed these matters

The Group holds client monies in its Lettings businesses. Neither the client monies, nor the matching liabilities to such
clients are included in the Group balance sheet, as the Group is not entitled to the benefit from the use of the amounts
held in these accounts. The Group does have a responsibility to ensure that the money held in the client accounts is
accounted for accurately and, if required, the Group would make good any shortfall. The client accounts are reconciled
at regular intervals (including daily exercises for the larger businesses). Finance teams provide oversight of the integrity of
client account operations and the Risk and Internal Audit Team perform regular client account audits, the findings of which
are reported to the Audit & Risk Committee.

Available-for-sale assets

The Group holds minority shareholdings in VEM and has acquired other minority holdings in eProp Services plc; NBC Property
Master; and Yopa during 2017. The Group also owns a number of warrants for shares in ZPG plc. The Audit & Risk Committee
has considered the fair value of these holdings for inclusion in the Group’s balance sheet.

Treatment of exceptional
items

The Group has historically categorised a number of items as exceptional, which are excluded from the underlying profit
measure included in the Financial Statements.

Misstatement due to fraud
and error

Going concern

Viability statement

Exceptional items are an area of focus for the FRC who considered these in their thematic reviews of alternative performance
measures on 2016 financial reports.

The classification of items presented as exceptional has an impact on KPIs within the Financial Statements.

The Audit & Risk Committee has, in line with FRC guidance, continued to review the Group’s accounting policy with regard to
the classification of items as exceptional.

The Management Team has primary responsibility to prevent and detect fraud. The Management Team has put in place and
has oversight of a culture of ethical behavior and a strong control environment that both deters and prevents fraud. There are
also whistleblowing arrangements to enable staff to, in confidence, raise concerns about possible improprieties in matters
of financial reporting, or other matters, with the objective of ensuring that arrangements are in place for proportionate and
independent investigation of such matters, and appropriate follow up action. The Management Team submit regular reports
and updates to the Audit & Risk Committee on the Group’s fraud prevention and whistleblowing arrangements, including
details of any instances of any actual or suspected fraud related circumstances.

The Management Team prepared detailed papers for consideration by the Audit & Risk Committee on the ability of the Group
to continue as a going concern. This considered the likely future profitability of the Group, a forecast of future cash-flows, the
impact of banking covenants, liquidity of investments and joint ventures and the ability of the Group to re-finance any loans
(in addition to the Group’s facility which was renewed and extended in 2018 and is now due to mature in May 2022) where
necessary.

The key judgments, assumptions and estimates underpinning this review were discussed and considered. Following the
review, the Audit & Risk Committee was able to conclude that the adoption of the going concern principle was justified for the
foreseeable future.

The Management Team also provided the Audit & Risk Committee with a paper on the financial viability of the Group, which
was determined over a three year period, using assumptions consistent with the period of the Group’s strategic plan. This
paper included a review of the principal risks and uncertainties, and considered which of these risks might threaten the
Group’s viability. It also considered and modelled a number of severe but plausible scenarios.

The scenario modelling included a significant downturn in the residential property market, a data breach and the potential
change to regulations, and also took into account the Group’s ability to re-finance its facility, which was extended in January
2018 and is now due to mature in May 2022.

The key judgments, assumptions and modelling underpinning the review were discussed and considered. Following the
review, the Audit & Risk Committee was able to approve the statement and recommend its adoption by the Board.

Taxation

The Audit & Risk Committee has received reports from the Management Team on the tax provisions recorded in the Financial
Statements and assessed the appropriateness of the balances held. LSL’s tax strategy, which was published in 2017, has also
been reviewed by the Audit & Risk Committee.

Auditor appointment
Taking into consideration the audit effectiveness review (described above in the External Auditor section), the Audit & Risk Committee,
acting on behalf of the Board, has concluded that Ernst & Young is effective, independent and objective, and based on this conclusion, the
Board has resolved to recommend to Shareholders the re-appointment of Ernst & Young as external auditor at the 2018 AGM and to seek
authority for the Directors to agree the external auditor’s remuneration.

Auditor Independence Policy
To guard against the objectivity and independence of the external auditors being compromised, the Audit & Risk Committee has adopted a
policy under which any non-audit related services provided by the external auditors must be approved by the Audit & Risk Committee or be
within a pre-approved category and a pre-approved fee limit (this is contained in the Auditor Independence Policy).

The Audit & Risk Committee is kept regularly informed of the fees paid to the auditor in all capacities. The Auditor Independence Policy,
which takes into account relevant ethical guidance regarding the provision of non-audit services by external audit firms, was reviewed
during 2017. This policy complies with the Code and the FRC’s Guidance on Audit Committees (April 2016).

The Auditor Independence Policy, which was in place during 2017 provided that the following categories of fee need pre-approval from the
Audit & Risk Committee:

a. any fee for specific non-audit services which exceed £25,000; and

b. any fee which has a contingent element.

In addition, the policy provided that the total annual fees for non-audit work allocated to the external auditor shall not exceed the average
audit fee paid during the preceding three years (consecutive).

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 from the Company Secretary and LSL’s website (lslps.co.uk).

Auditor fees
The split between audit and non-audit fees for 2017 appears at Note 9 to the Financial Statements. Non-audit fees of £8,000 (2016:
£59,000) were incurred in the year. Audit fees of £275,600 were incurred in the year (2016: £290,600). This is in line with the provisions of
the Auditor Independence Policy. The non-audit fees for the prior year relate to taxation services and services to support conversion to FRS
101. The Audit & Risk Committee concluded it was in the interests of LSL to procure these non-audit services from Ernst & Young because
of their existing knowledge and understanding of the Group’s structure.

Internal controls
The Board has overall responsibility for LSL’s system of internal controls and for reviewing its effectiveness. The system of internal controls
is subject to an ongoing process of change and improvement, and was originally designed in accordance with the guidance of the Turnbull
Committee on Internal Controls and it is regularly reviewed. It was updated in 2015 and developed further in 2016 and 2017 to ensure
continued compliance with the guidance set out in the September 2014 FRC Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting.

The arrangements in place for 2017 sought to identify, evaluate and manage significant risks faced by LSL, including assessments by the
Board and the Executive Committee of risk appetite levels and measures to define levels of existing risk in relation to this appetite. Identification
of appetite tolerance levels has proven to be a valuable framework to support key business decisions during the course of the financial year.
For areas considered outside tolerance, remedial steps are identified to bring risk areas within appetite. The system aims to manage, rather
than eliminate, the risk of failure to achieve business objectives and can provide only reasonable, and not absolute, assurance against material
misstatement or loss. During 2017, the framework has also been extended to the main subsidiary businesses which now maintain their own
appetite measures.

Internal control facilitates the effectiveness and efficiency of LSL’s operations, helps to ensure the reliability of internal and external reporting
and assists 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 a Group risk framework policy, 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 & Risk Committee and continues to be in place up to the date of this
Report. The risk framework continued to mature in 2017 in line with emerging best practice and will continue to develop during 2018.

LSL’s risk management and internal control framework is made up of the following parts:

a. ownership of the risk management and internal controls framework by the Board, including a risk framework policy, supported by the

Group Chief Financial Officer, the Company Secretary, the Head of Risk and Internal Audit and the Group Financial Controller;

b. a network of risk owners in each of LSL’s businesses with specific responsibilities relating to risk management and internal controls;

c. the documentation and monitoring of risks are recorded and managed through risk appetite measures which are prepared in

accordance with defined Group criteria, and undergo regular reviews and scrutiny by local boards and the Head of Risk and Internal
Audit;

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d. regular Board reviews (including the identification and evaluation) of the principal risks and uncertainties which may impact the Group as

part of the planning and reporting cycle to ensure that such risks are identified, monitored and mitigated;

e. the development and application of LSL’s risk appetite statement and associated framework (for further details on steps taken during

the year, please see the Principal Risks and Uncertainties section on pages 22 to 27); and

f. reporting by the Chairman of the Audit & Risk Committee to the Board on any matters which have arisen from the Audit & Risk

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.

LSL has in place a Group-wide risk appetite statement and risk framework which will continue to be developed in 2018. This risk framework
includes the following:

a. risk framework policy;

b. determination of risk appetite and management or mitigation of risks in line with risk appetite tolerances, at both Group and subsidiary levels;

c. assessment of prospects and viability;

d. review of the effectiveness of the risk management and internal control systems; and

e. going concern confirmation (for LSL’s going concern disclosure please refer to the Report of the Directors).

Further details of LSL’s assessment and evaluation of principal risks and uncertainties together with details of key mitigation initiatives are
set out in the Strategic Report on pages 22 to 27.

The Group also 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.

LSL operates a ‘three lines of defence’ structure (see diagram below) to facilitate effective oversight of Group operations. The risk
framework includes delegated authority levels and functional reporting lines and accountability. LSL also operates a budgeting and financial
reporting system to compare actual performance to latest forecast, budget and to the previous year on a monthly basis. In addition, the

FIRST LINE OF DEFENCE

SECOND LINE OF DEFENCE

THIRD LINE OF DEFENCE

LSL plc. Board/Audit & Risk Committee/Nominations Committee/Remuneration CommitteeExecutive Committee and other governance Committees e.g. Estate Agency Management Committee, Financial Services Management/Risk Committee, Surveying board and sub-committees, Information Security Governance GroupFunctions that own and manage riskBusiness Management – Estate Agency, Surveying, Financial ServicesFunctions that oversee riske.surv Risk and Audit TeamFS Compliance TeamEA Compliance Team EA Admin Hubs (quality/ compliance teams) LSL Group FinanceCorporate Compliance/ Quality teamsExternal Consultants Customer services/complaintsFunctions that provide independent assuranceLSL Risk and Internal Audit External AuditCompany Secretariat/LSL LegalExecutive 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, with centralisation of several payment functions in 2016.

In addition, LSL has established the FSMC and the FSRC which are both Executive Committees with roles and responsibilities relating
to the management of LSL’s FCA regulated Financial Services businesses. Equivalent governance bodies also exist for the Group’s
information security arrangements (Information Security Governance Group) and other business operations, for example, the Estate Agency
Management Committee and Surveying Valuation Controls Board. The Audit & Risk Committee and the Board receives regular reports from
the ISGG, FSMC and FSRC along with updates from the Group’s Executive Committee, whose focus also includes the monitoring of key
performance indicators in relation to LSL’s key customer groups, being consumers and key lender clients.

During 2017 the Executive Directors have regularly 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 kept under review by the Audit & Risk Committee and has been reviewed by the Board during 2017 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 & Risk 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 Audit & Risk Committee influenced improvements to the control environment, in particular: steps to restructure and
strengthen the Estate Agency Compliance Team, improvements to harness IT to support the automation of required compliance checks,
and inception of a new senior role within the Financial Services businesses dedicated solely to conduct risk. The Audit & Risk Committee
recognises the importance of the effectiveness of second-line functions and has invited relevant personnel to present how thematic risk
areas are managed. Furthermore, a formal assessment of the Risk and Internal Audit Team, including linkages with Group risk areas, has
renewed focus on ensuring the independence of this function and delivery of the audit cycle continues to be prioritised.

The principal risks and uncertainties facing LSL together with details of key mitigation initiatives are set out in the Strategic Report on pages
22 to 27.

The Audit & Risk Committee Report is approved by and signed on behalf of the Board of Directors

David Stewart
Chairman of the Audit & Risk Committee
6th March 2018

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Annual Statement

Dear Shareholder

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 Directors’ Remuneration Policy that was approved by Shareholders at the 2017

AGM; and

• Annual Report on Remuneration: setting out the remuneration earned by the Directors in the year ended 31st December 2017 and

how the Directors’ Remuneration Policy will be implemented in 2018.

The Directors’ Remuneration Policy (Policy) was approved by 99.78% of our Shareholders at our 2017 AGM. This Policy will remain in
place for three years unless the Remuneration Committee determines that changes are required before its expiry. For 2018 no changes
are considered necessary.

The Annual Statement and Annual Report on Remuneration are subject to an annual Shareholder advisory vote and will be presented
to Shareholders at the 2018 AGM.

Summary of LSL’s performance in the year and incentive payments to Executive Directors
In 2017, LSL delivered a positive financial performance, particularly against the backdrop of a subdued residential property market
during the year and the 2017 bonus awards for the Executive Directors reflect this. Group Underlying Operating Profit increased over
the year by 8.3% and our Share price rose by 21.4%.

The bonus scheme in 2017 was based 80% on LSL’s financial performance and 20% on individually agreed non-financial measures
and the bonus scheme was subject to a cap of 100% of basic salary.

Based on LSL’s performance in 2017, the Executive Directors received an annual bonus of between 65.2% and 80% of basic salary
in respect of the financial performance element of the bonus scheme and 15% and 17% of the available 20% of basic salary for
performance against their individual non-financial measures. These non-financial measures have been important in driving strategic
initiatives.

Ian Crabb’s (Group Chief Executive Officer) and Adam Castleton’s (Group Chief Financial Officer) 2015 LTIP awards will not vest in
2018. Despite encouraging performance in 2017 neither the challenging Earnings Per Share (EPS) performance target nor the Total
Shareholder Return (TSR) target (both measured over three years to 31st December 2017) have been met.

Further details of performance against the targets set for the annual bonus and LTIP awards are set out in the Annual Report on
Remuneration.

Summary of key decisions in the year and implementation of the Policy in 2018
During the second half of 2017 the Remuneration Committee has carefully considered the implementation of the Policy in 2018.
The Group’s financial performance during 2017 has been strong, especially taking into account the difficult market conditions, and
the Remuneration Committee’s objective is to ensure that the Executive Directors are appropriately incentivised and aligned to
Shareholder interests including driving and being remunerated for the delivery of long-term sustainable share price growth and financial
performance for the remainder of the Policy period. With this in mind, the Remuneration Committee considered whether it should
recommend an increase to the level of LTIP awards to be granted in 2018.

LSL’s Policy permits an increase in the 2018 LTIP award levels from 100% to 125% of basic salary, subject to Shareholder consultation.
As Chairman of the Remuneration Committee, I have sought views from and consulted widely with LSL’s significant Shareholders
and all of those who responded to the consultation indicated their support for an increase to 125% of basic salary. In making this
recommendation the Remuneration Committee has sought to ensure that LSL’s Executive Directors are incentivised and rewarded
appropriately to deliver sustainable returns for LSL’s Shareholders. Further, the basic salary increases are modest and in line with the
pay increase for Group employees.

At the same time as increasing the 2018 LTIP awards to 125% of salary the Remuneration Committee has also introduced a two year
post-vesting holding period, which means that there is a five year period between the grant of the 2018 LTIP award and the vesting of
those shares. This change further increases the alignment of the Executive Directors’ interests with LSL’s Shareholders and the longer
term performance of the business. It is the intention of LSL that the two year post-vesting holding period will apply to all future LTIP grants.

Following a review of the Policy, the Remuneration Committee concluded that no other changes are required in terms of the
implementation of the Policy in 2018. In relation to the Executive Director remuneration in 2018, the Remuneration Committee has
recommended that:

a. basic salaries will increase by 1.5% with effect from 1st January 2018. This increase is in line with the average for our non-

commission based workforce;

b. the annual bonus continues to work well and will remain capped at 100% of salary. The measures for the annual bonus will remain
the same as in 2017, being Group Underlying Operating Profit (80% of the award) and individually agreed non-financial measures
(20% of the award); and

c. the performance measures for the LTIP award will remain the same as in 2017, being adjusted EPS (70% of the award) and

relative TSR (30% of the award). The relative TSR group which is consistent with the comparison group used in 2017, comprises
companies that operate in similar business sectors to LSL and as such will reflect relative performance of LSL to its peers.

As disclosed in the Annual Report and Accounts 2016, Adrian Gill stepped down from the Board on 4th January 2017 and Helen Buck
was appointed into the role of Executive Director – Estate Agency on 2nd February 2017. Full details of the remuneration arrangements
relating to Adrian Gill and Helen Buck were included in the Annual Report and Accounts 2016.

The Remuneration Committee has also during 2017 been monitoring corporate governance developments, including the Government’s
Green Paper, the discussions of the House of Commons Business, Energy and Industrial Strategy Select Committee and the FRC’s
response to the Government review through the draft Code which was published at the end of 2017. The Remuneration Committee
notes the proposed developments to the directors’ remuneration reporting regime and supports the objectives of the proposals. The
Remuneration Committee awaits the outcome of the FRC consultation on the changes to the Code and will ensure that LSL complies
with any new Code, when it comes into effect. Further, the Remuneration Committee has considered the joint guidance on best
practice published by the Investment Association and ICSA relating to stakeholder engagement and adopted changes to its Terms of
Reference as a result.

During the year the Remuneration Committee also undertook a review of LSL’s external remuneration advisors and following a formal
tender process appointed Korn Ferry.

Conclusion
The remuneration arrangements for LSL’s Executive Directors and senior managers are aligned to LSL’s strategic goals and key
performance indicators. Further, the Remuneration Committee believes that the current Policy continues to promote the long-term
success of LSL and incentivises the delivery of strong yet sustainable financial results with the creation of Shareholder value.

The Remuneration Committee trusts that Shareholders will support the resolution to approve LSL’s remuneration arrangements at
the 2018 AGM. In the event that Shareholders have any questions or observations then I will be pleased to hear from you and will be
available at the 2018 AGM or I can be contacted via the Company Secretary’s office (please see details on page 169).

Bill Shannon
Chairman of the Remuneration Committee
6th March 2018

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Directors’ Remuneration Policy (Policy)

Introduction and overview
A small number of amendments have been made to the summary of the Policy set out below which reflects changes in how the Policy was
implemented during the year.

When setting the Executive Directors’ remuneration, the Remuneration Committee seeks to ensure that all Executive Directors are provided
with appropriate profit related pay and an element of pay relating to non-financial performance measures, in order 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 to reward individuals for enhancing Shareholder value and return. To do
this, LSL aims to provide a market competitive (but not excessive) package of pay and benefits. LSL’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 and apply stretching goals that
accord with LSL’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 LSL’s objectives.

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 Annual Report and Accounts and the AGM Notice.
This feedback, plus any additional feedback received during any meetings with Shareholders from time to time, is then considered as
part of LSL’s annual review of the Policy and implementation. In addition, the Remuneration Committee engages directly with significant
Shareholders and their representative bodies in respect of any proposed changes to the Policy and, as appropriate, to implementation
of the Policy. Details of votes cast for and against the resolution to approve the previous 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 any
annual basic salary increases for the Executive Directors and is cognisant of the Group’s overall employment arrangements when reviewing
and implementing the Policy. Whilst the Remuneration Committee did not in 2017 consult with other employees with regard to Executive
Director remuneration arrangements, the Remuneration Committee is monitoring the proposals for wider engagement with employees on
Directors’ pay which is included in the FRC’s Code review consultation.

How this component supports
LSL strategies

Operation

Maximum

Performance
metrics
and period

• Reflects the value of the
individual and their role.

effective 1st January.

• Reviewed annually, normally

• There is no prescribed

• Not applicable.

• Reflects skills and experience

• Takes periodic comparison

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 basic salary levels are

set out in the Annual Report on
Remuneration.

Element of
remuneration
arrangements

Basic salary

Element of
remuneration
arrangements

How this component supports
corporate strategies

Operation

Maximum

Performance
metrics
and period

Annual
bonus

• Incentivises annual delivery of
financial and strategic goals.

• Maximum bonus only payable

for achieving demanding
targets.

• Targets reviewed annually.

• Maximum opportunity:

• Performance

- Group Chief Executive Officer

period of one year.

capped at 125% of basic
salary.*

• Performance

metrics:

- Other Executive Directors
capped at 100% of basic
salary.

*Maximum opportunity will not
be increased above 100% of
basic salary without significant
Shareholder consultation.

- A maximum of 30%
of the award will be
determined by non-
financial measures
and a minimum of
70% by financial
measures.

- Not more than

20% of the financial
measures will pay-
out at threshold.

• 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 relevant
financial year.

• The Remuneration Committee
has the discretion to adjust the
annual bonus payment due if
the Remuneration Committee
considers it is not reflective of
the underlying performance
of LSL.

• Where the Group Chief

Executive Officer’s maximum
bonus opportunity is increased
above 100% of basic salary,
a portion of the annual bonus
will be deferred in Shares, with
the balance being paid in cash.

• Not pensionable.

• Bonus awards are subject
to clawback and malus
applicable for six years from
payment of the bonus or
vesting of deferred bonus in
circumstances of: material
misstatement of financial
results, error, inaccurate or
misleading information in
determining a performance
condition or any other matter
determining the vesting of
an award, breach of relevant
regulations, an act or omission
during vesting period to
the significant detriment
of customers, or an act or
omission leading to gross
misconduct. Recovery can be
made through scaling back
of existing awards, reduction
of future awards including
under the LTIP and requesting
repayment as a cash sum.

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Performance
metrics
and period

• Performance

period: normally
three years.

• As and when LTIP
awards are made
in excess of 100%
of basic salary
then two year post-
vesting holding
periods will apply
to those awards in
their entirety.

• At least 30% of

the award will be
determined by
TSR performance
with the remainder
by other financial
metrics.

• 25% vests at

threshold for all
parts of the LTIP.

How this component supports
LSL strategies

Operation

Maximum

• Normal maximum limit of 125%
of basic salary with grants of
up to 200% of basic salary
being made in exceptional
circumstances.*

*Award value will not be
increased above 100% of
basic salary without significant
Shareholder consultation.

Note: Award levels increased
to 125% of salary for 2018
awards and subsequent
years following significant
Shareholder consultation
which was completed during
2017 (see Annual Report on
Remuneration).

• Aligned to key performance

• Awards of nil-cost or

indicators of the Group
that drive the strategies
and performance of the
businesses.

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.

• The Remuneration Committee

will have the discretion
to adjust the LTIP vesting
outcome if it considers that it is
not reflective of the underlying
performance of LSL.

• Discretion for the

Remuneration Committee
to provide for dividend
equivalents to accrue from
the date of award to the
vesting date or, if applicable,
to the end of any post-vesting
holding period.

• LTIP awards are subject
to clawback and malus
applicable for six years from
vesting in circumstances
of: material misstatement
of financial results, error,
inaccurate or misleading
information in determining a
performance condition or any
other matter determining the
vesting of an award, breach
of relevant regulations, act
or omission during vesting
period to the significant
detriment of customers, act
or omission leading to gross
misconduct. Recovery can be
made through scaling back
of existing awards, reduction
of future awards including
under the annual bonus and
deferred annual bonus plan
and requesting repayment as
cash sum.

Element of
remuneration
arrangements

LTIP
awards
(approved by
Shareholders
at the 2017
AGM)

Element of
remuneration
arrangements

All-employee
Share
schemes:
SAYE, SIP/
BAYE and
CSOP

Executive
Share
ownership
guidelines

How this component supports
LSL strategies

Operation

Maximum

Performance
metrics
and period

• Encourages long-term
shareholding in LSL.

• Invitations made by the

• As per HMRC limits.

None.

Remuneration Committee
under the approved SAYE,
SIP/BAYE and CSOP.

• To provide alignment between

• Executive Directors are

• Minimum of 150% of basic

None.

Executive Directors
and Shareholders.

salary – no maximum.

required to build and maintain
a minimum shareholding
equivalent to 150% of basic
salary over a period of
five years from the date of
appointment through the
retention of vested share
award and/or through open
market purchases. Executive
Directors are expected to
retain all vested long-term
incentive awards (subject
to any sales necessary to
meet tax liability on vesting
or exercise) until the guideline
is met.

Benefits

• Provides insured benefits
to support the Executive
Directors and their family
during periods of ill health,
accident or death.

• Includes car allowance, life

• At cost.

None.

assurance and private medical
insurance. Other benefits
may be provided where
appropriate.

• Access to car allowance to

• Any reasonable business

facilitate travel.

related expenses (including tax
thereon) can be reimbursed
if determined to be a taxable
benefit.

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 a new Executive
Director to recommend a 5%
match of basic salary.

Chairman
and 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.

• Fees are normally reviewed

from time to time.

• Any reasonable business

related expenses (including tax
thereon) can be reimbursed
if determined to be a taxable
benefit.

maximum annual fee increase,
although there is a total fee cap
of £750,000 which is contained
in LSL’s Articles of Association.

• Decisions on fee levels are

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 will operate the Policy in the year ahead is detailed 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 LSL employees generally:

a. a lower level of maximum annual bonus (or no bonus) opportunity may apply to employees;

b. participation in the LTIP scheme is limited to the Executive Directors and certain selected senior managers. All employees are eligible
to participate in LSL’s employee Share schemes: save as you earn (SAYE), self-invested plan/buy as you earn (SIP/BAYE); and
company Share ownership plan (CSOP) upon invitation;

c. benefits (including benefits in kind and salary sacrifice arrangements) 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; and

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. Senior employees are offered the opportunity to join the
enhanced scheme after one years’ service; this enables a 5% match of basic salary. The Remuneration Committee may use its
discretion to recommend a 5% match of basic salary on appointment and where the individual has reached his/her annual or life time
allowances a cash equivalent may be offered.

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 adjusted 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 an independent advisor whilst LSL’s EPS growth is derived from the audited Financial Statements.

5. The Remuneration Committee operates the LTIP scheme in accordance with the plan rules and the Listing Rules of the UKLA and

the Remuneration Committee Terms of Reference are consistent with market practice; this retains discretion over a number of areas
relating to the operation and administration of the plan. The Remuneration Committee has the discretion under the plan rules, in certain
circumstances, to grant and/or settle an award in cash. In practice this will only be used in exceptional circumstances for individuals.

6. The LTIP awards vest after three years and for grants made in 2018 and subsequent years a two year post-vesting holding period

applies.

7. The employee Share 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 Executive 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 this and previous Directors’ Remuneration Reports. Details of any payments to
former Directors will be set out in the Annual Report on Remuneration as they arise.

Reward scenarios (illustration of application of remuneration policy for financial year 2018)
The chart below shows how the composition of each of the remuneration packages, as applicable for each of the Executive Directors
currently holding office, varies at different levels of performance under the Policy set out above; both as a percentage of total remuneration
opportunity and as a total value:

£1,500

£1,250

£1,000

£750

£500

£250

£0

s
0
0
0
’
£

£1,375

Fixed Pay

Bonus

LTIP

£953

37%

£987

£1,006

27%

£681

38%

£694

38%

£448

26%

30%

£315

27%

26%

30%

£321

27%

26%

30%

100%

47%

33%

100%

46%

32%

100%

46%

32%

Below Target

Target

Maximum

Below Target

Target

Maximum

Below Target

Target

Maximum

Group Chief Executive Officer

Group Chief Financial Officer

Executive Director – Estate Agency

Notes to the reward scenarios:
1. The ‘below target’ performance scenario comprises the fixed elements of remuneration only, including:

a. basic salary is as applicable from 1st January 2018, or on appointment;

b. pension is as per the Policy; and

c. estimated benefits use the value reported for the previous financial year.

2. The target level of bonus is assumed to be 60% of the maximum bonus opportunity (100% of basic salary), and the on-target level of

LTIP vesting is assumed to be 50% of the face value, assuming a normal grant level (125% of basic salary). These values are included in
addition to the components/values of minimum remuneration.

3. The maximum remuneration assumes full bonus pay-out (100% of basic salary) and the full face value of the LTIP (125% of basic salary),

in addition to fixed components of remuneration.

4. No share price growth has been factored into the calculations.

5. The assumptions noted for ‘on-target’ performance in the graph above are provided for illustration purposes only.

Approach to recruitment and promotions
The remuneration package for a new Executive Director appointment will be set in accordance with the terms of LSL’s prevailing approved
Policy at the time of appointment and take into account the profession, skills and experience of the individual, the market rate for a
candidate of that experience and the importance of securing the relevant individual.

Basic salary will 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 will be limited to 125% of basic salary for the Group Chief Executive Officer and 100% of basic
salary for other Executive Directors and grants under the LTIP will be limited to 125% of basic salary or 200% of basic salary in exceptional
circumstances. Depending on the timing of the appointment, the Remuneration Committee may deem it appropriate to set different
annual bonus performance metrics to the existing Executive Directors for the first performance year of appointment. 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 will seek to ensure, where possible, that these awards are consistent with any
awards forfeited in terms of vesting periods, expected value and performance conditions.

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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 as detailed below:

Director

Commencement of service contract

Notice period (from Executive Director/LSL)

Ian Crabb
Group Chief Executive Officer

Adam Castleton
Group Chief Financial Officer

9th September 2013

2nd November 2015

Helen Buck
Executive Director – Estate Agency

2nd February 2017

Nine 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 basic 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

Detailed terms

Nine months.

Termination payment

Payment in lieu of notice based on basic salary, fixed benefits and pension.

Remuneration entitlements

A bonus may be payable (pro-rated where relevant) and outstanding Share awards may vest
(see below).

Change of control

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’ basic salary and benefits.

The Remuneration Committee may pay reasonable outplacement and legal fees where appropriate, and may pay any statutory entitlements
or settle or compromise claims in connection with a termination of employment, where considered in the best interests of LSL.

Subject to the performance conditions being met, 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 payment date.

Any share-based entitlements granted to an Executive Director under LSL’s Share plans will be determined based on the relevant Share
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 for good leavers will vest at the original specified vesting date, unless specifically determined by the
Remuneration Committee that the award(s) for an individual will lapse. Awards to Executive Directors, who are not good leavers, lapse
immediately on cessation. 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:

a. the progress made towards meeting the performance conditions;

b. the extent to which it considers the performance condition would have been satisfied by the end of the vesting period;

c. the proportion of the vesting period elapsed; and

d. any other factors which it considers to be relevant.

Subject to Board approval and any conditions stipulated by the Board, Executive Directors may accept appropriate outside commercial non
executive director appointments provided that the aggregate commitment is compatible with their duties as an LSL Executive Director.

Non Executive Directors
LSL’s policy is to appoint Non Executive Directors with a breadth of skills and experience relevant to LSL’s businesses. Appointments are
made by the Board upon the recommendations and advice of the Nominations Committee.

Non Executive Directors, including the Chairman, have letters of appointment which set out their duties and responsibilities. The Non
Executive Directors, including the 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

Kumsal Bayazit Besson
Non Executive Director

Simon Embley
Chairman

Bill Shannon
Deputy Chairman and Senior
Independent Director

David Stewart
Non Executive Director

1st September 2015

–

31st August 2018

1st January 2015

1st January 2018

31st December 2020

7th January 2014

7th January 2017

6th January 2020

1st May 2015

–

30th April 2018

Annual report on remuneration
Implementation of the policy for the year ending 31st December 2018 (unaudited information)
This section of the Directors’ Remuneration Report sets out how the Policy will be implemented for the financial year ending 31st December 2018.

Basic salary
Basic salary levels as at 1st January 2018 for the Executive Directors are set out below:

Director

Role

Ian Crabb

Group Chief Executive Officer

Adam Castleton

Group Chief Financial Officer

2018
(£)

412,000

298,500

Helen Buck

Executive Director – Estate Agency

304,500

% increase from
1st January 2017

2017
(£)

1.5%

406,000

294,000

300,000

2018 basic salary increases for the Executive Directors are in line with the average increase of non-commission earning Group employees.

Annual bonus for 2018
The Remuneration Committee will operate an annual bonus plan for Executive Directors during 2018 that is broadly similar to that operated
in 2017. The maximum bonus continues to be capped at 100% of basic salary. There will be a sliding scale of 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 Remuneration Committee has determined that LSL will not disclose the non-financial measures or targets in advance, as they contain
items that are commercially sensitive. However, 2018 targets will be summarised in the Annual Report and Accounts 2018, which will
be published in 2019. The Remuneration Committee is satisfied that the non-financial targets are challenging and demanding, reflect
LSL’s on-going business expectations and have a clear link to LSL’s strategy. The Group Underlying Operating Profit targets require LSL’s
performance to be significantly better than budget for full pay-out.

Long-Term Incentive Plan (LTIP) 2018 awards
As outlined in the Remuneration Committee Chairman’s Annual Statement, the Remuneration Committee considered carefully
implementation of the Policy in 2018 and consulted widely with significant Shareholders in relation to increasing the maximum level of LTIP
awards to be granted in 2018 and in future years.

The Group’s financial performance during 2017 has been strong, especially taking into account the difficult market conditions, and the
Remuneration Committee’s objective is to ensure that the Executive Directors are appropriately incentivised and aligned to Shareholder interests
including driving and being remunerated for delivering long-term sustainable Share price growth and financial performance for the remainder of

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the Policy period. The majority of those responding to the consultation indicated their support for an increase to 125% of basic salary for 2018 and
subsequent years. Awards will continue to be subject to stretching performance targets. The 2018 and future awards will also be subject to a two
year post-vesting holding period further increasing alignment with investors and the longer term performance of the business.

Awards to be granted in 2018 to the Executive Directors will therefore be made over Shares with a value at the date of grant of 125% of
basic salary. The awards will be subject to Adjusted Basic EPS growth targets (70% of an award) and a relative TSR condition (30% of an
award), and measured over a period of three financial years commencing 1st January 2018 as follows:

1. 25% of the EPS part of the award will vest for threshold Adjusted Basic EPS growth. The Remuneration Committee will finalise the

EPS targets closer to the date the awards are made, thereby having the opportunity to review the outlook for the business and market
challenges over the next three years as close as possible to the date awards are made. It is not therefore possible to include the targets in
this Report and they will be disclosed in full at the same time as announcing the grants of the awards.

2. 25% of the TSR part of the award will vest if LSL’s TSR is equal to the TSR of the median peer group company increasing pro-rata to full
vesting of this part of the award for upper quartile performance or above, as measured against the constituents of the comparator group
(as listed below). 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.

TSR comparator group
The peer group comprises the following 22 companies that are operating in similar or related sectors and is the same as that applied to the
2017 awards except for the removal of Shawbrook which delisted from the London Stock Exchange during 2017:

• Barratt Developments plc
• Bellway plc
• Belvoir Lettings plc
• Bovis Homes Group plc
• Countryside Properties plc
• Countrywide plc
• Crest Nicholson Holdings plc
• Foxtons Group plc
• Grainger plc
• Howden Joinery Group plc
• Hunters Property plc
• M Winkworth plc
• McCarthy & Stone plc
• Mortgage Advice Bureau (Holdings) plc
• Paragon Banking Group plc
• Purplebricks Group plc
• Redrow plc
• Rightmove plc
• St Modwen Properties plc
• The Property Franchise Group plc
• Travis Perkins plc
• ZPG plc

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
Ian Crabb will continue to receive a 5% of basic salary pension contribution. This may be paid in cash to the extent that he has reached his lifetime
and annual pension allowances. The other Executive Directors do not receive pension contributions.

Non Executive Directors
A summary of fees for the current Non Executive Directors is as follows:

Director

Notes

Kumsal Bayazit Besson
Non Executive Director

Simon Embley
Chairman

Bill Shannon
Deputy Chairman and Senior
Independent Director

David Stewart
Non Executive Director

2018 (£)

40,000

130,000

70,000

45,000

2017 (£)

40,000

130,000

70,000

45,000

Notes to summary of fees for the Non Executive Directors:
1. Bill Shannon’s fee is paid for his role as a Non Executive Director and his additional responsibilities as Deputy Chairman, Senior

Independent Director and Chairman of the Nominations Committee and the Remuneration Committee.

2. David Stewart’s fee is paid for his role as a Non Executive Director and his additional responsibility as Chairman of the Audit & Risk

Committee.

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Directors’ Remuneration Report

Directors’ remuneration payable in 2017 audited information

Directors’ Remuneration
The Remuneration of the Directors for 2017 was as follows:

Notes

Basic Salary
or Fees
£

Benefits4
£

Annual Gain on Share
Bonus5
£

Pension
Awards6 Contributions7
£

Total
£

Chairman
Simon Embley

Executive Directors
Helen Buck

Adam Castleton

Ian Crabb

Adrian Gill

Non Executive Directors
Kumsal Bayazit Besson

Helen Buck

Mark Morris

Bill Shannon

David Stewart

Total

2017
2016

2017
2016
2017
2016
2017
2016
2017
2016

2017
2016
2017
2016
2017
2016
2017
2016
2017
2016

2017
2016

130,000
130,000

273,846
-
294,000
290,000
406,000
400,000
3,288
285,000

40,000
40,000
15,833
87,500
-
15,667
70,000
70,000
45,000
43,365

-
-

15,132
-
16,701
16,676
15,000
15,000
541
16,676

-
-
-
-
-
-
-
-
-
-

-
-

220,550
-
279,300
40,600
393,820
64,000
-
-

-
-
-
-
-
-
-
-
-
-

1,277,967
1,361,532

47,374
48,352

893,670
104,600

-
-

-
-
-
-
-
-
-
-

-
-
-
-
-
-
-
-
-
-

-
-

130,000
130,000

-
-
-
-
20,300
20,000
-
-

-
-
-
-
-
-
-
-
-
-

509,528
-
590,001
347,276
835,120
499,000
3,829
301,676

40,000
40,000
15,833
87,500
-
15,667
70,000
70,000
45,000
43,365

20,300
20,000

2,239,311
1,534,484

Notes to Directors Remuneration table:
1. Helen Buck was appointed to the Board as Executive Director – Estate Agency on 2nd February 2017, prior to this date she was a Non

Executive Director. Helen Buck’s remuneration includes £12,500 in respect of consultancy services to the Estate Agency Division in 2017
and £47,500 in 2016. These services were provided whilst Helen was a Non Executive Director.

2. Adrian Gill stepped down from the Board on 4th January 2017. The payments received by Adrian in 2017 related to basic salary and

benefits for the period from 1st January 2017 to 4th January 2017.

3. Mark Morris retired from the Board on 28th April 2016.

4. Benefits comprise private medical cover and company car or car allowance.

5. LSL’s performance in 2017 results in the Executive Directors earning an annual bonus of between 80.2% and 97% of their basic salary
in relation to the financial and non-financial performance element of the scheme. LSL’s performance in 2016 resulted in the Executive
Directors at the time, earning an annual bonus of between 14% and 16% of their basic salary. See page 79 for further details.

6. The Adjusted EPS and TSR performance conditions for the 2015 LTIP have not been met and there is therefore no vesting of these

awards.

7. Ian Crabb receives a 5% of basic salary pension contribution.

Total payment
under
financial
element % of
base salary

80%

Annual bonus

Annual bonus payments 2017 – audited information
Set out in the table below is a summary of the Executive Directors’ bonus scheme for 2017:

Financial performance measures

Group Underlying Operating Profit Scale
from threshold (8.33% to 100%)

Estate Agency Underlying Operating Profit Scale
from threshold (8.33% to 100%)

Director

Weighting

Threshold Maximum Achievement Weighting

Threshold Maximum Achievement

Ian Crabb 80%

£33.672m £38.064m

Adam
Castleton

Helen
Buck

80%

£33.672m £38.064m

£38.902m

(100%

achievement)

Specific to Helen Buck only

20%

£33.672m £38.064m

60%

£14.195m £20.408m £18.574m

65.2%

(75.3%

achievement)

The Remuneration Committee set targets for the 2017 annual bonus based on budgeted Group Underlying Operating Profit before
deduction of certain costs and expenses, which were anticipated at the beginning of the year but unquantifiable at that time and could not
therefore be factored into the budget and target setting process. These items included the costs and expenses relating to LSL’s investment
during the year in Yopa, due diligence in respect of other potential new business opportunities going forward and the strategic review of the
Estate Agency business. The published Group Underlying Operating Profit for 2017 is £37.497m and the Group Underlying Operating Profit
after the costs and expenses detailed above are removed and against which the bonus targets are determined is £38.902m. No adjustment
was required to the Estate Agency Underlying Operating Profit targets, as the costs and expenses referred to above were not attributable to
this measure.

Helen Buck’s bonus payment was pro-rated to reflect the proportion of the year in which she was employed as Executive Director.

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Non-financial measures/strategic goals
Detailed below is a summary of the non-financial measures which were in place for Ian Crabb (Group Chief Executive Officer), Adam
Castleton (Group Chief Financial Officer) and Helen Buck (Executive Director – Estate Agency) in respect of their 2017 annual bonus. The
Remuneration Committee applies its judgment and discretion to determine the extent of any pay-out where goals are partially achieved
during the year.

Executive
Director

Weighting

Specific measures

Ian Crabb

Group
Chief
Executive
Officer

20% –
Each
measure
is equally
weighted.

a. define and gain support for LSL Group strategy from Board and

investors measured through Share price improvement and analyst
ratings;

b. define LSL Estate Agency operating model, including branch footprint,

brand strategy and scale;

c. maintain Estate Agency market share without major impact on fees;

d. delivery of business specific key contract renewals; and

e. identification of structural opportunities for cost savings.

Adam
Castleton

Group
Chief
Financial
Officer

25% –
Each
measure
is equally
weighted.

a. define and gain support for LSL Group strategy from Board and

investors, measured through Share price improvement and analyst
ratings;

b. define LSL Estate Agency operating model, including branch footprint,

brand strategy and scale;

c. identification of structural opportunities for cost savings; and

d. identification of robust risk management and regulatory controls for

LSL.

Helen
Buck

Executive
Director
– Estate
Agency

25% for
measures
a and b.

20% for
measures
c and d.

10% for
measure e.

a. define and gain support for LSL Group strategy from Board and

investors, measured through Share price improvement and analyst
ratings;

b. define LSL Estate Agency operating model, including branch footprint,

brand strategy and scale;

c. maintain Estate Agency market share without major impact on fees;

d. identification of structural opportunities for cost savings; and

e. identification of robust customer and consumer KPI metrics and

benchmarks.

Total payment under
the non-financial
element % of base
salary

17%

15%

Achievement

Fully achieved
a, d and e 4%
of salary for
each.

Partially
achieved b 2%
of salary and c
3% of salary.

Fully achieved
a and c 5% of
salary for each.

Partially
achieved b
and d 2.5% of
salary for each.

Fully achieved
a 5% and d 4%
of salary.

Partially
achieved b
2.5%, c 3%
and e 0.5% of
salary.

The Remuneration Committee is satisfied that these non-financial measures were challenging and demanding, reflective of LSL’s on-
going business expectations and have a clear link to LSL’s strategies. The financial performance element of the scheme requires LSL’s
performance to be significantly better than budget for full pay-out.

Share awards vesting
Details of LTIP awards vesting in relation to the period ending 2017 are as follows:

2015 LTIP awards (nil cost options)

Executive
Director

Date of grant
(three year
vesting)

Number
of Shares
under
award

Face value
at grant
date1 (100%
of salary)

Earnings per
Share (EPS)
target

Total
Shareholder
return (TSR)
target

Actual
adjusted EPS
growth (70%
of the award)2

Actual relative
TSR (30% of
the award)2

Expected
vesting % in
2017

Expected
total vesting
value

16th April
2015

101,648

£373,048

Ian Crabb
Group
Chief
Executive
Officer

94,771

£303,267

1st
December
2015

Adam
Castleton
Group
Financial
Officer

25% of EPS
part vesting
for adjusted
EPS growth
of 7.5% p.a.
increasing
in a straight
line to 100%
vesting for
adjusted
EPS growth
of 17.5% p.a.

35% of TSR
part vesting
for median
ranking
increasing to
100% vesting
for upper
quartile
or above
ranking

0.0%

£0.00

-2.35% p.a.

Position 140
out of 183

0.0%

£0.00

Notes to 2015 LTIP awards:
1. Based on the number of Shares granted multiplied by the three day average Share price immediately prior to the grant date (367 pence

for grants made on 16th April 2015 and 320 pence for grants on 1st December 2015).

2. Three year performance period ending 31st December 2017.

Share awards granted during 2017
Details of 2017 LTIP (nil cost option) awards granted in 2017 are as follows:

Executive
Director

Date of grant
(three year
vesting)

Number of
Shares under
award

Face value at
grant date1
(100% of base
salary)

Percentage of
award vesting
at threshold
performance

Maximum
percentage of
face value that
could vest

Adjusted EPS
growth (70% of
the award)

Performance
period

Relative
TSR (30% of
the award)
against
bespoke
group of 23
companies 2

30th March
2017

193,794

£405,998

140,334

£294,000

30th March
2017

143,198

£300,000

Ian Crabb
Group Chief
Executive
Officer

Adam
Castleton
Group Chief
Financial
Officer

Helen Buck
Executive
Director
– Estate
Agency

25%

100%

Threshold
vesting: 7.5%
p.a. growth

Threshold
vesting:
median TSR

Maximum
vesting:
12.5% p.a.
growth

Straight line
vesting in
between.

Maximum
vesting:
upper
quartile TSR

Straight line
vesting in
between.

Three years
to 31st
December
2019

Notes to 2017 LTIP awards:

1. Face value is calculated using the three day average Share price (209.5 pence) prior to the grant date.

2. TSR peer group is detailed in the section on implementation of policy for 2018.

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External appointments
None of the Executive Directors hold any other non-executive directorships of any other companies other than to represent the majority or
minority interests of the Group or to participate in representative trade bodies.

Payments to past directors
No payments have been made to past directors.

Payments for loss of office
Adrian Gill stepped down from the Board on 4th January 2017 and was paid salary and benefits to that date. No annual bonus was paid in
respect of 2017 and all unvested long-term incentive awards lapsed.

Outstanding Share awards
Options granted to Executive and Non Executive Directors to acquire Ordinary Shares in LSL are as follows:

Director

Award
type

Date of grant

Share
price
on grant

Exercise As at 1st Awards Awards
January granted

price

2017

lapsed exercised
during
year
-

Awards Awards As at 31st
vested December
during
2017
year
-

49,228*

during during
year
-

year
-

LTIP

23rd September 2013

479.00p

Nil

49,228

Ian Crabb
Group Chief
Executive
Officer

Simon
Embley
Chairman

Adam
Castleton
Group Chief
Financial
Officer

Adrian Gill
Executive
Director
– Estate
Agency (until
4th Jan 2017)

Helen Buck
Executive
Director
– Estate
Agency (from
2nd Feb 2017)

LTIP

10th April 2014

430.00p

Nil

81,395

- 81,395

SAYE

1st June 2014

414.00p 416.00p

4,326

- 4,326

LTIP

16th April 2015

364.00p

Nil 101,648

LTIP

31st March 2016

285.50p

Nil 140,105

LTIP

30th March 2017

209.50p

Nil

- 193,794

SAYE

1st June 2017

232.75p 215.00p

2,511

JSOP

1st June 2010

271.00p 280.00p

83,928

CSOP

11th June 2010

240.00p 240.00p

12,500

LTIP

2nd April 2012

275.00p

Nil

58,333

LTIP

1st December 2015

306.00p

Nil

94,771

LTIP

31st March 2016

285.50p

Nil 101,576

LTIP

30th March 2017

209.50p

Nil

- 140,334

SAYE

1st June 2017

232.75p 215.00p

2,511

LTIP

16th April 2015

364.00p

Nil

76,923

- 76,923

LTIP

31st March 2016

285.50p

Nil

99,824

- 99,824

LTIP

30th March 2017

209.50p

Nil

- 143,198

SAYE

1st June 2017

232.75p 215.00p

2,511

* These awards have vested and are currently within the exercise period

2,511

Exercise
period

23rd September 2016
to 23rd September 2023
10th April 2017 to
10th April 2024

1st June 2017 to
1st December 2017

16th April 2018 to
16th April 2025

31st March 2019 to
31st March 2026
30th March 2020 to
30th March 2027

1st June 2020 to
30th November 2020

1st June 2013 to
1st June 2020

11th June 2013 to
11th June 2020
2nd April 2015 to
2nd April 2022

31st March 2019 to
31st March 2026
30th March 2020 to
30th March 2027

1st June 2020 to
30th November 2020
16th April 2018 to
16th April 2025
31st March 2019 to
31st March 2026

30th March 2020 to
30th March 2027

1st June 2020 to
30th November 2020

- 101,648

140,105

193,794

83,928*

12,500*

- 58,333*

101,576

- 140,334

2,511

143,198

94,771 1st December 2018 to
1st December 2025

2,511

Notes to outstanding Share awards:
1. All of the above are scheme interests. Details of long-term incentive awards granted in 2017 are presented in a separate paragraph while
details of previous outstanding awards are presented in the previous year’s Directors’ Remuneration Report and are included in Note 13
to the Financial Statements.

2. The Ordinary Share mid-market price ranged from 193.5 pence to 295 pence and averaged 227 pence during 2017. The Share price on

31st December 2017 was 279.75 pence compared to 230.50 pence on 1st January 2017.

3. Simon Embley’s Share awards have been pro-rated to reflect his change of role to Non Executive Chairman on 1st January 2015.

Directors’ interests in Shares
The interests of the Directors who served on the Board during the year are set out in the table below:

Director

31st December
2017

31st December
2016

Shareholdings
(Number of Shares)

Share awards
(Number of Shares)

Unvested
Number
of Shares

145,709

Vested but
unexercised
Number
of Shares
-

Total (Number
of Shares)

Shareholding Executive
guideline

Director
shareholding1

31st December
2017

(% of basic
salary)

N/A

371

150%

0.3%

1,285

150%

1.2%

371

1,285

458

339,192

58,774

1,878

438,058

49,228

108,002

150%

74.4%

6,101,367

925

23,274

22,234

154,761

6,256,128

23,274

N/A

Kumsal Bayazit Besson
Non Executive Director
Helen Buck2
Executive Director – Estate Agency
Adam Castleton3
Group Chief Financial Officer
Ian Crabb4
Group Chief Executive Officer
Simon Embley
Chairman
Adrian Gill
Executive Director – Estate Agency
Bill Shannon
Deputy Chairman and
Senior Independent Director
David Stewart
Non Executive Director

Notes on Directors’ interest in Shares:
1. Under the Policy, Executive Directors are required to build and maintain a shareholding equivalent to 150% of annual basic salary over
a period of five years from appointment through the retention of vested Share awards and/or through open market purchases. The
shareholding is calculated based on Shares owned and vested awards at 31st December 2017, Share price at 31st December 2017 of
279.75 pence per Share and the Executive Director’s basic salary at 31st December 2017. As at the year-end none of the Executive
Directors had completed five years’ service and compliance with the Policy guideline will continue to be monitored by the Remuneration
Committee during 2018.

2. Helen Buck was appointed as Executive Director – Estate Agency on 2nd February 2017 and she has purchased Shares as a participant

in LSL’s SIP/BAYE since 4th July 2017. The Shares specified in the table were purchased by the Trust at the prevailing market value.

3. Adam Castleton was appointed to the Board on 2nd November 2015 and he has purchased Shares as a participant in LSL’s SIP/BAYE

since 1st June 2016. The Shares specified in the table were purchased by the Trust at the prevailing market value.

4. Ian Crabb was appointed to the Board on 9th September 2013 and he has purchased Shares as a participant in LSL’s SIP/BAYE since

1st November 2013. The Shares were purchased by the Trust at the prevailing market value. Ian Crabb also purchased 56,000 Ordinary
Shares at a price of 285 pence per Share on 5th December 2017.

All of the interests detailed above are beneficial. Apart from the interests disclosed above no Directors held interests at any time in the year
in the Share capital of any other LSL company.

There have been no changes in the interests of any Director between 31st December 2017 and the date of this Report other than the
purchases of Shares by Ian Crabb (164 Shares) Adam Castleton (163 Shares) and Helen Buck (164 Shares) as participants of LSL’s BAYE/
SIP scheme. These Shares were purchased by the Trust at the prevailing market rate.

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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Directors’ Remuneration Report

Unaudited information

Performance graph and table
The following graph shows the value, up to the 31st December 2017, 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 on 31st December 2008.
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: Datastream (Thomson Reuters)

Value [£] [rebased]

800

700

600

500

400

300

200

100

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

Dec 13

Dec 14

Dec 15

Dec 16

Dec 17

LSL Property Services

FTSE 250 Index [excluding investment trusts]

FTSE Small Cap Index [excluding investment trusts]

Group Chief Executive Officer’s total remuneration
The total remuneration figures for the role of Group Chief Executive Officer during each of the last nine financial years are shown in the
table below. The total remuneration figure includes the annual bonus based on that year’s performance and Share awards based on three
year performance periods ending in/just after the relevant year. The annual bonus pay-out and Share vesting level as a percentage of the
maximum opportunity are also shown for each of these years.

Simon Embley (to 9th September 2013)

Ian Crabb (from 9th September 2013)

Year ending in

2009

2010

2011

2012

2013

2014

2015

2016

2017

£373,754

£517,716

£308,747 £525,018 £500,8621 £119,522 £571,500

£852,869

£499,000

£835,120

Total
remuneration

Annual bonus 100%

97.5%

9.6%

LTIP vesting

N/A

60%

55%

91.7%

N/A

54%

N/A

93.3%

66.81%

16%

97%

Notes to Group Chief Executive Officer’s total remuneration:
1. The total remuneration disclosed for the year ended 31st December 2013 is Simon Embley’s total remuneration as Chief Executive Officer
to 9th September 2013 when he ceased being Group Chief Executive Officer and became Deputy Chairman on 9th September 2013, prior
to becoming Non Executive Chairman on the 1st January 2015.

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 2016 and 2017, compared to that of the total remuneration for all employees of the Group for each of
these elements of pay.

Basic salary change

Benefits change

Bonus change2 %

Group Chief Executive Officer

+1.5%

All employees1

+1.5%

Average number of employees1

153

Nil

+515.3%

+281.4%

Notes on percentage change in Group Chief Executive Officer’s remuneration:
1. Refers to a subset of employees outside the commission structure.

2. The bonus change for Ian Crabb represents an increase from £64,000 (16% of salary) in 2017 to £393,820 (97% of salary) in 2018,

reflecting the strong performance of the Group in 2017.

Relative importance of spend on pay
The following table shows LSL’s actual spend on pay (for all employees) relative to dividends paid and profit earned:

Staff costs1

Dividends (excluding any special
dividend)

Profit after tax

Adjusted profit after tax2

2017 (£m)

186.3

11.6

33.4

29.1

2016 (£m)

Change (%)

182.7

10.6

50.5

26.6

2.0

9.7

-33.9

9.4

1. See Note 13 to the Financial Statements for calculation of staff costs.

2. See Note 11 to the Financial Statements.

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewDirectors’ Remuneration Report

Statement of Shareholder voting
The Directors’ Annual Statement and Report on Remuneration for the financial year ending 31st December 2016 and the Directors’
Remuneration Policy, effective from 1st January 2017, were presented to Shareholders at the 2017 AGM which was held on 27th April 2017.
The voting outcomes were as follows:

Annual Statement and
Annual Report on Remuneration

81,200,295

53,774

81,254,069

477,421

99.93%

0.07%

100%

Directors’ Remuneration Policy, effective from

1st January 2017

81,542,452

181,004

81,723,456

8,034

99.78%

0.22%

100%

Votes cast in favour

Votes cast against

Total votes cast

Total votes withheld

Remuneration Committee

Role and membership
Details of the Remuneration Committee’s composition and responsibilities are set out in the Corporate Governance Report at page 47
of this Report. During 2017 the Remuneration Committee was chaired by Bill Shannon and its other members were Kumsal Bayazit Besson
and David Stewart. The Terms of Reference of the Committee are available from the Company Secretary or LSL’s website at: lslps.co.uk

Committee’s advisers
Following a tender process during 2017, the Remuneration Committee appointed Korn Ferry Hay Group (Korn Ferry) as adviser to the
Remuneration Committee. The Remuneration Committee took independent advice during the year from NBS and Korn Ferry on matters
relating to senior executive remuneration. No other services are provided to LSL by the Aon group (of which NBS is a part) or Korn Ferry.
NBS provided advice to the Remuneration Committee in relation to the assessment of TSR performance for the LTIP and benchmarking
of the Executive Director roles. Korn Ferry also provided advice to the Remuneration Committee in relation to the Shareholder consultation
regarding the LTIP awards and the disclosures required in the Annual Report. Their fees, charged (which are based on an hourly rate) for
2017 were £21,846 (ex VAT) and £1,900 (ex VAT) respectively. Both NBS and Korn Ferry are signatories to the Remuneration Consultants’
Code of Conduct and have confirmed to the Remuneration Committee that it adheres in all respects to the terms of the Code. The
Remuneration Committee considers their advice 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
6th March 2018

Financial Statements

In this section
88

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

98 Group Income Statement
99 Group Statement of Comprehensive Income
100 Group Balance Sheet
101 Group Statement of Cash-Flows
102 Group Statement of Changes in Equity
103 Notes to the Group Financial Statements
147 Statement of Directors’ Responsibilities in
Relation to the Parent Company Financial
Statements

148 Parent Company Balance Sheet
149 Parent Company Statement of Cash-Flows
150 Parent Company Statement of Changes

in Equity

151 Notes to the Parent Company Financial

Statements

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for the year ended 31st December 2017

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF LSL PROPERTY SERVICES PLC

Opinion
In our opinion:

• LSL Property Services plc’s group financial statements and parent company financial statements (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 2017 and of the group’s profit for the
year then ended;

• the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as

adopted by the European Union;

• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union as

applied in accordance with the provisions of the Companies Act 2006; 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.

We have audited the financial statements of LSL Property Services plc for the year ended 31st December 2017 which comprise:

Group

Parent Company

Group Balance Sheet as at 31st December 2017

Parent Company Balance Sheet as at 31st December 2017

Group Income Statement

Parent Company Statement of Changes in Equity

Group Statement of Comprehensive Income

Parent Company Statement of Cash flow

Group Statement of Changes in Equity

Related notes 1 to 19 to the Parent Company financial
statements including a summary of significant accounting
policies

Group Statement of Cash-Flows

Related notes 1 to 34 to the group Financial Statements,
including a summary of significant accounting policies

The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report
below. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Use of our report
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.

Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report
to you whether we have anything material to add or draw attention to:

• the disclosures in the annual report as set out on pages 22 to 27, that describe the principal risks and explain how they are being

managed or mitigated;

8888

• the directors’ confirmation as set out on pages 22 to 27, in the annual report that they have carried out a robust assessment of the
principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;

• the directors’ statement as set out on page 103, in the financial statements about whether they considered it appropriate to adopt the

going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue
to do so over a period of at least twelve months from the date of approval of the financial statements;

• whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is

materially inconsistent with our knowledge obtained in the audit; or

• the directors’ explanation as set out on pages 22 and 23, in the annual report as to how they have assessed the prospects of the entity,
over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have
a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Overview of our audit approach

Key audit matters

• Revenue recognition (including lapse provision)

• Valuation of professional indemnity provision

• Valuation of Goodwill – New in 2017

• Valuation of contingent consideration liabilities

Audit scope

• We performed an audit of the complete financial information of six components and audit procedures on

specific balances for a further five components.

• The components where we performed full or specific audit procedures accounted for 87.9% of adjusted

profit before tax, 97% of revenue and 95% of total assets.

Materiality

• Overall group materiality of £1.7m which represents 5% of adjusted profit before tax.

8989

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for the year ended 31st December 2017

Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a
whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Key observations communicated to
the Audit & Risk Committee
Based on the work performed, we did
not identify any evidence of material
misstatement in the revenue recognised in
the year ended 31st December 2017 nor
in the valuation of the provision for lapsed
policies at 31st December 2017.

Risk

Revenue recognition

Refer to the Audit & Risk Committee
Report (page 56); Accounting policies
(page 103); and Note 3 of the group
financial statements.

The group has reported revenues of
£311.5m (2016: £307.8m).

We focused on revenue recognition
because there could be bias or error in
the timing of transactions. There is also
judgement in the assessment of lapsing
revenue.

We identified the following specific risk
of fraud and error in respect of improper
revenue recognition given the nature of the
group’s services as follows:

• Inappropriate cut-off of revenue at period

end;

• Inappropriate measurement of the
reduction to revenue recorded for
expected clawback of commissions on
lapsed insurance policies.

There is no change in risk profile in the
current year.

Our response to the risk
At each full and specific scope audit
location with significant revenue streams:

• We performed walkthroughs of each

significant class of revenue transactions
and assessed the designed effectiveness
of key controls;

• We performed cut off testing, using our
testing threshold, for each stream of
revenue for transactions either side of the
Balance Sheet date;

• Furthermore at each full scope audit

location we performed other substantive,
transactional testing and data analysis
procedures to validate the recognition
of revenue throughout the year. We
performed testing over full populations
of transactions using data analysis. Data
analysis includes the assessment of the
revenue transaction flow. We confirm our
understanding of the process and obtain
third party evidence for those items
that are considered higher risk because
they do not correlate to items we would
expect them to, in the process.

For the estimate of lapsed commissions
we performed the following:

• We tested the underlying calculations for

arithmetical accuracy;

• We tested the integrity of the data
which underpinned management’s
assumptions;

• We reviewed key contractual terms,

confirming management’s assessment
of the point of recognition of revenue;

• We also considered the adequacy of

the group’s disclosure of the accounting
policies for revenue recognition in notes
2 and 3 respectively.

9090

Risk

Valuation of professional indemnity
provision

Refer to the Audit & Risk Committee
Report (page 56); Accounting policies
(page 103); and Note 22 of the group
financial statements.

We focused on this area due to the size
of the balance, being £15.9m (2016:
£20.7m) and the sensitivity of the valuation
to judgements and estimation made by
management.

In particular the group has historically
experienced a high level of claims relating
to survey valuation work performed
during the 2004 to 2008 period, this work
continues to result in claims being made
against the group.

In the current year, a release of the
provision has generated a £2.7m gain
recognised in the Income Statement as an
exceptional item.

There is no change in risk profile in the
current year.

Key observations communicated to
the Audit & Risk Committee

Our response to the risk
At each full and specific scope audit
location, that has a significant revenue
stream (8 components), we performed
the audit procedures set out above which
covered 97% of the group’s revenue.

We also performed review procedures in
seven locations which covered a further
3% of the group’s revenue. This consisted
of analytical procedures over material
movements in the Income Statement and
Balance Sheet.

We performed the following procedures
across one full scope and two specific
locations providing full coverage of the
professional indemnity provision:

Based on our procedures we believe that
the estimate for professional indemnity
liabilities is in accordance with IAS 37 and
the estimate is within an acceptable range.

We concluded that the exceptional
provision release of £2.7m was
appropriate.

We concluded that the disclosures were
compliant with IAS 37 and IAS 1.

• We re-performed and validated

management’s calculations, with
reference to source documentation. This
includes testing the completeness of the
database used to track claims as well as
the accuracy of the data included;

• We compared these calculations to

our expectations which are based on
changes in the profile of claims and the
settlements in the year, investigating and
corroborating any variances above our
testing threshold;

• We corroborated to third party evidence,
material assumptions in relation to the
incidence of claims, the propensity for
claims to result in financial loss and
the resultant loss per claim used by
management and verified that these
were appropriate;

• We considered the current level of

claims and the historic profile of claims to
corroborate management’s assumptions
relating to how the level of claims will
change over time, thereby assessing if
the range of possible outcomes is within
acceptable limits;

• We traced a sample of payments for

settling claims to bank statements and
compared the post year end settlements
against management’s estimates in
order to assess management’s accuracy
in estimating claim costs;

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Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewIndependent Auditor's Report continued.
for the year ended 31st December 2017

Key observations communicated to
the Audit & Risk Committee

Our response to the risk
• We inquired with legal counsel regarding

material claims, to understand the
current legal assessment of each case;

• We reviewed the disclosures in respect
of the nature and movements of the
provision included within the Financial
Statements for completeness and
compliance with IAS 37. In addition,
we reviewed the disclosure required by
IAS 1 of the sensitivity of the carrying
amount of the provision to changes in
key estimates.

We challenged management’s
assumptions used in its models for
assessing the recoverability of the carrying
value of Goodwill. We focused on the
appropriateness of the CGU identification,
the methodology applied to estimate the
value in use, discount rates and forecast
cash flows. Specifically:

• We have validated that the CGUs

identified are the lowest level at which
management monitors Goodwill;

Based on the results of our work, we
agree with management’s conclusion that
no impairment of goodwill is require in the
current year.

We agree with management that
no reasonably possible change in
assumptions would result in a material
impairment in any Cash Generating
Unit and hence no additional sensitivity
disclosures are required in note 15 of the
group financial statements.

• We tested the methodology applied
in the value in use calculation as
compared to the requirements
of IAS 36, Impairment of Assets,
and the mathematical accuracy of
management’s model;

• We obtained an understanding of, and
assessed the basis for key underlying
assumptions for the three year forecast;

• We confirmed that the cash flow

forecasts used in the valuation are
consistent with information approved
by the Board and have evaluated the
appropriateness of the use of these
forecasts in light of the historical
accuracy of management’s forecasts;

• For the seven CGUs with the largest

Goodwill balances or the lowest
headroom, we challenged management
on its cash flow forecasts and the implied
growth rates for 2018 and beyond
by considering evidence available
that supported or contradicted these
assumptions;

Risk

Valuation of Goodwill (new in 2017)

Refer to the Audit & Risk Committee
Report (page 56); Accounting policies
(page 103); and Note 15 of the group
financial statements.

The carrying value of Goodwill on the
group balance sheet is £151.9m (2016:
£151.9m).

The Director’s assessment of the ‘value in
use’ of the group’s Cash Generating Units
(“CGUs”) involves judgement about the
future performance of the business and
the discount rates applied to future cash
flow forecasts.

We focused on this area in 2017 due to
the increase in estimation uncertainty in
forecasts due to the present condition of
the housing market.

9292

Key observations communicated to
the Audit & Risk Committee

We conclude that financial liabilities held
in relation to earn out arrangements have
been appropriately valued.

Risk

Valuation of contingent consideration
liabilities

Refer to the Audit & Risk Committee
Report (page 56); Accounting policies
(page 120); and Note 21 of the group
financial statements.

The group balance sheet reports a £9.1m
(2016: £15.0m) provision for deferred or
contingent consideration that arose from
acquisitions in previous periods. £9.1m
(2016: £10.1m) of this value relates to
contingent consideration specifically, which
is subject to estimation uncertainty.

There is no change in the risk profile of
contingent consideration in the current
year, however we have removed reference
to ‘acquisition accounting’ from the risk
description in light of no acquisitions of
subsidiaries occurring in the year.

Our response to the risk
• The discount rates and long-term growth

rates applied within the model were
assessed by an EY business valuation
specialist, including comparison to
economic and industry forecasts where
appropriate;

• For all CGUs, we performed sensitivity

analyses by stress testing key
assumptions in the model with downside
scenarios to understand the parameters
that, should they arise, could lead to
a different conclusion in respect of the
carrying value of goodwill.

We considered the appropriateness of the
related disclosures provided in note 15 of
the group financial statements.

We have performed the following
procedures across the four full
scope locations that have contingent
consideration balances that are significant
in size:

• We have confirmed that the cash flow
forecasts used in the measurement of
the liability are consistent with information
approved by the Board and have
evaluated the appropriateness of the use
of these forecasts in light of the historical
accuracy of management’s forecasts;

• We tested the methodology applied in
the calculations and the mathematical
accuracy of management’s model;

• We traced a sample of settlement

payments made in the year to bank
statements, to confirm that the
relevant earn out obligations had been
extinguished;

• We confirm the appropriateness of

the discount rate used in calculating
the liability, by considering the
risks associated to the liability and
management’s application of IAS 37.

In the prior year, our auditor’s report included a key audit matter in relation to existence of client money balances. In the current year, we
have assessed that the likelihood of this matter leading to a material error in the group financial statements has reduced. Therefore we no
longer regard the risk as a significant risk or a key audit matter.

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Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewIndependent Auditor's Report continued.
for the year ended 31st December 2017

An overview of the scope of our audit

Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
entity within the group. Taken together, this enables us to form an opinion on the group financial statements. We take into account size, risk
profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment and other factors such
as recent Internal audit results when assessing the level of work to be performed at each entity.

In assessing the risk of material misstatement to the group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the 18 reporting components of the group, we selected 11 components which represent
the principal business units within the group.

Of the 11 components selected, we performed an audit of the complete financial information of six components (“full scope components”)
which were selected based on their size or risk characteristics. For the remaining five components (“specific scope components”), we
performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on
the significant accounts in the financial statements either because of the size of these accounts or their risk profile.

Of the remaining seven reporting components, audit procedures were undertaken as set out in note 2 below to respond to any potential
risks of material misstatement to the group financial statements.

Reporting components

Full scope

Specific scope

Full and specific scope coverage

Remaining components

Total reporting components

2017

% Group
adjusted Profit
before tax*

Number

70.6

17.3

87.9

12.1

100

% Group
Revenue

See note

Number

100

2016

% Group
adjusted Profit
before tax*

100

% Group
Revenue

100

*Profit before tax adjusted for certain non-recurring items as defined in the ‘Our application of materiality’ section of this report.

Notes:

1 The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant risks tested for the group

audit.

2 The remaining seven reporting components that together represent 12.1% of the group’s adjusted profit before tax, none are individually greater than 4% of the group’s adjusted profit before tax.
For these components, we performed other procedures, including analytical review and testing of consolidation journals and intercompany eliminations to respond to any potential risks of material
misstatement to the group financial statements.

Changes from the prior year
Two components, each of which contain a portion of the professional indemnity provision, but otherwise have no revenues and minimal
activity in the year, have been designated as specific scope in 2017 (2016: full scope).

One component, acquired in 2016, has been designated as specific scope in 2017 (2016: full scope) on the basis that the risk profile has
reduced following a full year of ownership and integration into the group.

Involvement with component teams
All work performed for the purposes of the audit was undertaken by the group audit team.

Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.

Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit
procedures.

We determined materiality for the group to be £1.7 million (2016: £1.6 million), which is 5% (2016: 5%) of adjusted profit before tax. We
believe that profit before tax, excluding the gain disposal of available for sale financial assets, provides us with the most relevant measure of
recurring group profitability. We include the release of the professional indemnity provision in our materiality basis, as claims continue to be

9494

received against the group relating to the 2004 to 2008 period, and therefore we consider the movements of the provision to be a recurring
item.

•Reported profit before tax: £40.1m

•Adjustments to exclude non-recurring items: £5.6m

Starting basis

Adjustments

•Total: £1.7m
•(5% of materiality basis)

Materiality

We determined materiality for the Parent company to be £1.2m (2016: £1.2m), which is 1% (2016: 1%) of total equity.

Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the group’s overall control environment, and the number and
monetary amounts of individual uncorrected misstatements in the prior period, our judgement was that performance materiality was 50%
(2016: 50%) of our financial statement materiality, namely £0.9m (2016: £0.8m). We have set performance materiality at this percentage to
ensure that total uncorrected and undetected audit differences in all accounts did not exceed our materiality level of £1.7m (2016: £1.6m).

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken
based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale
and risk of the component to the group as a whole and our assessment of the risk of misstatement at that component. In the current year,
the range of performance materiality allocated to components was £0.1m to £0.4m (2016: £0.2m to £0.5m).

Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit & Risk Committee that we would report to them all uncorrected audit differences in excess of £0.1m (2016:
£0.1m), which is set at 5% of planning materiality, 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 light of other
relevant qualitative considerations in forming our opinion.

Other information
The other information comprises the information included in the annual report as set out on the Financial Highlights page 1, other than the
financial statements and our auditor’s report thereon. The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears
to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

9595

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewIndependent Auditor’s Report continued.
for the year ended 31st December 2017

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the
following conditions:

• Fair, balanced and understandable set out on page 41 – the statement given by the directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to
assess the group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

• Audit & Risk Committee reporting set out on page 56 – the section describing the work of the Audit & Risk Committee does not

appropriately address matters communicated by us to the Audit & Risk Committee; or

• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 47 the parts of the directors’

statement required under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.

Opinions 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.

In our opinion, based on the work undertaken in the course of the audit:

• 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; and

• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the directors’ report.

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

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

branches not visited by us; or

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

accounting records and returns; or

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

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

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 41, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.

9696

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements
due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through
designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity
and management.

Our approach was as follows:

• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most

significant frameworks which are directly relevant to specific assertions in the financial statements are those than relate to the reporting
framework (IFRS, the Companies Act 2006 and UK Corporate Governance Code) and the relevant tax compliance regulations in the UK.

• We understood how the group is complying with those frameworks by making enquiries of management, Internal Audit, those responsible
for legal and compliance procedures and the Company Secretary. We corroborated our enquiries through our review of board minutes
and papers provided to the Audit & Risk Committee.

• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur, by meeting

with management from various parts of the business to understand where it considered there was a susceptibility to fraud. We also
considered performance targets and their propensity to influence efforts made by management to manage earnings. We considered the
programmes and controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud;
and how senior management monitors those programmes and controls. Where the risk was considered to be higher, we performed
audit procedures to address each identified fraud risk. These procedures included testing manual journals and were designed to provide
reasonable assurance that the financial statements were free from fraud and error.

Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations identified in the
paragraphs above. Our procedures involved journal entry testing, with a focus on manual consolidation journals, and journals indicating
large or unusual transactions based on our understanding of the business; enquiries of Legal Counsel, group management, Internal Audit,
subsidiary Management at all full and specific scope components; and focused testing, as referred to in the key audit matters section
above. In addition, we completed procedures to conclude on the compliance of the disclosures in the Annual Report and Accounts with the
requirements of the relevant accounting standards, UK legislation and the UK Corporate Governance Code 2016.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters we are required to address
We were appointed by the company on 27th April 2017 to audit the financial statements for the year ending 31st December 2017 and
subsequent financial periods.

The period of total uninterrupted engagement including previous renewals and reappointments is 17 years, covering the years ending
31st December 2001 to 31st December 2017.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain
independent of the group and the parent company in conducting the audit.

The audit opinion is consistent with the additional report to the Audit & Risk Committee

Mark Morritt (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Leeds

Date 6th March 2018

Notes:

1 The maintenance and integrity of the LSL Property Services plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters

and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.

2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

9797

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewGroup Income Statement

for the year ended 31st December 2017

Group Revenue

Employee and subcontractor costs

Establishment costs

Depreciation on property, plant and equipment

Other operating costs

Total operating expenses

Other operating income

Gain/(loss) on sale of property, plant and equipment

Income from joint ventures

Group Underlying Operating Profit

Share-based payments

Amortisation of intangible assets

Exceptional gains

Exceptional costs

Contingent consideration

Group operating profit

Finance costs

Net financial costs

Profit before tax

Taxation charge

Profit for the year

Attributable to

– Owners of the parent

– Non-controlling interest

Earnings per share expressed in pence per share:

Basic

Diluted

9898

Note

2017
£’000

2016
£’000

311,540

307,750

(186,307)

(182,687)

(19,057)

(5,216)

(66,269)

(19,888)

(5,475)

(67,282)

(276,849)

(275,332)

555

668

1,165

(9)

1,583

1,049

37,497

34,623

(47)

(4,083)

9,337

–

(654)

42,050

(1,952)

(1,263)

(3,914)

34,531

(2,341)

3,785

65,421

(1,896)

40,098

(6,686)

63,525

(13,033)

33,412

50,492

33,414

50,493

(2)

(1)

32.6

32.4

49.2

49.0

Group Statement of Comprehensive Income

for the year ended 31st December 2017

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 (loss) to be reclassified to profit and loss in
subsequent periods:

Total other comprehensive (loss) for the year, net of tax

Total comprehensive income for the year, net of tax

Attributable to

– Owners of the parent

– Non-controlling interest

Note

2017
£’000

2016
£’000

33,412

50,492

(5,593)

951

1,885

(320)

(33,022)

5,914

11,816

(2,015)

(3,077)

(17,307)

(3,077)

(17,307)

30,335

33,185

30,337

33,186

(2)

(1)

9999

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview

Group Balance Sheet

as at 31st December 2017

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

Total current assets

Total assets

Current liabilities

Financial liabilities

Trade and other payables

Current tax liabilities

Provisions for liabilities

Total current liabilities

Non-current liabilities

Financial liabilities

Deferred tax liability

Provisions for liabilities

Total non-current liabilities

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
6th March 2018

100100

Adam Castleton
Group Chief Financial Officer
6th March 2018

Note

2, 25

Company No. 05114014

2017
£’000

2016
£’000

151,901

29,729

17,763

25,282

9,556

33,249

18,842

4,603

8,762

234,231

217,357

31,357

32,263

265,588

249,620

(6,454)

(53,418)

(3,662)

(2,850)

(10,739)

(50,900)

(7,581)

(5,742)

(66,384)

(74,962)

(34,654)

(2,698)

(13,276)

(50,628)

(26,469)

(3,801)

(15,622)

(45,892)

(117,012)

(120,854)

148,576

128,766

208

5,629

3,802

(5,317)

494

143,578

148,394

182

208

5,629

4,303

(5,368)

3,571

120,239

128,582

184

148,576

128,766

Group Statement of Cash-Flows

for the year ended 31st December 2017

Profit before tax

Adjustments for:

Exceptional operating items and contingent consideration

Depreciation of tangible assets

Amortisation of intangible assets

Share-based payments

(Profit)/loss on disposal of fixed assets

Profit from joint ventures

Finance costs

Dividend income/rebates received via non-cash consideration

Operating cash-flows before movements in working capital

Movements in working capital

Decrease in trade and other receivables

Increase / (decrease) in trade and other payables

Decrease in provisions

Cash generated from operations

Interest paid

Income taxes paid

Net cash generated from operating activities

Cash-flows used in investing activities

Cash acquired on purchase of subsidiary undertaking

Acquisitions of subsidiaries and other businesses

Payment of contingent consideration

Investment in financial assets

Cash received on sale of financial assets

Dividends received from financial assets

Purchase of property, plant and equipment and intangible assets

Proceeds from sale of property, plant and equipment

Net cash (expended)/generated on investing activities

Cash-flows used in financing activities

Drawdown/(repayment) of loans

Repayment of loan notes

Payment of deferred consideration

Proceeds from exercise of share options

Dividends paid

Net cash expended in financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at the end of the year

Note

15,16

2017
£’000

2016
£’000

40,098

63,525

(7,640)

(35,975)

5,216

4,083

(668)

(1,583)

1,952

(1,503)

40,002

1,695

5,261

(5,440)

1,516

41,518

(1,268)

(11,113)

29,137

–

(2,175)

(20,315)

3,024

–

(5,489)

1,457

5,475

3,914

1,263

(1,049)

1,896

(492)

38,566

3,265

(614)

(8,561)

(5,910)

32,656

(1,948)

(8,861)

21,847

1,593

(8,451)

(3,537)

(2)

35,991

778

(6,064)

(23,498)

20,377

9,723

(25,243)

–

(4,790)

–

(10,572)

(5,639)

–

(7,294)

(2,422)

(12,916)

(47,827)

(5,603)

–

101101

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview

Group Statement of Changes in Equity

for the year ended 31st December 2017

Year Ended 31st December 2017

At 1st January 2017

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

Exercise of options

Share-based payments

Dividend payment

Share
capital
£’000

208

Share
premium
account
£’000

5,629

Share-
based
payment
reserve
£’000

4,303

Treasury
shares
£’000

(5,368)

Fair value
Reserve
£’000

Retained
earnings
£’000

Total equity
£’000

Non-
controlling
interests
£’000

Total
£’000

3,571

120,239

128,582

184

128,766

–

(46)

(455)

–

(4,642)

1,565

(3,077)

–

(4,642)

1,565

(3,077)

–

(4,642)

1,565

(3,077)

–

33,414

(2)

33,412

(3,077)

33,414

30,337

(2)

30,335

–

(5)

502

–

(10,572)

–

(10,572)

At 31st December 2017

208

5,629

3,802

(5,317)

494

143,578

148,394

182

148,576

During the year ended 31st December 2017, the Trust acquired nil LSL Shares. During the period 14,661 share options were exercised
relating to LSL’s various share option schemes resulting in the Shares being sold by the Trust. LSL received nil on exercise of these options.

Year ended 31st December 2016

Share capital
£’000

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

3,564

(5,988)

20,878

82,880

107,171

185

107,356

–

(27,108)

9,801

(17,307)

–

(27,108)

9,801

(17,307)

–

(27,108)

9,801

(17,307)

–

50,493

(1)

50,492

(17,307)

50,493

33,186

(1)

33,185

(524)

1,263

–

620

–

(218)

(122)

–

1,263

(12,916)

–

(122)

1,263

(12,916)

At 1st January 2016

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

Exercise of options

Share-based payments

Dividend payment

At 31st December 2016

208

5,629

4,303

(5,368)

3,571

120,239

128,582

184

128,766

During the year ended 31st December 2016, the Trust acquired nil LSL Shares. During the period 176,955 share options were exercised
relating to LSL’s various share option schemes resulting in the Shares being sold by the Trust. LSL received £49,000 on exercise of these
options.

102102

Notes to the Group Financial Statements

for the year ended 31st December 2017

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 2017 were authorised for issue by the Board
of Directors on 6th March 2018 and the balance sheet was signed on the Board’s behalf by Ian Crabb, Group Chief Executive Officer and
Adam Castleton, Group Chief Financial Officer. LSL is a listed company, in London, incorporated and domiciled in England and the Group
operates a network of estate agencies, surveying and valuation 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 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 2017. The Group’s Financial Statements are presented in pound sterling and all values are rounded to the nearest thousand
pounds (£’000) except when otherwise indicated.

New standards and interpretations
There are no IFRS amendments or IFRIC interpretations effective for the first time this financial year that had a material impact on the Group.

Judgments and estimates
The preparation of financial information in conformity with IFRS as adopted by European Union, requires the Management Team to make
judgments, 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 judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an 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.

Judgments
Areas of judgment that have the most significant effect on the amounts recognised in the consolidated financial statements are:

Revenue recognition
Revenue recognition is an area of judgment and a misstatement could be material to the Group although the nature of the revenue
recognised in the Group is not considered complex. Certain subsidiaries sell life assurance products which are cancellable without a
notice period, and if cancelled within a set period require that a portion of the commission earned must be repaid. The lapse provision is
recognised as a reduction in revenue.

Exceptional items
The Group recognises certain items as exceptional where, in the judgment of the Directors, they are required to be disclosed separately due
to them being material in size and unusual in nature. This is reviewed in accordance with IAS1.

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 judgment. Similarly there is also
judgment applied when assessing that an intangible asset has an indefinite useful life. The value of the intangible asset is measured at cost
and the useful life of the asset is determined by assessing the period over which the Group can benefit from the asset.

Valuation of financial assets
The Group owns non-controlling interests in four unlisted entities Yopa, eProp Services Plc, VEM and NBC Property Master, in addition to
a convertible loan note which is held in Global Property Ventures. 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 17 to these
Financial Statements. A sensitivity calculation which shows the impact of changes in assumption is shown in Note 29.

103

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewNotes to the Group Financial Statements continued.
for the year ended 31st December 2017

2. Accounting policies (continued)

Intangible assets
The recognition of intangible assets, particularly on acquisition, is an area of judgment. On acquisition the Management Team seek to
identify any assets that meet the criteria of an intangible asset, namely that it is separately identifiable, the Group has power over the asset
and future economic benefits will be derived from the asset.

Deferred tax
The Group recognises deferred tax assets on all applicable temporary differences where it is probable that future taxable profits will be
available for utilisation. This requires the Management Team to make judgments and assumptions regarding the amount of deferred tax that
can be recognised based on the magnitude and likelihood of future taxable profits. Deferred tax liabilities are provided for in full.

Estimates
The key assumptions affected by future uncertainty that have significant risks of causing material adjustment to the carrying value of assets
and liabilities within the next financial year are:

Professional indemnity (PI) claims
Significant judgment is required when provisioning for PI Costs. 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 Costs
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 cash-flows and other
inputs relevant to the valuation model being applied.

Impairment of intangible assets
The Group determines whether indefinite life intangible assets (including goodwill) are impaired on an annual basis and this requires an
estimation of the value in use of the cash generating units to which the intangible assets are allocated. This involves estimation of future
cash-flows and choosing a suitable discount rate (see Note 15 to these Financial Statements).

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
put and call options to purchase 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 to these Financial Statements.

Income tax
The Group will pay income taxes based on the tax computations of the subsidiary entities. While the outcome of these tax computations
cannot be determined with certainty until the completion of subsidiary accounts, the Management Team estimates of income taxes are
used to determine the tax charges and provisions carried by the Group.

Basis of consolidation

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 entity and has the ability to affect those returns through its power over the entity. Specifically, the Group controls an
entity if, and only if, the Group has:

• Power over the entity (i.e. existing rights that give it the current ability to direct the relevant activities of the entity).

• Exposure, or rights, to variable returns from its involvement with the entity.

• The ability to use its power over the entity 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.

104

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.

Non GAAP measures / Alternative Performance Measures (APM)
In the analysis of the Group’s financial performance, LSL reports a number of APMs that are designed to assist with the understanding of
the underlying performance of the Group. The Group seeks to present a measure of underlying performance which is not impacted by the
inconsistency in profile of exceptional gains and exceptional costs, contingent consideration, amortisation of intangible assets and share-
based payments. These measures are not defined under IFRS and, as a result, do not comply with Generally Accepted Accounting Practice
(known as non-GAAP measures) and may not be directly comparable with other companies’ non-GAAP measures. They are not designed
to be a substitute for any of the IFRS measures of performance. The principal APMs used within the consolidated financial statements and
the location of the reconciliations to equivalent IFRS measures are:

• Group Underlying Operating Profit (reconciled in Note 5 to these Financial Statements)

• Adjusted basic EPS (reconciled in Note 10 to these Financial Statements)

• Adjusted diluted EPS (reconciled in Note 10 to these Financial Statements)

• Group Adjusted EBITDA (reconciled in Note 5 to these Financial Statements)

The amortisation of intangible assets fluctuates due to irregular investments and unknown timing of acquisitions. These costs are not
representative of the underlying costs of the business, and are therefore excluded from adjusted earnings. Group Adjusted EBITDA
has been introduced as a new APM in 2017 after careful consideration by the Board. The measure has been introduced to assist
shareholders and investors when reading the Financial Statements given this is an established measure used across the sector is which
LSL operates.

The Directors consider that these adjusted measures give a better and more consistent indication of the Group’s underlying performance;
these measures form part of management’s internal financial review and are contained within the monthly management information reports
reviewed by the Board.

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, within Group
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 joint control and significant influence 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.

105

2. Accounting policies (continued)

Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, measured at acquisition-date fair value and the amount of any non-controlling interest in the acquiree. The choice
of measurement of non-controlling interest, either at fair value or at the proportionate share of the acquiree’s identifiable net assets, is
determined on a transaction by transaction basis. Acquisition costs incurred are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition-date. Any contingent
consideration to be transferred by the acquirer will be recognised at fair value at the acquisition-date.

Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in
accordance with IAS 39 either in profit or loss or in other comprehensive income. If contingent consideration is linked to a service condition,
then expected payments are recognised 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.

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.

Intangible assets
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.

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.

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:

Residential Sales customer contracts

– three to ten years

Surveying and Valuation Services customer contracts

– between three and five years

Lettings contracts

Order book:

Estate Agency pipeline

Surveying and Valuation Services pipeline

Estate Agency register

Others:

Franchise agreements

In-house software

106

– five years

– three months

– one week

– twelve months

– ten years

– between three and five years

2. Accounting policies (continued)

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 cashflows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing
operations are recognised in the Income Statement in those expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously
recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or
cash generating unit’s recoverable amount.

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

Office equipment, fixtures and fittings

– over three to seven years

Computer equipment

Motor vehicles

– over three to four years

Leasehold improvements

– over the shorter of the lease term or ten years

Freehold and long leasehold property

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

Dividends
Equity dividends are recognised when they become legally payable. In the case of interim dividends to Shareholders, this is when paid. In
the case of final dividends, this is when approved by Shareholders at each AGM.

107

2. Accounting policies (continued)

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.

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 are given in Note 10 to these Financial Statements).

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 Trust 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 ESOT and Trust Shares are ignored for the
purposes of calculating the Group’s EPS.

108

2. Accounting policies (continued)

Leases

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

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

Pensions
The Group operates a defined contribution pension scheme for employees of all 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.

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 cashflow 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 businesses and thirty days in the Surveying and
Valuation Services 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.

109

2. Accounting policies (continued)

In relation to trade receivables carried at amortised cost, 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.

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.

Assets carried at cost
If there is objective evidence of 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.

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 Residential Sales business is recognised by reference to the legal exchange date of the housing
transaction. Revenue from the supply of Surveying and Valuation Services are recognised upon the completion of the professional survey
or valuation by the surveyor. Revenue from Lettings, Asset Management and conveyancing services 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/re-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.

110

2. Accounting policies (continued)

New standards and interpretations not applied
The following new standards, new interpretations and amendments to standards and interpretations that the Directors consider relevant to
the Group, have been issued but are not effective for the financial year beginning 1st January 2017 and have not been early adopted:

IFRS 15: Revenue
The IASB has issued a new standard for the recognition of revenue. This will replace IAS18 which covers contracts for goods and services
and IAS 11 which covers construction contracts. It will be effective for annual periods beginning on or after 1st January 2018.

The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer.

Adoption is mandatory for financial years commencing on or after 1st January 2018. The standard permits either a full retrospective or a
modified retrospective approach for the adoption, LSL intends to adopt the standard using the modified retrospective approach which
means that the cumulative impact of the adoption will be recognised in retained earnings as of 1st January 2018 and the comparatives will
not be restated.

The Management Team have assessed the effects of applying the new standard to the Group’s financial statements and have identified that
revenue relating to management services and rent collection will be affected.

The cumulative impact on the opening 2018 retained earnings before the impact of taxation, is an expected reduction of £585,000, due to
the timing difference of revenue recognition. These amounts will be recognised fully over future periods, with the majority in 2018 and 2019.

IFRS 2: Share Based Payments
This amendment to IFRS2 is intended to eliminate diversity of classification and measurement and will be effective for annual periods
beginning on or after 1st January 2018. The Management Team have assessed the impact and estimate that this will have no material
impact to the Group’s Financial Statements.

IFRS 9: Financial Instruments
This final version of IFRS 9 adds a new expected loss impairment model and amends the classification and measurement model for
financial assets by adding a new fair value through other comprehensive income category for certain debt instruments. Amounts recognised
in other comprehensive income resulting from fair value movements on available for sale financial assets, will not be transferred to profit
or loss on disposal of those investments. This standard will be effective for annual periods beginning on or after 1st January 2018. The
Management Team have assessed the impact and estimate that this will have no material impact to the Group’s financial statements.

IFRS 16: Leases
IFRS 16 ‘Leases’ is effective for annual periods beginning on or after 1st January 2019. IFRS 16 provides a single lessee accounting model,
requiring lessees to recognise right of use assets and lease liabilities for all applicable leases.

IFRS 16 is expected to have a significant impact on the amounts recognised in the Group’s consolidated Financial Statements (see Note
23). On adoption of IFRS 16 the Group will recognise within the balance sheet a right of use asset and lease liability for all applicable leases.
Within the Income Statement, rent expense will be replaced by depreciation and interest expense. This will result in a decrease in operating
expenses and an increase in finance costs. The standard will also impact a number of statutory measures such as operating profit and cash
generated from operations, and APMs used by the Group.

The full impact of IFRS 16 is currently under review, including understanding the practical application of the principles of the standard. It is
therefore not practical to provide a reasonable estimate of the financial effect until this review is complete.

111

3. Revenue

The revenue and pre-tax income is attributable to the continuing activity of Estate Agency and Related Services 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

Total revenue

2017
£’000

311,540

555

–

555

2016
£’000

307,750

673

492

1,165

312,095

308,915

No dividend income was received during the year (2016: £492,000)

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
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, Advance Mortgage Funding, First Complete, Embrace Mortgage Services, Mortgages First, Insurance First, First2Protect and
Linear Financial Services. The financial services revenue included within the Estate Agency Division includes two mortgage and insurance
distribution networks providing products and services for sale via financial intermediaries. A significant proportion of the results of the
Financial Services are inextricably linked to the Estate Agency business; they have therefore been aggregated with those of the Estate
Agency and related service segment.

• The Surveying and Valuation Services segment provides a valuations and professional survey service of residential properties to various

lenders and individual customers.

Each reportable segment has various products and services and the revenue from these products and services are disclosed on pages 16
to 19 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.

Reportable segments
The following table presents revenue and profit information regarding the Group’s reportable segments for the financial year ended 31st
December 2017 and financial year ended 31st December 2016 respectively.

112

4. Segment analysis of revenue and operating profit (continued)

Year ended 31st December 2017

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 costs

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

PI Costs provision

Onerous leases provision

Share based payment

Estate Agency
and Related
Services
£’000

Surveying
and Valuation
Services
£’000

Unallocated
£’000

Total
£’000

247,410

64,130

311,540

26,942

18,877

(8,322)

37,497

22,124

22,466

(2,540)

42,050

(1,952)

40,098

(6,686)

33,412

Estate Agency
and Related
Services
£’000

Surveying
and Valuation
Services
£’000

Unallocated
£’000

Total
£’000

169,113

75,453

244,566

(49,851)

194,715

5,177

(5,036)

(4,013)

1,583

–

(210)

(152)

12,517

7,306

19,823

(25,794)

(5,972)

312

(180)

(70)

–

(15,916)

–

(85)

–

1,200

(41,367)

(40,167)

–

190

181,630

83,958

265,588

(117,012)

148,576

5,489

(5,216)

(4,083)

1,583

(15,916)

(210)

(47)

Unallocated net liabilities comprise plant and equipment (£9,000), other assets (£1,191,000), accruals (£3,028,000), financial liabilities
(£4,979,000), deferred and current tax liabilities (£6,360,000), RCF (£27,000,000).

113

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Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

4. Segment analysis of revenue and operating profit (continued)

Year ended 31st December 2016

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 costs

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

PI Costs provision

Onerous leases provision

Share based payment

Estate Agency and
Related Services
£’000

Surveying
and Valuation
Services
£’000

Unallocated
£’000

Total
£’000

243,036

64,714

–

307,750

24,500

17,508

(7,385)

34,623

22,344

18,030

25,047

65,421

(1,896)

63,525

(13,033)

50,492

Estate Agency and
Related Services
£’000

Surveying
and Valuation
Services
£’000

Unallocated
£’000

Total
£’000

172,736

56,574

229,310

(53,997)

175,313

(4,927)

(5,077)

(3,914)

1,049

–

(678)

(200)

12,414

6,873

19,287

(32,780)

(13,493)

(1,325)

(398)

–

(20,686)

–

(562)

–

1,023

(34,077)

(33,054)

–

(501)

185,150

64,470

249,620

(120,854)

128,766

(6,252)

(5,475)

(3,914)

1,049

(20,686)

(678)

(1,263)

Unallocated net liabilities comprise plant and equipment (£8,000), other assets (£1,015,000), accruals (£436,000), financial liabilities
(£5,759,000), deferred and current tax liabilities (£11,382,000), RCF (£16,500,000).

5. APMs (Adjusted performance measures)

In addition to the various performance measures defined under IFRS, the Group reports a number of alternative performance measures
that are designed to assist with the understanding of the underlying performance of the Group. The Group seeks to present a measure
of underlying performance which is not impacted by the inconsistency in profile of exceptional gains and exceptional costs, contingent
consideration, amortisation of intangible assets and share-based payments. Share based payments are excluded from the underlying
performance due to the fluctuations that can impact the charge, such as lapses and the level of annual grants. The four adjusted measures
reported by the Group are:

• Group Underlying Operating Profit

• Adjusted Basic EPS

114

5. APMs (Adjusted performance measures) (continued)

• Adjusted diluted EPS

• Group Adjusted EBITDA

Amortisation of intangibles assets not acquired in a business combination is not representative of the underlying costs of the business, and
therefore is excluded from adjusted earnings.

Group Adjusted EBITDA has been introduced as a new alternative performance measurement in 2017 after careful consideration by the
Board. The measure has been introduced to assist shareholders and investors when reading the Financial Statements given this is an
established measure used across the sector in which LSL operates.

The Directors consider that these adjusted measures shown above give a better and more consistent indication of the Group’s underlying
performance. These measures form part of management’s internal financial review and are contained within the monthly management
information reports reviewed by the Board.

The calculations of adjusted basic and adjusted diluted EPS are given in Note 10 and a reconciliation of Group Underlying Operating Profit
is shown below:

Group operating profit

Share-based payments

Amortisation of intangible assets

Exceptional gains

Exceptional costs

Contingent consideration charge / (credit)

Group Underlying Operating Profit

Depreciation on property, plant and equipment

Group Adjusted EBITDA

6. Finance costs

Interest on RCF

Interest on loan notes

Gain from amendment of loan note interest rate

Unwinding of discount on professional indemnity provision

Unwinding of discount on contingent consideration

7. Exceptional items

Exceptional costs:

Note

2017
£’000

42,050

4,083

(9,337)

–

654

37,497

5,216

42,713

2017
£’000

1,268

–

200

484

1,952

2016
£’000

65,421

1,263

3,914

(34,531)

2,341

(3,785)

34,623

5,475

40,098

2016
£’000

1,949

(799)

200

486

1,896

2017
£’000

2016
£’000

Branch/centre closure and restructuring costs including redundancy costs

–

2,341

Exceptional gains:

Gain on disposal of financial assets

Exceptional gain in relation to historic PI costs

(5,593)

(3,744)

(9,337)

(32,931)

(1,600)

(34,531)

115

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview

Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

7. Exceptional items (continued)

Exceptional costs
There were no exceptional costs in the year (2016: £2,341,000).

Gain on disposal of financial assets
In July 2017 LSL sold it’s holding in GPEA for £5,700,000, for cash of £3,024,000 and 2,030,296 shares in eProp Services plc.

Between 20th July 2016 and 31st October 2016, LSL sold its entire holding of 11,313,786 ordinary shares in ZPG plc for total proceeds of
£36.1m at an average price per share of £3.19. This resulted in an exceptional gain of £32,931,000.

Provision for professional indemnity (PI) claims and insurance claim notification
In 2017 the Group continued to make positive progress in addressing the historic PI claims and there has been a net gain of £3.7m, of
which £2.7m (2016: £1.6m) was an exceptional release (see Note 22 to these Financial Statements) and £1.0m was the settlement of an
insurance claim relating to PI costs that were previously charged as an exceptional item through the income statement.

8. Profit before tax

Profit before tax is stated after charging:

Auditor’s remuneration (see Note 9 to these Financial Statements)

Operating lease rentals:

Land and buildings

Plant and machinery

(Gain)/Loss on sale of property, plant and equipment and financial assets

9. Auditor’s remuneration

The remuneration of the auditor is further analysed as follows:

Audit of the Financial Statements

Audit of subsidiaries

Audit of the financial statements of the prior period

Total Audit

Audit related assurance services (interim results review fee)

Other assurance services

Tax advisory services

2017
£’000

346

10,855

4,277

(668)

2016
£’000

450

11,029

4,499

2017
£’000

227

321

–

346

2016
£’000

257

374

450

116

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 Company 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 Company 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.

Profit after tax
£’000

Weighted
average number
of shares

2017
Per share amount
Pence

Profit after tax
£’000

Weighted average
number of shares

2016
Per share amount
Pence

Basic EPS

33,414 102,640,363

32.6

50,943 102,575,484

49.2

Effect of dilutive share options

635,058

519,565

Diluted EPS

33,414 103,275,421

32.4

50,943 103,095,049

49.0

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 and contingent consideration items)

Normalised taxation

Adjusted profit after tax1 before exceptional items, share-based payments and amortisation

2017
£’000

2016
£’000

37,497

(1,468)

(6,936)

29,093

34,625

(1,410)

(6,643)

26,572

Adjusted basic and diluted EPS

Adjusted Basic EPS

Effect of dilutive share options

Adjusted Diluted EPS

Note:

Adjusted profit
after tax1
£’000

Weighted
average number
of shares

2017
Per share amount
Pence

Adjusted profit
after tax1
£’000

Weighted average
number of shares

2016
Per share amount
Pence

29,093 102,640,363

28.3

26,572 102,575,484

635,058

519,565

29,093 103,275,421

28.2

26,572 103,095,049

25.9

25.8

1 This represents adjusted profit after tax attributable to equity holders of the parent. The normalised tax rate in 2017 is 19.25% (2016: 20%).

11. Dividends paid and proposed

Declared and paid during the year:

Equity dividends on ordinary shares:

2015 Final: 8.6 pence per share
2016 Interim: 4.0 pence per share

2016 Final: 6.3 pence per share

2017 Interim: 4.0 pence per share

2017
£’000

2016
£’000

8,812
4,104

12,916

6,466

4,106

10,572

Dividends on Ordinary Shares proposed (not recognised as a liability as at 31st December):

Equity dividends on Ordinary Shares:

Dividend: 7.3 pence per share (2016: 6.3 pence per share)

7,493

6,466

117

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview

Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

12. Cash-flow from financing activities

Long Term Liabilities

Short Term Liabilities

At 1st January
2017
£’000

16,500

3,756

20,256

Cashflow
£’000

10,500

(777)

9,723

Acquisition
£’000

Foreign Exchange
£’000

–

Fair Value
£’000

At 31st December
2017
£’000

–

27,000

2,979

29,979

Short term liabilities
The overdraft totalling £3.0m (2016: £3.8m) is secured via cross guarantees issued from all of the Group’s subsidiaries excluding the
following subsidiaries, Homefast, Linear (Linear Mortgage Network and Linear Financial Services), Templeton LPA and Chancellors
Associates (see Note 21 to these Financial Statements).

Long term liabilities
The bank loan totalling £27.0m (2016: £16.5m) is secured via cross guarantees issued from all of the Group’s subsidiaries excluding
the following subsidiaries, Homefast, Linear (Linear Mortgage Network and Linear Financial Services), Templeton LPA and Chancellors
Associates (see Note 21 to these Financial Statements).

13. Directors and employees

Remuneration of Directors

Directors’ remuneration (short-term benefits)1

Contributions to money purchase pensions schemes (post-employment benefits)

Share-based payments charge on current incentive schemes

2017
£’000

2,177

298

2,495

2016
£’000

1,514

311

1,845

included within this amount is accrued bonuses of £852,000 (2016: £105,000).

The number of Directors who were members of Group money purchase pension schemes during the year totalled 1 (2016: 1). During the
year the Directors exercised nil CSOP options (2016: nil), nil JSOP options (2016: nil), and nil SAYE options (2016: nil).

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)

2017
£’000

2016
£’000

163,692

161,692

17,043

2,411

16,534

2,435

183,146

180,661

3,161

2,026

186,307

182,687

1,263

The total employee and subcontractor costs exclude employees redundancy costs of £nil (2016: £504,000), which have been shown under Exceptional costs (see Note 7 to these Financial
Statements).

The monthly FTE staff numbers (including Directors) during the year averaged 4,515 (2016: 4,630).

Estate Agency and Related Services

Surveying and Valuation Services

118

2017

3,909

606

4,515

2016

3,983

647

4,630

13. Directors and employees (continued)

Share-based payments
The Remuneration Policy on pages 68 to 72 of the Directors Remuneration Report details the policies in relation to share based payments,
which includes details on the Remuneration Committee’s discretion to adjust the LTIP vesting outcomes if it considers that it is not reflective
of the underlying performance of LSL.

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 2017 vesting conditions
25% of the options vest based on the TSR of LSL as compared to a comparator group of 23 companies in similar or related sectors 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 equal to or over (≥) 12.5% p.a. – 100% vest;

• If growth is 7.5% p.a. – 25% vest;

• Straight line vesting between 7.5% p.a. and 12.5% p.a.; and

• If growth is below 7.5% p.a. no options vest.

LTIP 2015 and 2016 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.

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 equal to or over (≥) 17.5% p.a. – 100% vest;

• If growth is 7.5% p.a. – 25% vest;

• Straight line vesting between 7.5% p.a. and 17.5% p.a.; and

• If growth is below 7.5% p.a. no options vest.

The LTIP 2015 options have lapsed.

LTIP 2014 vesting conditions
The LTIP 2014 options have lapsed.

119

13. Directors and employees (continued)

Outstanding at 1st January

Granted during the year

Exercised during the year

Lapsed during the year

Outstanding at 31st December

2017

Weighted
average
exercise
price
£

–

Number

1,568,744

810,016

(14,661)

(835,664)

1,528,435

2016

Weighted
average
exercise
price
£

–

Number

1,178,458

697,279

(159,174)

(147,819)

1,568,744

There were 129,020 options exercisable at the end of the year (2016: 147,021). The weighted average remaining contractual life is 1.67
years (2016: 1.46 years). The weighted average fair value of options granted during the year was £1.81 (2016: £2.51). The weighted
average share price of options at the date of their exercise was £2.15 (2016: £2.78).

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.

There were 129,464 options (2016: 129,464) exercisable at the end of the year which relate to the 2010 scheme which vested in 2013.
Given that the scheme has vested, the weighted average remaining contractual life is nil (2016: nil), participants can exercise their options
up until 2020 and have therefore 3 years (2016: 4 years) remaining until their option lapses. No options were exercised or lapsed during the
year (2016: nil). The average market value at the date of exercise was £nil (2016: £nil).

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

2017

Weighted
average
exercise
price
£

Number

3.60

1,396,424

–

2.84

3.67

–

(127,706)

1,268,718

2016

Weighted
average
exercise
price
£

3.85

2.86

2.59

4.07

3.60

Number

1,208,717

336,860

(9,808)

(139,345)

1,396,424

There were 758,106 options exercisable at the end of the year (2016: 147,287). The average market value at the date of exercise was £nil
(2016: £2.71).

The weighted average fair value of options granted during the year was £nil (2016: £1.49). The weighted average remaining contractual life
is 0.34 years (2016: 0.85 years).

SAYE (Save-As-You-Earn) scheme
The Group has offered options under the SAYE scheme in each of 2011 to 2014, 2016 and 2017 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.

120

13. Directors and employees (continued)

Outstanding at 1st January

Granted during the year

Exercised

Lapsed during the year due to employees withdrawal

Outstanding at 31st December

2017

Weighted
Average
Exercise
Price
£

3.17

2.15

–

3.54

2.35

Number

669,696

498,893

–

(375,884)

792,705

2016

Weighted
average
exercise
price
£

3.83

2.66

3.03

3.49

3.17

Number

562,341

490,958

(7,973)

(375,630)

669,696

The weighted average fair value of options granted during the year was £1.05 (2016: £2.66) and the weighted average remaining
contractual life was 1.84 years (2016: 1.04 years). The average market value at the date of exercise was £nil (2016: £3.00).

There were 907 (2016: 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:

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

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 expensed during the year

A credit of £224,000 (2016: credit £501,000) relates to employees of the Company.

LTIP
2017

CSOP
2017

Black Scholes Black Scholes

2.10

–

100%

4.93%

0.56%

2.09

2.15

100%

4.93%

0.56%

LTIP
2016

CSOP
2016

Black Scholes

2.86

–

100%

4.35%

0.84%

2017
£’000

2.86

100%

4.35%

0.84%

2016
£’000

1,263

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.

121

14. 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 (credit)

Total tax charge in the Income Statement

2017
£’000

7,537

(345)

7,192

(442)

(64)

(506)

2016
£’000

12,703

1,009

13,712

(500)

(179)

(679)

6,686

13,033

The UK corporation tax rate reduced to 20% with effect from 1st April 2015 and 19% with effect from 1st April 2017. A future UK corporation
tax of 17% has been enacted and is effective from 1st April 2020, and this is the rate at which deferred tax has been provided (2016: 17%).
Corporation tax is recognised at the headline UK corporation tax rate of 19.25% (2016: 20%).

The effective rate of tax for the year was 16.7% (2016: 20.5%). The effective tax rate for 2017 is lower than the headline UK tax rate for
a number of reasons, but the most significant is that the gain on the disposal of GPEA in the year is not taxable due to the application of
Substantial Shareholding Exemption.

Deferred tax credited directly to other comprehensive income is £0.6m (2016: £3.8m). This is comprised of a credit of £0.9m and a charge
of £0.3m and relates respectively to the disposal and revaluation of financial assets. Income tax credited directly to the share based
payment reserve is £0.0m (2016: £0.1m).

(b) Factors affecting tax charge for the year
The tax assessed in the profit and loss account is lower (2016: higher) 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 19.25% (2016 – 20.00%)

Non-taxable income from joint ventures and dividends

Other income not taxable

Other disallowable expenses

Impact of movement in contingent consideration charged/(credited) to the Income Statement

Capital gains (lower than)/in excess of accounting profit

Share-based payment relief

Impact of rate change on deferred tax

Prior period adjustments – current tax

Prior period adjustment – deferred tax

Total taxation charge

2017
£’000

40,098

7,719

(153)

(369)

627

251

(1,053)

(345)

(64)

6,686

2016
£’000

63,525

12,705

(95)

(510)

577

(757)

183

251

(151)

1,009

(179)

13,033

The major component of the disallowable expenditure is a permanent disallowance of depreciation on assets which do not qualify for capital
allowances. This is a recurring adjustment with the tax impact of approximately £370,000 being broadly consistent with the prior year. Also
included in this figure is an adjustment relating to non-recurring items of a disallowable nature, such as client entertaining and legal and
professional fees incurred in relation to capital transactions.

122

14. Taxation (continued)

Unrecognised deferred tax asset relating to:

Losses

2017
£’000

3,083

2016
£’000

3,365

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 recognised directly in other comprehensive income

Deferred tax (credit) in Income Statement for the year (Note 14a to these Financial Statements)

Deferred tax on disposals

Deferred tax liability arising on acquisitions and business combinations

Net deferred tax liability at 31st December

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

Other short-term temporary differences

Trading losses recognised

Deferred tax credit/(expense) in Income Statement relates to the following:

Intangible assets recognised on business combinations

Accelerated capital allowance

Deferred tax on share options

Other temporary differences

2017
£’000

3,801

354

(506)

(951)

–

2,698

2017
£’000

(960)

3,865

101

(182)

(126)

–

2016
£’000

6,927

2,036

(679)

(5,914)

1,431

3,801

2016
£’000

(628)

4,267

731

(157)

(318)

(94)

2,698

3,801

2017
£’000

403

332

(287)

506

2016
£’000

590

100

(74)

679

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.

123

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Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

15. Intangible assets

Goodwill

Cost

At 1st January

Arising on acquisitions during the year

At 31st December

Carrying amount of goodwill by cash generating unit (CGU)

Estate Agency and Related Services companies

Marsh & Parsons

Your Move

Group First

Reeds Rains

LSLi

Advance Mortgage Funding

First Complete

Templeton LPA

Others

Surveying and Valuation Services company

e.surv

2017
£’000

2016
£’000

151,901

–

151,901

136,395

15,506

151,901

2017
£’000

2016
£’000

40,307

41,636

13,913

16,678

22,512

2,604

3,998

336

348

40,307

41,636

13,913

16,678

22,512

2,604

3,998

336

348

142,332

9,569

151,901

Impairment of goodwill and other intangibles with indefinite useful lives
The carrying amount of goodwill by cash generating 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

Group First

Reeds Rains

LSLi

Advance Mortgage Funding

Surveying and Valuation Services company

e.surv

124

2017
£’000

2016
£’000

11,724

2,510

396

1,241

1,675

180

2,510

396

1,241

1,675

180

17,726

1,305

19,031

1,305

19,031

15. Intangible assets (continued)

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

• Estate Agency and Related Services companies

• Marsh & Parsons

• Your Move (including its share of cash-flows from LSL Corporate Client Department)

• Group First

• Reeds Rains

• LSLi, which includes Intercounty, Frosts, JNP, Goodfellows, Davis Tate, Lauristons, Lawlors, Hawes & Co and Thomas Morris

• Advance Mortgage Funding which includes BDS

• Templeton LPA

• St Trinity

• First Complete

• Surveying and Valuation Services company

• e.surv

Estate Agency and Related Services companies
The recoverable amount of the Estate Agency and Related Services companies has been determined based on a value-in-use calculation
using cash-flow projections based on financial budgets approved by the Board and in the three year plan. The discount rate applied to
cash-flow projections is 10.3% (2016: 9.7%) and cash-flows beyond the three year plan are extrapolated using a 1.5% growth rate (2016:
1.5%).

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 in the three year plan. The discount rate applied to the cash-flow
projections is 10.3% (2016: 9.7%). The growth rate used to extrapolate the cash-flows of the Surveying and Valuation Services company
beyond the three year plan is 1.5% (2016: 1.5%).

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

• Performance in the market

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 17.0%) of 10.3%; external advice has been sought for certain elements of the
source data. This is the benchmark used by management to assess operating performance and to evaluate future acquisition proposals.

Performance in the market reflects how management believe the business will perform over the three year period and is used to calculate
the value-in-use of the CGUs.

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.

125

15. Intangible assets (continued)

Sensitivity to changes in assumptions
The Management Team has undertaken sensitivity analyses to determine the effect of changes in assumptions on the 2017 impairment
reviews. The key assumptions driving the carrying values are the discount rate applied to the cash-flow forecasts and the underlying
assumptions within the cash-flow forecast. The Management Team have considered the various scenarios and concluded that the carrying
values of the CGUs are most sensitive to changes in the discount rate applied. To test the sensitivity the discount rate was increased. For
increases up to 188bps the individual CGUs carrying values would still exceed the asset value.

Other intangible assets

As at 31st December 2017

Cost

At 1st January 2017

Additions

Arising on acquisition during the year

Disposals

At 31st December 2017

Aggregate amortisation and impairment

At 1st January 2017

Charge for the year

Disposals

At 31st December 2017

Carrying amount

At 31st December 2017

As at 31st December 2016

Cost

Brand
Names
£’000

Lettings
Contracts
£’000

19,222

15,954

–

Other 1
£’000

7,816

563

–

Total
£’000

42,992

563

–

19,222

15,954

8,379

43,555

191

–

191

6,242

2,848

–

9,090

3,310

1,235

–

4,545

9,743

4,083

–

13,826

19,031

6,864

3,834

29,729

Other 1
£’000

6,169

1,647

–

2,117

1,193

–

3,310

Total
£’000

65,007

1,647

4,999

(28,661)

42,992

34,490

3,914

(28,661)

9,743

–

7,816

–

4,603

–

15,954

3,527

2,715

–

6,242

9,712

–

(5,451)

5,451

–

(5,451)

–

Brand
Names
£’000

Customer
Contracts
£’000

Insurance
Renewals
£’000

Lettings
Contracts
£’000

Order
Book
£’000

At 1st January 2016

18,826

17,598

5,612

11,351

5,451

Additions

Arising on acquisition
during the year

Disposals

–

396

–

(17,598)

(5,612)

At 31st December 2016

19,222

–

Aggregate amortisation
and impairment

At 1st January 2016

Charge for the year

Disposals

At 31st December 2016

Carrying amount

191

17,592

–

191

(17,598)

–

5,612

–

(5,612)

–

Note:

1 Other relates to in-house software and Estate Agency franchise agreements.

126

At 31st December 2016

19,031

4,506

33,249

15. Intangible assets (continued)

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 both 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, a network of residential sales and lettings agencies which was acquired in May 2010;

• Advance Mortgage Funding and BDS intermediary networks which were acquired in December 2010;

• Marsh & Parsons, a network of residential sales and lettings agencies which was acquired in November 2011;

• 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;

• Thomas Morris, a network of residential sales and lettings agencies which was acquired in February 2015; and

• Group First, a financial services group which was acquired in 2016.

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.

16. Property, plant and equipment

As at 31st December 2017

Cost

At 1st January 2017

Additions

Disposals

At 31st December 2017

Depreciation and impairment

At 1st January 2017

Charge for the year

Disposals

At 31st December 2017

Carrying amount

At 31st December 2017

Freehold land
and buildings
£’000

Leasehold
improvements
£’000

Motor
vehicles
£’000

Fixtures, fittings
and computer
equipment
£’000

2,497

–

2,497

300

–

311

9,196

493

(1,364)

8,325

3,094

820

(574)

3,340

2,186

4,985

–

Total
£’000

39,563

4,926

(6,130)

38,359

20,721

5,216

(5,341)

20,596

27,774

4,433

(4,766)

27,441

17,264

4,378

(4,767)

16,875

10,566

17,763

In 2017 assets with a book value of £789,000 were disposed in the year. This includes leasehold property with a book value totalling
£772,000 which was sold for net proceeds of £1,440,000 resulting in a profit on disposal of £668,000.

127

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Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

16. Property, plant and equipment (continued)

During the year the Management Team reviewed fully depreciated fixtures, fittings and computer equipment and judged that these should
be derecognised.

As at 31st December 2016

Cost

At 1st January 2016

Additions

Disposals

At 31st December 2016

Depreciation and impairment

At 1st January 2016

Charge for the year

Disposals

At 31st December 2016

Carrying amount

At 31st December 2016

Freehold land and
buildings
£’000

Leasehold
improvements
£’000

Motor
vehicles
£’000

Fixtures, fittings
and computer
equipment
£’000

1,892

11,971

605

–

2,497

300

–

300

788

(3,563)

9,196

5,755

892

(3,553)

3,094

182

(126)

107

(58)

39,641

4,021

(15,888)

27,774

28,131

4,569

(15,436)

17,264

Total
£’000

53,686

5,454

(19,577)

39,563

34,293

5,475

(19,047)

20,721

2,197

6,102

10,510

18,842

Assets with a book value of £530,000 were disposed of in the year. This includes assets with a book value totalling £78,000 which were
sold for net proceeds of £69,000, resulting in a loss on disposal of £9,000.

17. 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

2017
£’000

23,753

1,529

25,282

4,603

24,534

(5,740)

1,885

25,282

2016
£’000

4,603

–

4,603

28,871

–

(36,083)

11,815

4,603

The financial assets include unlisted equity instruments which are carried at fair value. Fair value is judgmental given the assumptions
required and have been valued using level 3 valuation techniques other than the ZPG plc warrants (see Note 29 to these Financial
Statements).

ZPG plc
Financial assets include warrants in ZPG plc. These warrants have been issued pursuant to terms agreed with ZPG plc and relating to the
provision of portal services to LSL’s Estate Agency businesses. ZPG plc’s share price at 31st December 2017 was £3.31 per share. The
Directors consider the best estimate of the fair value of LSL’s warrants to be the share price which values the Group’s stake in ZPG plc at
£1,529,000. These warrants are therefore valued using level 2 valuation techniques.

Vibrant Energy Matters (VEM)
The carrying value of the Group’s investment in VEM at 31st December 2017 has been assessed as £722,000 (31st December 2016:
£912,000).

128

17. Financial assets (continued)

GPEA and eProp Services plc
During the year LSL sold its entire holding of shares in GPEA. The investment was disposed of for £5.7m (£3.0m cash and shares in eProp
Services plc) in July 2017 and resulted in an exceptional gain of £5.6m.

NBC Property Master
In October 2017 LSL acquired 19,675 ordinary shares in NBC Property Master for a total consideration of £65,000.

Global Property Ventures
In July 2017 the Group entered into a convertible loan note of £250,000 with Global Property Ventures.

Yopa Property
In September 2017 LSL acquired 1.3m ordinary shares in Yopa for a total consideration of £20,000,000.

18. Investments in joint ventures

Investment in joint ventures

Opening balance

Acquisitions

Equity accounted profit

Closing balance

2017
£’000

9,556

8,762

–

794

9,556

2016
£’000

8,762

8,778

(18)

8,762

Along with two other entities, the Group holds an equal share of 33.33% (2016: 33.33%) interest in TM, a joint venture whose principal
activity is to provide searches. The principal place of business of TM is the United Kingdom.

The Group also has a 50% (2016: 50%) interest in LMS, a joint venture whose principal activity is to provide conveyancing panel
management 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

Share of net assets

Share of the joint ventures’ results:

Revenue

Operating expenses

Operating profit/(loss)

Finance income

Profit/(loss) before tax

Taxation

Profit/(loss) after tax

Shareholder service charge

Income from joint ventures

Non-Current assets include £5,008,000 (2016: £5,008,000) in respect of goodwill arising on the acquisition of shares in LMS. The
shareholder service charge received in 2017 was from TM.

2017
£’000

2016
£’000

7,098

5,968

(3,510)

9,556

6,474

5,408

(3,120)

8,762

2017
£’000

2016
£’000

35,549

(34,572)

29,980

(30,019)

977

984

(190)

794

789

1,583

(39)

(22)

(18)

1,067

1,049

129

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Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

19. Trade and other receivables

Current

Trade receivables

Prepayments and accrued income

2017
£’000

2016
£’000

19,029

12,328

31,357

20,209

12,054

32,263

Trade receivables are non-interest bearing and are generally on 4-30 day terms depending on the services to which they relate.

As at 31st December 2017, trade receivables with a nominal value of £2,166,000 (2016: £2,546,000) were impaired and fully provided for.
Movements in the provision for impairment of receivables were as follows:

At 1st January

Charge for the year

Amounts written off

At 31st December

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

2017
£’000

2,546

468

(848)

2,166

2016
£’000

2,518

839

(811)

2,546

2017

2016

20. Trade and other payables

Current

Trade payables

Other taxes and social security payable

Other payables

Accruals

Total
£’000

19,029

20,209

Neither past due
nor impaired
£’000

12,770

12,955

Past due but not impaired

0-90 days
£’000

5,959

6,708

>90 days
£’000

300

546

2017
£’000

2016
£’000

6,009

10,364

686

36,359

53,418

7,150

10,186

633

32,931

50,900

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.

130

21. Financial liabilities

Current

Overdraft

2% unsecured loan notes

Deferred consideration

Contingent consideration

Non-current

Bank loans – RCF

2% unsecured loan notes

Deferred consideration

Contingent consideration

2017
£’000

2,978

2,000

1,405

6,454

27,000

–

7,654

34,654

2016
£’000

3,756

–

4,790

2,193

10,739

16,500

2,000

7,903

26,469

Bank loans – RCF and overdraft
A £100m loan facility which was due to expire in May 2020 was extended in January 2018 and now expires in May 2022. Loan refinance
costs were incurred in June 2013 which have been capitalised and are being amortised over the life of the original loan facility.

The bank loan totalling £27m (2016: £16.5m) and overdraft totalling £3m (2016: £3.8m) are secured via cross guarantees issued from all
of the Group’s subsidiaries excluding the following subsidiaries, Homefast, Linear (Linear Mortgage Network and Linear Financial Services),
Templeton LPA and Chancellors Associates.

The utilisation of the RCF may vary each month as long as this does not exceed the maximum £100m facility (2016: £100m). The Group’s
overdraft is also secured on the same facility, and the combined overdraft and RCF cannot exceed £100.0m (2016: £100m). The banking
facility is repayable when funds permit on or by May 2022.

Interest and fees payable on the RCF amounted to £1.3m (2016: £1.8m). The interest rate applicable to the facility is LIBOR plus a margin
rate; the margin rate is linked to the leverage ratio of the Group and the margin rate is reviewed at six monthly intervals.

12% and 2% unsecured loan notes
A variation of the 2011 loan notes, issued as part satisfaction of the consideration of Marsh & Parsons, was agreed on the retirement of
Peter Rollings in March 2016. The total principal amount of the 2011 Loan Note will be paid but at a reduced rate of interest of 2%. The first
instalment was paid in July 2016, and a final payment of £2m is due in March 2018, subject to certain conditions being satisfied.

Deferred consideration
Deferred consideration totalling £71,000 is payable in 2019.

Deferred consideration

Group First

LSLi

Contingent consideration

Charge/(credit) on contingent consideration

2017
£’000

–

2017
£’000

654

2016
£’000

4,550

306

4,856

2016
£’000

(3,785)

The exceptional contingent consideration charge recognised in the year relates to previous acquisitions, primarily a charge of £282,000 in
LSLi and £372,000 in Mortgage First (2016: credit for LMS of £268,000, credit of £411,000 for Mortgage First, credit of £1,964,000 for
Marsh & Parsons and a credit of £1,142,000 in LSLi).

131

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Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

21. Financial liabilities (continued)

LSLi contingent consideration

LMS

Group First

Other

Opening Balance

Cash paid

Acquisition

Amounts recorded through Income Statement

Closing Balance

2017
£’000

1,710

7,098

250

9,059

10,096

(2,175)

–

1,138

9,059

2016
£’000

3,419

6,339

337

10,096

9,886

(3,537)

6,598

(2,851)

10,096

£1,710,000 (2016: £3,419,000) of contingent consideration relates to payments to third parties in relation to the acquisition of LSLi and
certain of its subsidiaries. This is payable between three and five years after the acquisition-dates depending on the profitability of those
subsidiaries in the relevant years. In 2017, the contingent consideration has been recalculated using a discount rate of 6.5% (2016: 6.5%).

During 2017 £6,965,000 of deferred and contingent consideration was paid to third parties.

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

Unwinding of discount on contingent consideration

Debit/(credit)

2017
£’000

–

9,058

9,059

–

641

484

1,138

2016
£’000

2,076

8,019

10,096

(1,412)

(268)

(1,657)

486

(2,851)

132

22. Provisions for liabilities

Balance at 1st January

Amount utilised

Amount released

Unwinding of discount

Reallocated from accruals

Provided in financial year

Balance at 31st December

Current

Non-current

Professional
indemnity claim
provision
£’000

20,686

(3,342)

(2,714)

200

290

796

15,916

2,740

13,176

15,916

2017

Onerous
leases
£’000

678

(263)

(229)

–

210

110

100

210

Professional
indemnity claim
provision
£’000

29,672

(8,126)

(1,600)

200

540

20,686

5,385

15,301

20,686

Total
£’000

21,364

(3,605)

(2,943)

200

290

820

16,126

2,850

13,276

16,126

2016

Onerous
leases
£’000

(137)

(6)

–

768

678

357

321

678

Total
£’000

29,725

(8,263)

(1,606)

200

1,308

21,364

5,742

15,622

21,364

PI Costs (Professional indemnity claims) 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 such 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 PI Cost
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 proportion of the
provision has been classified as non-current.

As at 31st December 2017 the total provision for PI Costs was £15.9m. The Directors have considered the sensitivity analysis on the key
risks and uncertainties discussed above.

Cost per claim
A substantial element of the PI Cost 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 IBNR. Should the
costs to settle and resolve these claims and future claims increase by 10%, an additional £1.2m 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. 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 £0.3m.

Notifications
The Group 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 less than £0.1m would be required.

133

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Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

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 to these Financial Statements). Future minimum
rentals payable under these operating leases are as follows:

No later than one year

After one year but not more than five
years

After five years

Land
and
building
£’000

8,267

18,443

8,337

35,047

2017

Plant
and
machinery
£’000

2,635

2,184

–

4,819

Total
£’000

10,902

20,627

8,337

39,866

Land
and
building
£’000

8,128

16,947

7,569

32,644

2016

Plant
and
machinery
£’000

3,215

2,849

–

6,064

Total
£’000

11,343

19,796

7,569

38,708

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

2017
Land
and
buildings
£’000

351

505

248

2016
Land
and
buildings
£’000

339

689

306

1,104

1,334

2017

2016

£’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 13 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 2017 the Trust held 1,511,155 (2016: 1,530,716) LSL Shares at an
average cost of £3.51 (2016: £3.51). The market value of the LSL Shares at 31st December 2017 was £4,227,456 (2016: £3,535,954). 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 available for sale. Note 17 to these Financial Statements
gives further details of the movement in the current year.

134

26. Pension costs and commitments

The Group operates defined contribution pension schemes for certain 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 £2,411,000 (2016: £2,388,000). There was an outstanding amount
of £388,000 in respect of pensions as at 31st December 2017 (2016: £390,000).

27. Acquisitions during the year

Year ended 31st December 2017
The Group made no acquisitions during the year.

The purchase price allocations for the acquisitions made in 2016 have now been finalised, with no changes made to the provisional
purchase price allocations disclosed below.

Year ended 31st December 2016
The Group acquired the following businesses during the prior year

(a) Lettings books and other
During the period the Group acquired nine Lettings books and bought back a two branch estate agency franchises for a total consideration
of £4,241,000. The fair value of the identifiable assets and liabilities of these businesses as at the date of acquisition have been provisionally
determined as below:

Intangible Assets

Cash and cash equivalents

Deferred tax liabilities

Total identifiable net liabilities acquired

Purchase consideration

Goodwill

Purchase consideration discharged by:

Cash

Deferred consideration

Contingent consideration Cash

Analysis of cash flow on acquisition

Transaction costs (included in cash flows from operating activities)

Net cash acquired with the subsidiaries and other businesses

Purchase consideration discharged in cash (included in cash flows from investing activities)

Net cash outflow on acquisition

Fair value
recognised on
acquisition
£’000

4,190

(1,593)

2,648

4,241

1,593

3,901

323

4,241

£’000

(51)

3,883

3,887

135

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Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

27. Acquisitions during the year (continued)

(b) Group First
In February 2016, the Group, through a wholly owned subsidiary, acquired 65% interest in Group First, who provide mortgage and
protection brokerage services to the purchasers of new homes through its subsidiaries, Mortgages First and Insurance First Brokers. The
consideration for the initial investment was £9.1m cash with 50% paid on completion, and a further 50% payable in 2017. The remaining
35% is subject to put and call options which are exercisable between 2018 and 2020. The contingent consideration is the Management
Team’s best estimation of the probable discounted payout (using a rate of 6.5%), based upon current forecasts over the earn-out period.
Due to the nature of the payment terms, the contingent consideration is considered to be a capital payment for accounting purposes. The
fair value of the identifiable assets and liabilities as at the date of acquisition have been determined as below:

Intangible assets

Property, plant and equipment

Trade and other receivables (no impairment identified)

Cash and cash equivalents

Trade and other payables

Current tax

Deferred tax liabilities

Total identifiable net assets acquired

Purchase consideration

Goodwill

Purchase consideration discharged by:

Cash

Deferred consideration

Contingent consideration

Fair value
recognised on
acquisition
£’000

809

847

127

1,542

(1,501)

(216)

160

1,768

15,681

13,913

4,550

6,581

15,681

The goodwill of Group First comprises certain intangible assets that cannot be individually separated and reliably measured from the
acquiree due to their nature. These items include relationships with a number of house builders, 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. None of the goodwill is expected to be deductible for tax purposes.

As defined in IFRS 3 the Group has recognised, separately from goodwill, the identifiable intangible assets acquired in the business
combination. The assets identified include the Group First brand and the pipeline of work acquired. As disclosed to the market on
acquisition, there are strong customer relationships between Group First and key house builders, however, these relationships do not qualify
as an intangible asset given they do not fulfil either the separability criterion or the contractual-legal criterion. This has been fully explored
by the Management Team and are confident that given that no economic benefit passes between the two parties in this relationship (the
housebuilder and Group First) there is no asset that can be “separated or divided” and “sold, transferred, licensed, rented or exchanged”.

Group First has contributed £1,924,000 profit before tax and £6,913,000 revenue in the period since acquisition. If it had been acquired
at the beginning of the year then the consolidated revenue would have been £920,000 higher and the consolidated profit before tax would
have been £222,000 higher. An analysis of cashflow on acquisition is given in the table below.

136

27. Acquisitions during the year (continued)

(c) Total acquisitions
At 31st December 2016, the acquisitions in aggregate, including Group First, have contributed £7,979,000 of revenue and £2,609,000 profit
before tax to 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 £1,749,000 and the
consolidated profit before tax would have been higher by £593,000. Transaction costs have been expensed.

Transaction costs

Net cash acquired with the subsidiaries and other businesses

Purchase consideration discharged

Net Cash outflow on acquisition

28. Client monies

£’000

(1,593)

8,433

6,895

As at 31st December 2017, monies held by subsidiaries in separate bank accounts on behalf of clients amounted to £104,641,000 (2016:
£100,627,000). Neither this amount, nor the matching liabilities to the clients concerned are included in the Group balance sheet.

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 is exposed through its operations to 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 Chief Financial Officer. 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 Group Finance team.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on loans and borrowings. 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.

2017

2016

Increase/
decrease in basis
point

Effect on profit
before tax
£’000

+100

-100

+100

-100

(270)

270

(165)

165

137

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Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

29. Financial instruments – risk management (continued)

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 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 fundraising. 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 RCF and to make acquisitions. However, the requirement to pay creditors is managed through future cash
generation and, if required, from the RCF.

The Group monitors its risk of a shortage of funds using a recurring liquidity planning tool and daily cash-flow reporting. This includes
consideration of 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.

Cash at the 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 (2016: £nil). At 31st December 2017, the Group had
available £70m of undrawn committed borrowing facilities in respect of which all conditions precedent had been met (2016: £83.5m).

The table below summarises the maturity profile of the Group’s financial liabilities at 31st December 2017 based on contractual
undiscounted payments:

Year ended 31st December 2017

Interest bearing loans and borrowings
(including overdraft)

Trade payables

Other payables

Contingent consideration

Deferred consideration

Year ended 31st December 2016

Interest bearing loans and borrowings
(including overdraft)

Trade payables

Other payables

Contingent consideration

Deferred consideration

On demand
£’000

2,979

–

Less than
3 months
£’000

2,184

6,009

36,905

662

–

2,979

45,760

On demand
£’000

3,756

–

Less than
3 months
£’000

139

7,150

32,931

–

3,756

40,249

3 to 12 months
£’000

1 to 5 years
£’000

> 5 years
£’000

Total
£’000

548

27,582

–

742

–

1,290

–

9,646

37,299

–

33,293

6,009

36,905

11,050

87,328

3 to 12 months
£’000

1 to 5 years
£’000

> 5 years
£’000

Total
£’000

425

19,863

–

2,165

4,790

7,380

–

10,122

30,051

–

24,183

7,150

32,931

12,316

4,856

81,436

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 RCF with a syndicate of
major banking corporations to manage longer term borrowing requirements.

138

29. Financial instruments – risk management (continued)

Capital management
The primary objective of the Group’s capital management is to ensure that it maintains appropriate capital structure to support its business
objectives, including any regulatory requirements, 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 meet its 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 used in the calculation of the Group’s banking covenant.

The Group has a current ratio of Net Bank Debt (excluding loan notes) to Group Adjusted EBITDA of 0.70 (2016: 0.51), based on Net
Bank Debt (excluding loan notes) of £30.0m (2016: £20.3m) and operating profit before exceptional costs, amortisation and share-based
payment charge of £37.6m (2016: £34.6m). 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. The Board has
reviewed the policy in line with the risks and capital management decisions facing the Group.

Net Bank Debt is defined as follows:

Interest bearing loans and borrowings (including loan notes, overdraft, contingent and deferred
consideration)

Less: 2% and 12% unsecured loan notes

Less: deferred and contingent consideration

Net Bank Debt (excluding loan notes)

2017
£’000

2016
£’000

41,108

(2,000)

(9,129)

(29,979)

37,208

(2,000)

(14,952)

(20,256)

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
LSL’s 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 2017 are as follows:

Fixed rate

RCF

Interest bearing loans

Floating rate

Overdraft

RCF

Within 1 year
£’000

1-2 years
£’000

2-3
years
£’000

3-4
Years
£’000

(2,000)

(2,979)

(27,000)

Total
£’000

–

(2,000)

(2,979)

(27,000)

139

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Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

29. Financial instruments – risk management (continued)

The effective interest rate and the actual interest rate charged on the loans in 2017 are as follows:

RCF

2% unsecured loan notes

Effective rate

Actual rate

4.1%

2.0%

1.5%

2.0%

The effective interest rate on the RCF during the year is higher than the actual rate due to commitment fees payable on undrawn amounts.

The interest rate profile of the financial assets and liabilities of the Group as at 31st December 2016 are as follows:

Within 1 year
£’000

1-2 years
£’000

2-3
years
£’000

3-4
Years
£’000

Fixed rate

RCF

Interest bearing loans

Floating rate

Overdraft

RCF

(3,756)

(2,000)

–

The effective interest rate and the actual interest rate charged on the loans in 2016 are as follows:

RCF

2% unsecured loan notes

Total
£’000

–

(2,000)

–

(16,500)

(3,756)

(16,500)

Effective rate

Actual rate

3.7%

2.0%

1.3%

2.0%

The effective interest rate on the RCF 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 note being recorded at fair value on initial issue in 2011.

Fair values of financial assets and financial liabilities
There are no differences between the carrying amounts and fair values of all of the Group’s financial instruments that are carried in the
Financial Statements.

The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities.

2017

Assets measured at fair value

Financial assets

Liabilities measured at fair value

Contingent consideration

2016

Assets measured at fair value

Financial assets

Liabilities measured at fair value

Contingent consideration

£’000

25,282

9,059

£’000

4,603

10,096

Level 1
£’000

Level 2
£’000

Level 3
£’000

1,529

23,753

Level 1
£’000

Level 2
£’000

9,059

Level 3
£’000

4,603

10,096

The investments relating to ZPG plc (£1.5m) are valued using a level 2 valuation technique, and the remaining investments (£24.0m) are
valued using level 3 valuation techniques. The Directors reviewed the fair value of the financial assets at 31st December 2017 using an
independently sourced multiple times average EBITDA methodology. The underlying value of the business is 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%, £2.5m.

140

29. Financial instruments – risk management (continued)

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 23.

If the future profitability of the entities was to decline by 10%, the size of the contingent consideration would decrease by approximately
£0.5m.

Fair values of the Group’s interest-bearing borrowings and loans are determined by using discounted cash-flow (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 2017 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

Less: deferred and contingent consideration

Net Bank Debt at the end of the year

2017
£’000

2016
£’000

6,454

34,654

41,108

(2,000)

(9,129)

29,979

10,739

26,469

37,208

(2,000)

(14,952)

20,256

The 12% unsecured loan notes were issued as part satisfaction of the consideration for the acquisition of Marsh & Parsons in 2011. The
total principal amount of the 2011 Loan Note will be paid but at a reduced rate of interest of 2%. The first instalment was paid in July 2016,
and a final payment of £2m is due in March 2018, subject to certain conditions being satisfied.

31. Related party transactions

As disclosed in Note 18 of these Financial Statements LSL has two joint ventures LMS and TM.

Transactions with LMS and its subsidiaries

Sales

Transactions with TM and its subsidiaries

Sales

Purchases

Year-end creditor balance

2017
£’000

1,430

(42)

(9)

2016
£’000

1,273

(41)

(8)

In July 2017 Group entered into a convertible loan note and introducer agreement with Global Property Ventures of which Simon Embley is
chairman.

141

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Notes to the Group Financial Statements continued.
for the year ended 31st December 2017

32. Capital commitments

Capital expenditure contracted for but not provided

33. Subsidiary and joint venture companies

2017
£’000

2016
£’000

628

The Group owns directly or indirectly the following issued and fully paid ordinary and preference share capital of its subsidiary undertakings,
all of which are incorporated in Great Britain and whose operations are conducted mainly in the United Kingdom. The results for all of the
subsidiaries have been consolidated within these Financial Statements:

Name of subsidiary company

Lending Solutions Holdings Ltd

Lending Solutions Ltd

LSL-ONE Ltd

Energy-Assessors.com Ltd

Registered
office address

LSL holding

Direct

Indirect

Direct

Estate Agency and Related Services – Asset Management

LSL shareholder

LSL Property
Services plc

Lending Solutions
Holdings Ltd

LSL Property
Services plc

Proportion of
nominal value of
Shares held

Nature of business

100%

Holding Company

100%

Non Trading

100%

Non Trading

100%

Non Trading

100%

Asset Management

100%

Asset Management

Estate Agency and Related Services – Residential Sales and Lettings

Davis Tate Ltd

100%

Non Trading

Indirect

First Complete Ltd

100%

Asset Management

Direct

Indirect

LSL Corporate Client Services Ltd

St Trinity Ltd

Templeton LPA Ltd

Appleton Estates & Property
Management Ltd

Bawtry Lettings and Sales Ltd

Beldhamland Ltd

Charterhouse Management (UK) Ltd 2

David Frost Estate Agents Ltd

Davis Tate Ltd

EA Student Lettings Ltd

Eastside Property Developments Ltd 2

Elliott & Freeth Ltd

Fourlet (York) Ltd

Front Door Property
Management Ltd

142

your-move.co.uk Ltd

100%

Marsh & Parsons Ltd

100%

your-move.co.uk Ltd

100%

Vitalhandy
Enterprises Ltd

100%

Indirect

LSLi Ltd

Non Trading

Residential Sales
and Lettings

Residential Sales,
Lettings and Holding
Company

Indirect

your-move.co.uk Ltd

100%

your-move.co.uk Ltd

100%

Davis Tate Ltd

100%

Non Trading

Indirect

Reeds Rains Ltd

100%

Non Trading

Indirect

ICIEA Ltd

100%

Non Trading

33. Subsidiary and joint venture companies (continued)

LSL holding

Indirect

LSL shareholder

LSLi Ltd

Proportion of
nominal value of
Shares held

100%

Name of subsidiary company

GFEA Ltd

Guardian Property Lettings Ltd

Hawes & Co Ltd^

Registered
office address

Hawes & Co (Thames Ditton) Ltd

Headway Property Management Ltd 2

Holloways Residential Ltd

Home and Student Link Ltd

Homefast Property Services Ltd

ICIEA Ltd

Inter County Lettings Ltd

IQ Property (Hull) Ltd

JNP Estate Agents Ltd

JNP Estate Agents (Princes
Risborough) Ltd

JNP (Residential Lettings) Ltd

JNP (Surveyors) Ltd

Kent Property Solutions Ltd

Lauristons Ltd

Lawlors Property Services Ltd

Lets Move Property Ltd

LSLi Ltd

Marsh & Parsons Ltd

Indirect

Reeds Rains Ltd

LSLi Ltd

Hawes & Co Ltd

Reeds Rains Ltd

100%

79%

100%

your-move.co.uk Ltd

100%

your-move.co.uk Ltd

100%

Non Trading

Lending Solutions
Holdings Ltd

77.5%

Non Trading

LSLi Ltd

100%

Nature of business

Residential Sales
and Lettings and
Holding Company

Non Trading

Residential Sales,
Lettings and Holding
Company

Non Trading

Residential Sales,
Lettings and Holding
Company

Non Trading

Residential Sales,
Lettings and Holding
Company

ICIEA Ltd

Reeds Rains Ltd

100%

Indirect

LSLi Ltd

Indirect

Direct

Indirect

JNP Estate Agents Ltd 100%

Non Trading

JNP Estate Agents Ltd 100%

LSLi Ltd

100%

your-move.co.uk Ltd

100%

LSLi Ltd

100%

LSLi Ltd

75%

Non Trading

Residential Sales,
Lettings and Holding
Company

Residential Sales
and Lettings

your-move.co.uk Ltd

100%

Non Trading

LSL Property
Services plc

100%

Marsh & Parsons
(Holdings) Ltd

100%

Residential Sales,
Lettings, Financial
Services and Holding
Company

Residential Sales,
Lettings and Holding
Company

Marsh & Parsons (Holdings) Ltd^^

Direct

LSL Property
Services plc

96.86%

Holding Company

Marshcroft Properties Ltd

Indirect

Marsh & Parsons Ltd

100%

Non Trading

143

33. Subsidiary and joint venture companies (continued)

Name of subsidiary company

New Daffodil Ltd

New Let Ltd

NSK Management Ltd^^^

Paul Graham Lettings &
Management Ltd

Philip Green Lettings Ltd

PHP Lettings Scotland Ltd

Prestons Lettings Ltd

Reeds Rains Ltd

Reeds Rains Cleckheaton Ltd

Thomas Morris Ltd

Vanstons (Barnes) Ltd

Vanstons Commercial Ltd

Vanstons Lettings Ltd

Vanstons Ltd

Vitalhandy Enterprises Ltd

Warners Lettings Agency Ltd

Woollens of Wimbledon Ltd

Yates Lettings Ltd

your-move.co.uk Ltd

Zenith Properties Ltd

Registered
office address

LSL holding

Direct

LSL shareholder

LSL Property
Services plc

Proportion of
nominal value of
Shares held

Nature of business

100%

Non Trading

Indirect

Direct

Indirect

your-move.co.uk Ltd

100%

your-move.co.uk Ltd

100%

GFEA Ltd

100%

Non Trading

JNP Estate Agents Ltd 100%

Non Trading

your-move.co.uk Ltd

100%

Reeds Rains Ltd

100%

Non Trading

LSL Property
Services plc

100%

Reeds Rains Ltd

LSLi Ltd

100%

80%

Residential Sales,
Lettings, Financial
Services and Holding
Company

Non Trading

Residential Sales
and Lettings

Marsh & Parsons Ltd

100%

Marsh & Parsons Ltd

100%

Marsh & Parsons Ltd

100%

Marsh & Parsons Ltd

100%

Non Trading

LSLi Ltd

100%

Holding Company

ICIEA Ltd

Lauristons Ltd

Davis Tate Ltd

Lending Solutions
Holdings Ltd

100%

Non Trading

Residential Sales,
Lettings, Financial
Services and Holding
Company

Indirect

ICIEA Ltd

100%

Non Trading

Estate Agency and Related Services – Financial Services

Advance Mortgage Funding Ltd

BDS Mortgage Group Ltd

First Complete Ltd

First2Protect Ltd

Direct

Indirect

LSL Property
Services plc

Advance Mortgage
Funding Ltd

Lending Solutions
Holdings Ltd

100%

Financial Services

100%

Financial Services

100%

Financial Services and
Holding Company

your-move.co.uk Ltd

100%

Financial Services

144

33. Subsidiary and joint venture companies (continued)

Registered
office address

LSL holding

LSL shareholder

Proportion of
nominal value of
Shares held

Nature of business

Name of subsidiary company

Group First Ltd

Insurance First Brokers Ltd

Linear Financial Services Ltd

Linear Financial Services
Holdings Ltd

Linear Mortgage Network
Holdings Ltd

Linear Mortgage Network Ltd

Mortgages First Ltd

Reeds Rains Financial Services Ltd 2

Surveying and Valuation Services

Albany Insurance Company
(Guernsey) Ltd

Barnwoods Ltd

Chancellors Associates Ltd

e.surv Ltd

Repartir Ltd

Joint Ventures

9 Kensington Church Street
(Management) Ltd#^^^^

Cybele Solutions Holdings Ltd#

Cybele Solutions Ltd#

TM Group (UK) Ltd#

Registered office address:

Indirect

Direct

Indirect

Direct

your-move.co.uk Ltd

65%

Holding Company

Group First Ltd

Linear Financial
Services Holdings Ltd

100%

Financial Services

Non Trading

First Complete Ltd

100%

Holding Company

First Complete Ltd

98%

Holding Company

Linear Mortgage
Network Holdings Ltd

100%

Financial Services

Group First Ltd

Reeds Rains Ltd

100%

Financial Services

LSL Property
Services plc

e.surv Ltd

LSL Property
Services plc

100%

Captive Insurer

100%

Non Trading

100%

Chartered Surveyors

100%

Non Trading

Indirect

Marsh & Parsons Ltd

50%

Direct

Indirect

Direct

LSL Property
Services plc

Cybele Solutions
Holdings Ltd

50%

LSL Property
Services plc

33.33%

Joint Venture –
Residents Property
Company Management

Joint Venture -
Holding Company

Joint Venture -
Conveyancing
panel manager

Joint Venture -
Property Searches

1. Newcastle House, Albany Court, Newcastle upon Tyne, NE4 7YB

2. 2nd Floor, Gateway 2, Holgate Park Drive, York, YO26 4GB

3. 80 Hammersmith Road, London, W14 8UD

4. 25 North Bridge Street, Bathgate, West Lothian, EH48 4PJ

5. Lahnstein House, Gold Street, Kettering, Northamptonshire, NN16 8AP

6. Unit 2 Guards Avenue, The Village, Caterham on The Hill, Surrey, CR3 5XL

7. Bickerton House, Lloyd Drive, Ellesmere Port, Cheshire, CH65 9HQ

145

8. 1200 Delta Business Park, Swindon, Wiltshire, England, SN5 7XZ

9. The Albany, South Esplanade, St Peters Port, Guernsey, GY1 4NF

^ On 10th January 2018 LSLi acquired further shares in Hawes & Co taking LSLi’s holding in Hawes to 93%

^^ LSL holds 100% of the voting and economic rights in Marsh & Parsons Holdings

^^^ NSK Management was dissolved on 31st January 2017 as part of a Group simplification exercise

^^^^ The holding in 9 Kensington Church Street (Management) was transferred outside of the Group on 25th May 2017, following the
Group’s disposal of the related property.

# Joint Ventures

34. Post Balance Sheet events

Acquisition of Personal Touch Financial Services
In January 2018, LSL acquired the entire issued share capital of Personal Touch Financial Services and its subsidiary company, Personal
Touch Administration Services. Personal Touch Financial Services is a financial services business specialising in the provision of mortgage
and other financial services products via its network of intermediaries. The consideration for the acquisition is £4.8m plus an acquired
intercompany debt of £0.6m and is made up of a payment of £2.8m which was paid on completion and a further payment of £2m which is
deferred for 12 months.

The Group are currently in the process of allocating the purchase price in accordance with IFRS 3, Business Combinations, and as a result
the initial accounting for this acquisition is incomplete.

Extension of the RCF
On 30th January 2018 announced that it extended the maturity date of its existing £100 million banking facility until May 2022; this replaces
the existing maturity date of May 2020.

146

Statement of Directors’ Responsibilities in Relation
to the Parent Company Financial Statements

The Directors are responsible for preparing the Annual Report and the Parent Company Financial Statements (together with the Annual
Report and Accounts) 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 Company Financial Statements unless they are satisfied that they present fairly the
financial position of the Company and the financial performance and cash-flows of the Company for that period. In preparing the Company
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 Company’s financial position and financial performance;

• state that the Company has complied with IFRSs, subject to any material departures disclosed and explained in the Financial Statements;

and

• make judgments 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 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 and Article 4 of the IAS Regulation. 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.

147

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewParent Company Balance Sheet

as at 31st December 2017

Non-current assets

Other intangible assets

Property, plant and equipment

Investment in subsidiaries

Financial assets

Investment in joint ventures

Deferred tax asset

Current assets

Trade and other receivables

Total Assets

Current Liabilities

Trade and other payables

Financial liabilities

Non-current Liabilities

Financial liabilities

Deferred tax liability

Total Liabilities

Net Assets

Equity

Share capital

Share premium account

Share-based payment reserve

LSL Shares held by the EBT (Treasury shares)

Fair value reserve

Retained Earnings

Total Equity

The profit after tax for the year, attributable to the company, was £14.7m (2016: £87.0m).

The Financial Statements were approved by and signed on behalf of the Board by:

Ian Crabb
Group Chief Executive Officer
6th March 2018

Adam Castleton
Group Chief Financial Officer
6th March 2018

148

Note

2017
£’000

182,144

24,495

7,235

112

2016
£’000

–

181,908

–

7,235

105

214,001

189,256

50,893

264,894

62,700

251,956

(103,058)

(109,414)

(19,672)

(15,095)

(122,730)

(124,509)

(27,001)

(16,501)

(4)

–

(27,005)

(16,501)

(149,735)

(141,010)

115,159

110,946

208

5,629

3,802

208

5,629

4,303

(5,317)

(5,368)

110,816

115,159

–

106,174

110,946

Parent Company Statement of Cash-Flows

for the year ended 31st December 2017

Parent operating profit before tax and interest

Adjustments for:

Exceptional gain on sale of financial assets

Fair value adjustment of contingent consideration

Depreciation of tangible assets

Share-based payments

Finance costs

Dividend income/rebates received via non-cash consideration

Operating cash-flows before movements in working capital

Movements in working capital

Decrease/(increase) in trade and other receivables

Increase/(decrease) in trade and other payables

Cash generated from operations

Interest paid

Income taxes paid

Net cash generated from operating activities

Cash-flows used in investing activities

Investment in non-controlling interests

Investment in financial assets

Proceeds from sale of financial instruments

Dividends received from financial instruments

Dividends received from subsidiaries

Purchases of property, plant and equipment

Net cash (expended)/generated on investing activities

Cash-flows used in financing activities

Proceeds from borrowings

Repayment of overdraft

Proceeds from exercise of share options

Dividends paid to equity holders of the parent

Net cash generated/(expended) in financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at the end of the year

Note

2017
£’000

2016
£’000

12,946

92,458

(2,049)

–

(189)

1,101

(19,503)

(7,693)

24,102

5,628

29,730

22,037

(1,101)

(10,517)

10,419

–

(23,941)

3,024

–

6,000

(7)

(32,931)

(2,270)

501

1,998

(66,090)

(6,332)

(3,249)

(36,283)

(39,532)

(45,864)

(1,998)

(8,203)

(56,065)

(2)

–

35,991

778

65,598

–

(14,924)

102,365

10,500

4,577

–

(10,572)

4,505

–

(29,000)

(4,432)

(12,916)

(46,300)

–

149

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview

Parent Company Statement of Changes in Equity

for the year ended 31st December 2017

For the year ended 31st December 2017

As at 1st January 2017

Disposal of financial asset (net of tax)

Revaluation of financial asset (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 payment transactions

Dividends

As at 31st December 2017

Issued
capital
£’000

208

Share
premium
£’000

5,629

Share-based
payment
reserve
£’000

Treasury
shares
£’000

Fair value
reserve
£’000

Retained
earnings
£’000

Total
£’000

4,303

(5,368)

–

106,174

110,946

–

(46)

(455)

–

(1,701)

1,722

–

14,717

–

(5)

502

(1,701)

1,722

14,717

14,738

–

(10,572)

208

5,629

3,802

(5,317)

110,816

115,159

For the year ended 31st December 2016

As at 1st January 2016

Disposal of financial asset (net of tax)

Revaluation of financial asset (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 payment transactions

Dividends

As at 31st December 2016

Issued
capital
£’000

208

Share
premium
£’000

5,629

Share- based
payment
reserve
£’000

Treasury
shares
£’000

Fair value
reserve
£’000

Retained
earnings
£’000

Total
£’000

3,564

(5,988)

19,640

32,272

55,325

–

(524)

1,263

–

620

–

208

5,629

4,303

(5,368)

(27,078)

7,437

(19,640)

–

87,036

(19,640)

87,038

(27,078)

7,437

(19,640)

87,038

67,398

–

(218)

(122)

–

1,263

(12,916)

106,174

110,948

150

Notes to the Parent Company Financial Statements

for the year ended 31st December 2017

1. Accounting policies

Basis of preparation
The Financial Statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB).

The Company Financial Statements have been prepared on a going concern basis and on a historical cost basis, except for, 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 2017. The Company’s Financial Statements are presented in Sterling and all values are rounded to the nearest thousand
pounds (£’000) except when otherwise indicated.

Summary of significant accounting policies

Judgments and estimates
The preparation of financial information in conformity with IFRS as adopted by European Union requires the Management Team to make
judgments, 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 judgments about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision
affects both current and future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed
below:

Judgments
Areas of judgment that have the most significant effect on the amounts recognised in the consolidated financial statements are:

Valuation of financial assets
The Company 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 judgment and assumptions are required in assessing this.

Deferred tax
The Company recognises deferred tax assets on all applicable temporary differences where it is probable that future taxable profits will be
available for utilisation. This requires the Management Team to make judgments and assumptions regarding the amount of deferred tax that
can be recognised based on the magnitude and likelihood of future taxable profits. Deferred tax liabilities are provided for in full.

Estimates
There are no key assumptions affected by future uncertainty that have significant risks of causing material adjustment to the carrying value
of assets and liabilities within the next financial year.

Investments in subsidiaries
Investments are shown at cost less provision for impairment. The cost of an investment is measured as the aggregate of the consideration
transferred, measured at acquisition-date fair value. Any contingent consideration will be recognised at fair value at the acquisition-date.
Subsequent changes to the fair value of the contingent consideration are recognised through profit and loss.

Investments are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that its carrying value
may be impaired.

Investments in joint ventures
Investments in joint ventures are accounted for at cost less any provision for impairment. Investments are reviewed for impairment annually
or more frequently if events or changes in circumstances indicate that its carrying value may be impaired. The cost of an investment is
measured as the aggregate of the consideration transferred, measured at acquisition-date fair value. Any contingent consideration will be
recognised at fair value at the acquisition-date. Subsequent changes to the fair value of the contingent consideration are recognised in profit
and loss.

151

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview1. Accounting policies (continued)

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

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

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

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

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

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

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

Pensions
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. The pension cost charge represents contributions payable in the year.

Share-based payment transactions

Equity-settled transactions
The Group equity share option programmes allow Company 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 is 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.

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

152

Notes to the Parent Company Financial Statements continued.for the year ended 31st December 20171. Accounting policies (continued)

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. 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 Company no longer has the rights to cash-flows, the risks and rewards of ownership or control of the asset.
Financial liabilities are derecognised when the obligation under the liability is discharged, cancelled or expires.

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

Office equipment, fixtures and fittings
Computer equipment
Leasehold improvements

–
–
–

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

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or
disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the Income Statement when the asset is derecognised. These assets’ residual values, useful
lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively, if appropriate.

153

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview

2. Cash-flow from Financing Activities

Long Term Liabilities

Short Term Liabilities

At 1st January
2017
£’000

16,500

15,095

31,595

Cashflow
£’000

10,500

4,577

15,077

Acquisition
£’000

Foreign Exchange
£’000

Fair Value
£’000

–

At 31st December
2017
£’000

27,000

19,672

46,672

Short Term Liabilities
In 2017 bank overdraft was £19.7m (2016: £15.1m) (see Note 10 of these Financial Statements).

Long term liabilities
In 2017 bank loan was £27.0m (2016: £16.5m) (see Note 10 of these Financial Statements).

Software
£’000

Total
£’000

–

3. Intangible assets

Cost

At 1st January 2017

Additions

As at 31st December 2017

Impairment

At 1st January 2017

Amortisation

As at 31st December 2107

Net Book Value

As at 31st December 2017

As at 31st December 2016

154

Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2017

4. Property, plant and equipment

As at 31st December 2017

Cost

At 1st January 2017

Additions

At 31st December 2017

Depreciation

At 1st January 2017

Charge for the year

At 31st December 2017

Carrying amount

At 31st December 2017

At 1st January 2017

As at 31st December 2016

Cost

At 1st January 2016

Additions

At 31st December 2016

Depreciation

At 1st January 2016

Charge for the year

At 31st December 2016

Carrying amount

At 31st December 2016

At 1st January 2016

Leasehold
improvements
£’000

Fixtures, fittings
and computer
equipment
£’000

–

106

107

106

–

106

–

Leasehold
improvements
£’000

Fixtures, fittings
and computer
equipment
£’000

–

106

–

106

–

106

–

Total
£’000

180

181

172

173

Total
£’000

180

–

180

171

172

155

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview

5. Investment in subsidiaries

Details of the subsidiaries held directly and indirectly by the Company are shown in Note 34 to the Group Financial Statements.

At 1st January

Additions

Adjustments for share-based payment

At 31st December

2017
£’000

2016
£’000

181,908

181,133

–

236

762

182,144

181,908

In 2017 there was an increase of £232,000 (2016: increase of £762,000) on investment in subsidiaries for 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 £6,897,000 (2016: £7,129,000).

6. Financial assets

At cost

At 1st January

Additions

Disposals

Revaluation uplift

At 31st December

2017
£’000

–

28,160

(5,740)

2,075

24,495

2016
£’000

27,097

–

(36,082)

8,985

–

During the year LSL acquired 1.3m ordinary shares in Yopa for a total consideration of £20.0m.

GPEA was acquired for a book value of £3.7m. Subsequent to this acquisition LSL sold its entire holding of shares in GPEA. The investment
was disposed of for £5.7m (£3m cash and £2.7m shares in eProp Services plc) in July 2017.

7. Investment in joint ventures

At cost

At 1st January

Additions

At 31st December

2017
£’000

7,235

–

7,235

2016
£’000

7,233

7,235

The Company has a 50% interest in LMS, a joint venture whose principal activity is to provide conveyancing panel management services.

8. Trade and other receivables

Group relief receivable

Prepayments

Amounts owed by Group undertakings

9. Trade and other payables

Accruals

Amounts owed to Group undertakings

156

2017
£’000

34,756

544

15,593

50,893

2017
£’000

3,527

99,531

103,058

2016
£’000

24,449

890

37,361

62,700

2016
£’000

1,087

108,327

109,414

Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2017

10. Financial liabilities

Current

Contingent consideration

Bank overdraft

Non-current

Contingent consideration

Bank loans – RCF

2017
£’000

2016
£’000

–

19,672

27,000

27,001

–

15,095

16,500

16,501

Contingent consideration
During 2017 £nil of contingent consideration was paid to third parties. During 2016, £2.8m of contingent consideration was paid to third
parties in relation to the acquisition of LMS in September 2014.

The table below shows the allocation of the contingent consideration balance between the various categories:

Remuneration

Put options over non-controlling interests

Closing balance

LMS

Opening Balance

Cash paid

Acquisition

Amounts recorded through Income Statement

Closing Balance

2017
£’000

–

2017
£’000

–

2016
£’000

–

2016
£’000

4,611

(2,825)

(1,786)

Bank loans – RCF and overdraft
The Company’s bank loan totals £27.0m (2016: £16.5m) and the Company’s overdraft totals £19.8m (2016: £15.1m). 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, Financial Solutions (including Linear Mortgage Network), Templeton LPA, Advance Mortgage Funding, Barnwoods,
Chancellors Associates and LSLi and its subsidiaries.

The utilisation of the RCF may vary each month as long as this does not exceed the maximum £100.0m facility (2016: £100.0m). The
Group’s overdraft is also secured on the same facility, and the combined overdraft and RCF cannot exceed £100.0m (2016: £100.0m). The
banking facility is repayable when funds permit on or by May 2022.

The interest rate applicable to the facility is LIBOR plus a margin rate. The margin rate is linked to the leverage ratio of the Group and the
margin rate is reviewed at six monthly intervals.

157

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverview

11. Deferred tax

Deferred tax asset at 1st January

Deferred tax credit/(charge) in profit and loss account for the year

Deferred tax credit/(charge) to other comprehensive income

Deferred tax asset at 31st December

Deferred tax liability

Deferred tax liability at 1st January

Deferred tax (charge) in profit and loss account for the year

Deferred tax (charge)/credit to other comprehensive income

Deferred tax asset/(liability) at 31st December

2017
£’000

105

(5)

112

2017
£’000

–

2016
£’000

–

105

2016
£’000

(4,350)

4,327

–

A deferred tax asset is recognised in relation to timing differences on fixed assets of £6,000 and share based payments of £106,000. A
deferred tax liability of £4,000 was recognised in respect of available for sale assets. At 2016 a deferred tax asset of £7,000 was recognised
in relation to timing differences and £98,000 in respect of share based payments. No deferred tax liability was recognised on available-for-
sale assets at 2016.

The 2015 Summer Budget announced that the headline rate of Corporation Tax in the UK would be reduced from 20% to 19% effective
from 1st April 2017 and further reduced to 18%, effective from 1st April 2020. The Budget of March 2016 announced that from 1st April
2020, the proposed corporation tax will be lowered further still to 17%. For the year ended 31st December 2017, current tax is measured at
a hybrid rate of 19.25% (2016: 20.0%).

Following the substantive enactment of Finance Bill 2016 in September 2016, the corporation tax rate of 17% was confirmed. Accordingly,
this is the rate at which deferred tax has been provided (2016: 17%).

12. Called up share capital

Authorised:

Ordinary Shares of 0.2p each

Issued and fully paid:

At 1st January and 31st December

13. Reserves

2017
Shares

£’000

2016
Shares

£’000

500,000,000

1,000 500,000,000

1,000

104,158,950

208 104,158,950

208

For a description of the reserves refer to Note 26 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 13 to the
Group Financial Statements for details of the LTIP, JSOP, CSOP, SIP/BAYE and the SAYE schemes. The effect of share-based payment
transactions on the Company’s profit for the period was a charge of £189k (2016: credit of £501k).

Fair value reserve
The fair value reserve is used to record the changes in fair value of financial assets available for sale.

158

Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2017

14. Company profit /loss for the financial year after tax

The Company has not presented its own profit and loss account as permitted by Section 408 of the Companies Act 2006. The profit after
tax for the year was £14.7m (2016: £87.0m).

Remuneration paid to Directors of the Company is disclosed in Note 13 to the Group Financial Statements.

The Company paid £184,775 (2016: £212,819) 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 the Company because Group financial statements are prepared which are required to disclose such fees on a consolidated
basis. These are disclosed in Note 10 to the Group Financial Statements.

15. Pensions costs and commitments

Total contributions to the defined contribution schemes in the year were £43,826 (2016: £40,128). There were £nil outstanding amounts in
respect of pensions as at 31st December 2017 (2016: £nil).

The Parent Company headcount at 31st December 2017 was nil (2016: nil). This is due to employment contracts being drawn up within the
subsidiaries and not within the Parent Company itself.

16. Capital commitments

The Company had no capital commitments as at 31st December 2017 (2016: none).

17. Related party transactions

During the year the transactions entered into by the Company are as follows:

Wholly owned subsidiaries

2017

2016

Non-wholly owned subsidiaries

2017

2016

Sales to
related parties
£’000

Purchases from
related parties
£’000

Amounts owed by
related parties
£’000

Amounts owed to
related parties
£’000

–

29,162

22,969

112,839

108,323

Sales to
related parties
£’000

Purchases from
related parties
£’000

Amounts owed by
related parties
£’000

Amounts owed to
related parties
£’000

–

14,392

194

–

In July 2017 Group entered into a convertible loan note and introducer agreement with Global Property Ventures of which Simon Embley is
chairman.

18. Financial instruments – risk management

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

It is the Company’s policy that trading in derivatives shall not be undertaken. The Group may, from time to time and as necessary, enter into
interest rate swaps for risk management purposes but did not hold any such swaps during either the current or prior year.

The Company is exposed through its operations to the following financial risks:

• Cash-flow interest rate risk;

• liquidity risk; and

• credit risk.

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18. Financial instruments – risk management (continued)

Policy for managing these risks is set up by the Board following recommendations from the Group Finance Director. The policy for each of
the above risks is described in more detail below.

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

The majority of external Company borrowings are variable interest based and this policy is managed centrally.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on loans and borrowings. With all other
variables held constant, the Company’s profit before tax is affected through the impact on floating rate borrowings as follows. There is no
material impact on the Company’s equity.

2017

2016

Increase/
decrease
in basis point

Effect on profit
before tax
£’000

+100

-100

+100

-100

(270)

270

(165)

165

Liquidity risk
The Company 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.

The Company monitors its risk to a shortage of funds using a recurring liquidity planning tool and daily cash-flow reporting. This includes
consideration of 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 Company’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 Company’s financial liabilities at 31st December 2017 based on contractual
undiscounted payments:

Year ended 31st December 2017

Interest bearing loans and borrowings
(including overdraft)

Trade payables

Contingent consideration

Year ended 31st December 2016

Interest bearing loans and borrowings
(including overdraft)

Trade payables

Contingent consideration

160

On demand
£’000

19,779

–

Less than
3 months
£’000

174

99,531

–

3 to 12
months
£’000

1 to 5
years
£’000

> 5 years
£’000

Total
£’000

548

27,582

–

48,083

99,531

147,615

19,779

99,705

548

27,583

On demand
£’000

15,095

–

Less than
3 months
£’000

3 to 12
months
£’000

1 to 5
years
£’000

> 5 years
£’000

Total
£’000

129

108,327

–

395

17,766

–

15,095

108,456

395

17,767

–

33,385

108,327

141,713

Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2017

18. Financial instruments – risk management (continued)

The liquidity risk of the Company entity is managed centrally by the Group Treasury Function. The Company’s cash requirement
is monitored closely. The Company has a RCF with a syndicate of major banking corporations to manage longer term borrowing
requirements.

Capital management
The primary objective of the Company’s capital management is to ensure that it maintains appropriate capital structure to support its
business objectives, including any regulatory requirements, 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 Company will strive to maintain a reasonable leverage (i.e. balance between debt and equity) to help
achieve the Company’s business objectives of growth (through acquisitions and organic growth) and dividend policy. In the short term, the
Company 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.

Credit risk
There are no significant concentrations of credit risk within the Company.

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 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 2017 are as follows:

Within 1 year
£’000

1-2 years
£’000

2-3
years
£’000

3-4
Years
£’000

Total
£’000

Fixed rate

RCF

Floating rate

RCF

–

(46,772)

The effective interest rate and the actual interest rate charged on the loans in 2017 are as follows:

RCF

Effective rate

Actual rate

4.1%

1.5%

The effective interest rate on the RCF during the year is higher than the actual rate due to commitment fees payable on undrawn amounts.

The interest rate profile of the financial assets and liabilities of the Group as at 31st December 2016 are as follows:

Fixed rate

RCF

Floating rate

RCF

Within 1 year
£’000

1-2 years
£’000

–

(31,595)

–

2-3
years
£’000

–

3-4
Years
£’000

–

Total
£’000

–

(31,595)

The effective interest rate and the actual interest rate charged on the loans in 2016 are as follows:

RCF

Effective rate

Actual rate

3.7%

1.3%

The effective interest rate on the RCF during the year was high due to commitment fees payable on undrawn amounts earlier in the year.

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18. Financial instruments – risk management (continued)

Fair values of financial assets and financial liabilities
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. There are no material differences between the book value and fair
value for any of the Company’s financial 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.

2017

Assets measured at fair value

Financial assets

Liabilities measured at fair value

Contingent consideration

2016

Liabilities measured at fair value

Contingent consideration

Deferred consideration

£’000

24,495

Level 1
£’000

Level 2
£’000

Level 3
£’000

1,529

22,966

–

£’000

–

Level 1
£’000

Level 2
£’000

Level 3
£’000

–

During 2016, the Company sold its entire holding of 11.3m ordinary shares in ZPG plc. Previously, the holding was valued on the stake held
and the share price date at the end of the period, which qualifies as a Level 1 technique.

Fair values of the Company’s interest-bearing borrowings and loans are determined by using discounted cash-flow (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 2016 was assessed to be insignificant.

19. Post Balance Sheet events

The Group are currently in the process of allocating the purchase price in accordance with IFRS 3 and as a result the initial accounting for
this acquisition is incomplete.

Extension of RCF
On 30th January 2018 announced that it extended the maturity date of its existing £100 million banking facility until May 2022; this replaces
the existing maturity date of May 2020.

162
162

Notes to the Parent Company Financial Statements continued.for the year ended 31st December 2017

Other Information

In this section
164 Definitions
169 Shareholder Information

163

Other InformationFinancial Statements Strategic ReportDirectors’ Report and Corporate Governance ReportsOverviewDefinitions

“2011 EBT” employee benefit trust established in November 2011 as part of the acquisition of Marsh & Parsons.

“Adjusted Basic Earnings Per Share” or “Adjusted Basic EPS” is defined at Note 11 to the Group Financial Statements.

“Adjusted EBITDA” is Group Underlying Operating Profit (Note 4) plus depreciation on property, plant and equipment.

“AGM” Annual General Meeting.

“Advance Mortgage Funding” Advance Mortgage Funding Limited.

“Albany” refers to Albany Insurance Company (Guernsey) Limited.

“AMI” Association of Mortgage Intermediaries.

“ARLA” or “ARLA Propertymark” Association of Residential Lettings Agents.

“ASA” Advertising Standards Authority.

“Asset Management” refers to LSL’s repossessions, asset management and property management services for multi-property landlords.

“Audit & Risk Committee” or “Audit & Risk Committee” LSL’s Audit & Risk Committee.

“Auditor Independence Policy” LSL policy relating to non-audit services provided by the external auditor.

”Barclays” Barclays Bank PLC.

“Basic Earnings Per Share” or “EPS” is defined at Note 11 to the Group Financial Statements.

“Board” the board of Directors of LSL.

“BAYE” ‘buy as you earn’ (also referred to as SIP).

“BDS” BDS Mortgage Group Limited.

“CMA” Competition and Markets Authority.

“Committees” refers to LSL’s Nominations Committee, the Audit & Risk Committee and the Remuneration Committee.

“Company” and “Parent Company” refers to LSL Property Services plc.

“Companies Act” Companies Act 2006.

“Chancellors Associates” trading name of Chancellors Associates Limited.

“Chairman” Simon Embley.

“Chairman of the Audit & Risk Committee” David Stewart.

“Chairman of the Remuneration Committee” Bill Shannon.

“CML” Council of Mortgage Lenders.

“Code” UK Code of Corporate Governance published by the Financial Reporting Council (FRC) (April 2016 edition).

“Company Secretary” Sapna B FitzGerald.

“CCAS” Consumer Codes Approval Scheme.

“CSOP” company share ownership plan.

“CSR” corporate social responsibility.

“Davis Tate” trading name of Davis Tate Limited.

“Deputy Chairman” refers to Bill Shannon.

“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.

164

“Embrace Mortgage Services” trading name of LSLi Limited.

“EPC” energy performance certificate.

“EPS” earnings per share.

“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 Committee” refers to the Executive Committee of the Group, which includes the Executive Directors.

“Executive Director(s)” refers to Ian Crabb, Adam Castleton and Helen Buck (with effect 2nd February 2017). Adrian Gill was also an
Executive Director in 2017, until 4th January 2017 when he stepped down from the Board.

“EU” European Union.

“FCA” Financial Conduct Authority.

“Financial Services” refers to LSL’s financial services (including mortgage, general insurance and pure protection brokerage services and
the operation of LSL’s 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.

“General Data Protection“ “GDPR” General Data Protection Regulations (EU) 2016/679

“Global Property Ventures” or “GPV” Global Property Ventures Limited.

“Group First” or “GFL” Group First Limited.

“Group” LSL Property Services plc and its subsidiaries.

“Group Chief Executive Officer” Ian Crabb.

“Group Chief Financial Officer” Adam Castleton.

“Group Revenue” total revenue for the LSL Group.

“Growth Shares” the C class of ordinary shares (each £0.001) in Marsh & Parsons (Holdings) Limited.

“Goodfellows” trading name of GFEA Limited.

“GPEA” trading name of GPEA Limited.

“Hawes” or “Hawes & Co” trading name of Hawes & Co Limited.

“HMRC” Her Majesty’s Revenue and Customs.

“Homefast” Homefast Property Services Limited.

“Home Report” a report which includes a single survey, energy report and property questionnaire and which must accompany all
residential property marketing in Scotland.

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“IBNR” incurred but not reported.

“IFRS” International Financial Reporting Standards.

“Insurance First Brokers” Insurance First Brokers Ltd.

“Intercounty” trading name of ICIEA Limited.

“IPO” initial public offering.

“JNP” trading name of JNP Estate Agents Limited.

“JSOP” joint share ownership plan.

“Korn Ferry” trading name of Korn Ferry Hay Group Limited.

“KPI” key performance indicators.

“Land & New Homes” trading style used by members of the Estate Agency Division.

“Lauristons” trading name of Lauristons Limited.

“Lawlors” trading name of Lawlors Property Services Limited.

“Legal Marketing Services” and “LMS” and “LMS Direct Conveyancing” and “Cybele” all refer to 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.

“Lexis Nexis” part of the RELX Group plc

“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.

“LSE” London Stock Exchange.

“LSLi” LSLi Limited and its subsidiaries (during 2017 these included JNP, Intercounty, Frosts, Goodfellows, Davis Tate, Lauristons, Lawlors,
Hawes & Co and Thomas Morris).

“LSL”, “Group” and “Parent Company” refers to LSL Property Services plc and its subsidiaries.

“LSL Corporate Client Department” trading name of LSL Corporate Client Services Limited.

“LTIP” long-term incentive plan.

“Management Team” senior management teams within the Group including the Executive Directors.

“Marsh & Parsons” trading name of Marsh & Parsons Limited.

“Mortgages First” Mortgages First Ltd.

“NAEA” or “NAEA Propertymark” National Association of Estate Agents.

“NALS” National Association of Lettings Agents.

“NBC Property Master” NBC Property Master Limited.

“NBS” or “New Bridge Street” trading name of Aon Hewitt Limited.

“Net Bank Debt” see Note 31 to the Group Financial Statements.

“Non Executive Director” refers to Kumsal Bayazit Besson, Bill Shannon, David Stewart and Simon Embley. Helen Buck was also a Non
Executive Director in 2017, until 2nd February 2017 when she was appointed Executive Director – Estate Agency.

“Notice of Meeting” the circular made available to Shareholders setting out details of the AGM.

166

“Note” refers to Notes to the Financial Statements.

“OCI” refers to other comprehensive income.

“Openwork” trading name of Openwork Limited.

“Ordinary Shares” or “Shares” 0.2p ordinary shares in LSL.

“Palmer and Harvey” trading name of Palmer & Harvey McLane Limited.

“PDMRs” Persons Discharging Managerial Responsibility as defined in Article 3(1) (25) of the Market Abuse Regulation (MAR).

“Personal Touch Financial Services” or “PTFS” trading name of Personal Touch Financial Services Limited.

“Personal Touch Administration Services” or “PTAS” trading name of Personal Touch Administrations Services Limited.

“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 previous trading names for Advance Mortgage Funding Limited and BDS Mortgage Group Limited.

“PRIMIS Mortgage Network” or “PRIMIS” a trading name of Advance Mortgage Funding Limited and First Complete Limited.

“RCF” revolving credit facility.

“Reeds Exhibitions” part of the RELX Group plc.

“Reeds Rains” trading name of Reeds Rains Limited.

“Reeds Rains Financial Services” trading name of Reeds Rains Financial Services Limited.

“Registered Office” Newcastle House, Albany Court, Newcastle Business Park, Newcastle upon Tyne, NE4 7YB.

“Report” LSL’s Annual Report and Accounts 2017.

“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” Bill Shannon.

“Shareholders” shareholders of LSL.

“SIP” share incentive plan (also referred to as BAYE).

“St Trinity Asset Management” trading name of St Trinity Limited.

“Surveying Division” or “Surveying” includes LSL’s Surveying and Valuation Services 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 Complete Limited’s mortgage club.

“TM Group” TM Group Limited.

“TPO” The Property Ombudsman.

“Trust” or “Employee Benefit Trust” LSL Property Services plc Employee Benefit Trust.

“Trustees” Link Market Services Trustees Limited.

“TSI” Trading Standards Institute.

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“TSR” total shareholder return.

“Underlying Operating Margin” operating profit before exceptional costs, contingent consideration, amortisation and share-based
payments shown 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 Limited.

“Yopa” Yopa Property Limited

“Your Move” trading name of your-move.co.uk Limited.

“Zero Deposit Scheme” or “ZDS” trading names of Global Property Ventures Limited.

168

Shareholder Information

Company details
LSL Property Services plc
Registered in England (Company Number 5114014)
LEI Number 213800T4VM5VR3C7S706

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

Company Secretary’s Office
2nd Floor, Gateway 2,
Holgate Park Drive
York
YO26 4GB
Telephone: 01904 698852

Share listing
LSL Property Services plc 0.2p Ordinary Shares are listed on the London Stock Exchange under ISIN GB00BIG5HX72

Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham, Kent
BR3 4TU
Telephone: 0871 664 0300

Calls cost 12p per minute plus your phone company’s access charge. Calls outside the UK will be charged at the applicable international
rate. Lines are open between 9.00 am to 5.30 pm, Monday to Friday excluding public holidays in England and Wales.

Website: www.linksharedeal.com
Email: shareholder.enquiries@linkgroup.co.uk

If you move, please do not forget to let the registrar know your new address.

Provisional calendar of events
Preliminary results released
AGM proxy form deadline
AGM

6th March 2018
3.30 pm 24th April 2018
3.30 pm 26th April 2018

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 Link Asset Services (details above).

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Shareholder Notes

170